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As US markets closed on a positive note on Tuesday night, trading screens across Asia-Pacific markets flashed green on Wednesday. The driving force is favourable economic data, particularly receding inflation that has been a bugbear of policymakers.
Coming ahead of the US Federal Reserve’s policy meet (with the decision to be announced late tonight local time), the lower-than-expected consumer price index (CPI) of 7.1 per cent for November is good news. It supports the belief that past rate hikes have helped tame inflation. And, in a recent media interview, US Treasury Secretary Janet Yellen forecast a substantial reduction in US inflation in 2023, barring an unexpected shock.This raises hopes of a reduction in the pace of monetary tightening. Markets expect a 50 basis points (bps) rate hike, lower than the earlier 75 bps hikes. The Street will also pay attention to the comments from Fed chair Jay Powell to gauge if the Fed's stance is changing, preferably to a more dovish note.
Meanwhile, Indian equities have been in celebratory mood as the rise in inflation at 5.9 per cent in November was sharply lower than 6.9 per cent in October and the lowest since December 2021.
The pertinent question is whether the optimism from taming inflation will soon turn into pessimism if growth slows down. Blame it on changing dynamics of geopolitics or simply the Russia-Ukraine war or COVID, that world economies slowing is certain. Gross domestic product (GDP) growth forecasts are being lowered across the board by international agencies such as the International Monetary Fund and World Bank. As for the US, fears of recession still loom.
Therefore, the spotlight today will be on the US Fed, the rate hike and importantly, the direction it sets for the year 2023. The rest of the week too will be action packed with announcements due from the European Central Bank and the Bank of England.
As market veterans forecast, anything below the expected 50 bps hike by Fed will cheer markets. In this context, our columnist Ajay Bagga, makes some interesting observations in this article- Investing when good news is bad news for the markets.
Investing insights from our research team
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Godrej Consumer Products: Building blocks for the longer term
EIH: Should one bet on this hotel stock?
Tracker
Economic Recovery Tracker | Consumer sentiment declines, active workforce goes up
What else are we reading?
Has demonetisation brought RBI and the government closer?
India’s PLI scheme can spur industrial growth, but what about jobs?
Time to untangle regulatory knots for directors’ remuneration
End of ‘fantasy’ stock market brings relief and pressure for short sellers (republished from the FT)
GST Council must act on pending decisions at its Saturday meeting
Gujarat | In Cabinet formation, BJP rewards traditional support base, new vote blocs
Airport Mayhem | Jet Airways’ CEO’s quick fix to reduce queues, congestions
Football | Why we love FIFA World Cup even when we aren’t supposed to
Technical Picks: Jindal Saw, HPCL, Birla Corporation, Crude oil and Canara Bank (These are published every trading day before markets open and can be read on the app).
Vatsala KamatMoneycontrol Pro