PremiumIndian markets irise on Wednesday, tracking gains in Wall Street as investors cheered a significant cooling in US inflation data. Bets are now on a dovish approach from US Federal Reserve which is set to announce December policy outcomes later in the day. A smaller size rate hike by Fed could lead to a Santa rally in the global market sooner than expected.
US inflation cooled down to 7.1% in November -- better than estimates of 7.3%. There has been consistency in a slowdown in inflation print for the fifth consecutive month. Also, the November figure is the lowest since December last year. In October, inflation data was at 7.7%.
As per the U.S. Bureau of Labor Statistics, in inflation data for November, the index for shelter was by far the largest contributor to the monthly all-items increase, more than offsetting decreases in energy indexes.
Further, in November, the food index climbed 0.5% with the food at home index also rising 0.5%. However, the energy index dipped by 1.6% due to a drop in gasoline, natural gas, and electricity.
Post inflation data, Apurva Sheth, Head of Markets Perspective & Research, Samco Securities said, "The US CPI (YoY) (Nov) actual number has come at around 7.1% which is lower than the consensus estimate of 7.3%. It is also below the previous reading of 7.7%. Markets are heaving a sigh of relief as this brings us closer to the actual Fed pivot of interest rates. Fed Chief had told that he might go slow on hiking rates. This might soon become a reality now. The Dow Jones Industrial Average is up by 528 points while the SGX Nifty is also by more than 150 points. We expect that this can fuel an early Santa Claus rally in the US and global equity markets."
Tracking Wall Street's performance, Asian stocks on Wednesday eased as investors expect a smaller size rate hike from Fed. Japan, South Korea, and Australia shares jumped by less than 1%, while volatility was seen in Hong Kong and mainland China shares. US equity futures inched higher and treasury yields were slightly changed after their previous day's rally.
The cryptocurrency market also witnessed a gaining momentum as the valuation rose by 2.90% to trade at $872.64 billion. Bitcoin and Ethereum skyrocketed by around 4% each.
Back at home, Sensex surged more than 200 points and is performing near the day's high. The 30-scrip benchmark is above 62,745. While Nifty 50 rose above 18,670 levels. A broad-based buying was seen in domestic equities.
Investors await FOMC's policy outcomes which will be announced later on Wednesday. To tame multi-decadal high inflation, Fed has raised the key rate by 75 bps aggressively for the past three policies.
For the December policy, Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS said, "We expect the US Fed to increase the benchmark rate by 50bps this week. Any hike lower than 50bps will be taken as positive for risk assets like EM equities, including Indian equities. Even with a 50bps hike, if the Fed Chairman comments that future action of the Fed will be data dependent, then the market will take it positively. But, if he mentions that inflation remains a major risk and the labor market remains tight, with a possibility of a second round impact on inflation from the tight labor market, then the markets might react negatively."
On Tuesday, the Dow Jones Industrial Average surged over 100 points to end at 34,108.64, while S&P climbed nearly a percent and the tech-heavy index Nasdaq Composite outperformed with more than 1% gains.
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