The stock market and government bonds are likely to have a strong start on Monday. This comes after a decrease in US Treasury yields following Federal Reserve (Fed) Chair Jerome Powell’s suggestion that it might be time to lower interest rates.
Powell Hints at Rate Cut: Stocks and Bonds Set to Soar!
Dealers are also hopeful that the Indian rupee will gain strength against the dollar on Monday.
The yield on the benchmark 10-year US Treasury bond dropped by 7 basis points (bps) to 3.79% after Powell’s remarks. On Friday, as Indian markets closed, it was at 3.86%.
Powell did not mention exactly how much the US Federal Reserve could cut its key rate. However, most experts are predicting a 25-bp reduction in September.
Expectations From Powell’s Statement
“The time has come for policy to adjust,” said Powell on Friday at the Fed’s annual retreat in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Financial experts believe that although the equity markets have already factored in a 25-bp rate cut for September, there’s still room for stock gains between 0.5% and 1% thanks to Powell’s clear indications of starting a rate cut cycle. US markets closed more than 1% higher on Friday because of Powell’s comments.
Impact on Government Bonds
The yield on the benchmark 10-year government bond in India is expected to open roughly 4 bps lower on Monday, having closed at 6.86% on Friday.
“The market will open on a positive note; we might see the yield fall by 3-4 bps,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. “We’ll also need to see when the Reserve Bank of India (RBI) initiates rate cuts. Until we get clarity, yields might reverse,” he added.
So far this financial year (2024-25), the benchmark yield has fallen by 19 bps, while it has risen by 31 bps this calendar year. In August, the yield has softened by 6 bps.
Stock Market Rally
The benchmark National Stock Exchange Nifty and S&P BSE Sensex have rallied over 3.5% from this month’s lows, driven largely by a global market rebound. Initial fears of a US recession, which were set off by early August US unemployment data, seem to be fading.
Last Friday, the Sensex and Nifty closed at 81,086 and 24,823, respectively. Both indices are currently below their record highs of 82,129 and 25,031, which were achieved on August 1.
“Market participants will respond positively to the dovish remarks by the US Fed Chair. Additionally, a weakening dollar and falling crude oil prices are positive for our markets. Domestically, investors will also keep an eye on economic data releases, including gross domestic product figures and infrastructure output,” said Ajit Mishra, senior vice-president of research at Religare Broking.
Potential Effects on the Rupee
Foreign exchange traders expect the rupee to open at around 83.85 against the dollar, compared to its closing rate of 83.9 per dollar on Friday.
“The rupee should open around 83.85 per dollar, but this also depends on RBI intervention,” said Amit Pabari, managing director at CR Forex. “The rupee has been the worst-performing Asian currency so far. We’ll need to see on Monday morning whether the RBI intervenes. If they do, the rupee might continue within the current range,” he added.
This financial year, the rupee has depreciated by 0.6%, and by 0.8% this calendar year. In August, the local currency has depreciated by 0.2%.
As markets prepare to open on Monday, investors are keeping a close eye on these latest developments to see how they will impact both domestic and global markets.
