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How Indian stock markets may react on Monday after Fed chief comments spark selloff

The US Federal Reserve has been campaigning aggressively to raise interest rates, and Chairman Jerome Powell’s speech at the Jackson Hole meeting of global monetary policymakers made it clear that its fight against inflation is not over, raising Wall Street’s hopes that the Fed could soon ease into the ground. at high interest rates.

US indices plunged after Powell said the Fed will likely need to keep interest rates high enough to slow the economy for some time in its attempt to tame inflation. Analysts say the weak global signals could mean a temporary interruption to the rally in the Indian stock market.

Nifty began a correction last week after six consecutive weeks of gains and this correction could continue into the coming week as the US market has seen a sharp sell-off following aggressive comments from Fed Chair Jerome Powell. The direction of global markets will be the dominant factor this week, while on the domestic front, Indian GDP data and auto sales in August will be key factors. Beyond this, the market will also monitor movements in crude oil prices, the dollar index and US bond yields,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.

The trading week ahead is expected to be packed with activity, including India’s GDP growth rate and S&P Global Manufacturing PMI, the start of new M&O series of auto sales in September and August.

“Powell’s statements were more or less what the market expected. After the initial jerky decline in US equity markets and a rise in yields, the movement reversed slightly, stabilizing markets and returns. We believe this makes incoming US economic data all the more important for charting the future course of the US Fed,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities.

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The only new insight that emerged from this speech was the Fed’s acceptance that economic growth could be compromised over inflation, said Aishvarya Dadheech, fund manager of Ambit Asset Management.

“Nevertheless, the market already anticipated this hike and did not expect a reversal in their policy normalization stance anytime soon. After the Fed move, the RBI will most likely make another rate hike at their next MPC meeting, before settling for the economic impact. The Indian market has largely discounted this increase by the RBI and the Fed. What’s more important now than rate hikes is winding down the bloated balance sheets of central banks,” Dadheech added.

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