FED RATE CUT COULD FUEL MARKET SURGE

GIFT Nifty:

The GIFT Nifty September futures contract is up 128 points, suggesting a strong start for the Nifty 50.

Fed Cuts Rates for the First Time in Years, Signaling Policy Shift:

The US Federal Reserve made a significant policy shift on Wednesday, reducing interest rates by 50 basis points. This marks the first rate cut in over four years, signaling a potential easing of the restrictive monetary policy implemented to combat inflation. The Federal Open Market Committee (FOMC) justified the decision, citing progress in curbing inflation and a shifting balance of risks. The rate cut is expected to lower borrowing costs for consumers and businesses, stimulating spending and investment.

While the 50-basis point cut was at the higher end of market expectations, analysts anticipate further rate reductions in the coming months. The Fed hinted at two more 25-basis point cuts this year, but market sentiment suggests more aggressive easing could be on the horizon. Despite the optimism surrounding rate cuts, Federal Reserve Chair Jerome Powell tempered expectations. He emphasized that the central bank does not intend to return to the era of ultra-low interest rates seen during the COVID-19 pandemic. Powell indicated that the Fed`s neutral rate is likely to be higher than in the past, suggesting a less accommodative monetary policy stance going forward.

The Fed`s rate cut will have global repercussions, particularly in emerging markets like India. Lower interest rates in the US can influence capital flows and exchange rates, affecting these economies` financial conditions.

Institutional Inflows:

Foreign portfolio investors (FPIs) bought shares worth Rs 1,153.69 crore, while domestic institutional investors (DIIs) were net buyers to the tune of Rs 152.31 crore in the Indian equity market on 18 September 2024, provisional data showed.

FPIs have bought shares worth over Rs 17631.53 crore in September 2024 (so far). They sold shares worth 21,368.51 crore in August 2024.

Global Markets:

Dow Jones Futures were up 202 points, indicating a strong opening in the US stock market today.

Asian stocks surged on Thursday, buoyed by the Federal Reserve`s unexpected 50-basis point interest rate cut. Japanese shares climbed as the yen weakened ahead of the Bank of Japan`s policy meeting on Friday. The Bank of England is also scheduled to announce its monetary policy decision later in the week.

While the Fed`s rate cut provided a boost to regional markets, gains were tempered by the weak overnight performance on Wall Street. The outsized cut raised concerns about potential economic slowdown, leading to some cautious trading.

In China, investors await the central bank`s decision on the benchmark loan prime rate on Friday. Analysts generally expect no changes, given Beijing`s conservative approach to stimulus measures.

US stock market closed with modest losses and the dollar strengthened on Wednesday following the Fed`s rate cut. The S&P 500 declined by 0.29%, falling slightly below its all-time high. The Dow Jones Industrial Average and Nasdaq Composite also experienced minor losses. Trading in Tupperware Brands remained suspended after the company filed for Chapter 11 bankruptcy protection, sending its stock plummeting.

US retail sales, unadjusted for inflation, increased 0.1% in August after an upwardly revised 1.1% gain, pointing to healthy consumer demand that continues to underpin the economy. Excluding autos and gasoline stations, sales advanced for a fourth month.

Domestic Market:

The domestic equity market ended with minor losses on Wednesday as investors eagerly anticipated the US Federal Reserve`s interest rate decision. The benchmark Nifty 50 index closed below the 25,400 level, snapping a two-day winning streak. IT, pharma and energy stocks weighed down the market, while financial services and private banks shares witnessed buying interest. The S&P BSE Sensex declined 131.43 points or 0.16% to 82,948.23. The Nifty 50 index fell 41 points or 0.16% to 25,377.55.

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