Page 32 - Us Fed News Today

Asian currencies trading weaker after dollar gains as traders await US non farm payrolls to confirm whether the labor market is softening

The RBI MPC unanimously decided to keep the repo rate unchanged at 6.5 per cent for the fourth consecutive time. The policy stance has also been left unchanged, with a focus on withdrawal of accommodation. The MPC is adopting a cautious approach and monitoring the consequences of previous rate hikes before making further decisions. The US Federal Reserves battle against inflation and the global economic landscape pose challenges for Indias economy.

The current losses in long-maturity debt more than double the next biggest slump in 1981, when then Fed Chair Paul Volckers campaign to break the back of inflation drove 10-year yields to almost 16%. It also surpassed the 39% average loss in seven US equity bear markets since 1970, including last years 25% slump in the S&P 500 when the Fed started to lift rates from near zero.

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The Asian demand has cooled-off in the past two months and non-OPEC supply has picked up, so we expect some macro influence to weigh on the prices in the coming quarter.

The Reserve Bank of Indias (RBI) Monetary Policy Committee (MPC) is expected to keep the repo rate unchanged at 6.5% at its upcoming meeting. The RBI will be in a wait-and-watch mode to assess the impact of previous rate hikes before making any decisions. Indias economic growth forecast of 6.3% by the World Bank is slightly lower than the RBIs estimate of 6.5%.

The Federal Reserve’s quantitative tightening is one of the factors pushing long-term rates higher.

The strength of wage growth, asset price inflation, and the lingering impact of the post-Covid dole-outs have kept household demand above potential, thereby sustaining the high inflation. Additionally, the federal government fiscal expansion, rising 61% YoY to $1.52 trillion (Oct22-Aug23, projected at $1.9 trillion in FY24), is creating another round of demand impulses.

We now have bearish global sentiment, sustained selling by foreign funds and more shares flooding the system. Can the bulls weather this storm?