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Markets snap week-long losing streak

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In a relief rally, Indian equities snapped their seven-day losing streak on Friday as the central bank commentary indicated that the India’s economy was on a strong footing despite global headwinds.

The Sensex ended at 57,427, up 1,017 points or 1.8%, while the Nifty 50 settled at 17,094, up 1.6%, gaining the most in a month.

The indices, however, extended losses over the week, logging the third consecutive week of declines.

FPIs have turned net sellers in September, after two consecutive months of buying in July and August. The investors have sold shares worth $0.9 billion in the month, taking the year-to-date sales to $22.3 billion, data shows.

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“What lifted the market sentiment was the RBI’s policy rate hike of 50 bps that came in as expected and its comment that India’s economy remains on strong footing despite global headwinds. The relief rally was backed by investors’ preference for growth-driving stocks from banking, automobile, realty & metal space. However, global macro factors will continue to dictate the domestic market sentiment going ahead as any fresh spell of negative news could once again trigger the downward spiral,” said Amol Athawale, deputy vice-president – Technical Research, Kotak Securities.

The RBI raised the repo rate by 50 basis points on Friday in line with market expectations.

“The RBI indicated more rate hikes are in store. Another 25-35 bps is likely in this remaining part of CY22 and will depend on the Fed outcome and evolving global situation. The comforting thing from this MPC meeting is no change in the inflation target of 6.7% (FY23) and a minor tweak in the growth rate from 7.2% to 7% for FY23,” said Aishvarya Dadheech, fund manager, Ambit Asset Management.

Shares in the Asia-Pacific ended mixed on Friday, with the Nikkei 225 sliding the most at 1.8%, following another sell-off on Wall Street overnight. European stocks were trading higher on Friday as government bond yields pulled back from recent peaks, but higher-than-expected inflation continued to weigh on markets.

The UK economy grew in the second quarter, with GDP rising 0.2%, a surprise improvement on the previous estimate of a fall of 0.1%. Euro zone inflation hit a new record high of 10% in September, up from 9.1% in August and above consensus projections of 9.7%.

“Recession talk will invite hopes of a Fed pivot at a time when the American central bank is still in the process of trying to regain its inflation fighting credibility. Still, it will take time for the labour market to weaken, which is why the best hope of a quicker-than-expected Fed change of language is a major financial accident in terms of bodies surfacing, and the risk of that is rising by the day,” said Christopher Wood, global head of equity strategy at Jefferies.

“Nifty formed an engulfing bull pattern on daily charts while forming a bullish hammer pattern on weekly charts despite a 1.35% weekly fall. This could portend an upside bounce in the coming week with 17,292 and 17,540 being the upside targets,” said Deepak Jasani, head of retail research at HDFC Securities.

Global Markets: European stocks set for weekly loss as global economic outlook worsens

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European stocks fell on Friday and Wall Street was set to open lower as investors braced for a U.S. rate hike next week amid more warning signs pointing to a global economic slowdown.

The World Bank’s chief economist said on Thursday he was worried about a period of low growth and high inflation in the global economy. The International Monetary Fund said downside risks continue to dominate the economic outlook but it was too early to say if there will be a widespread global recession.

The downbeat tone continued during Asian trading, with data showing that China’s property sector had contracted further last month.

In the UK, retail sales fell more than expected, in another sign that the economy is sliding into recession as the cost-of-living crisis squeezes households’ disposable spending.

At 1032 GMT, the MSCI world equity index, which tracks shares in 47 countries, was down 0.4% on the day and set for its fourth consecutive day of losses.

Europe’s STOXX 600 was down 1%, set for a weekly decline of 2.3%. London’s FTSE 100 was up 0.2% and Germany’s DAX was down 1.5%.

Also Read: Sensex crashes 2% as bears run riot, 17450 in Nifty would be key level; check support, resistance levels

Wall Street futures were down, with S&P 500 e-minis trading near two-month lows.

“We’re now seeing data confirm that the economy is indeed slowing down,” said Axel Rudolph, market analyst at IG Group.

“I expect stocks to head back down to below their March lows. If you are in an environment where you have central banks that aggressively raise rates, historically this has always led to bear markets.”

Markets were pricing in a 75% chance of a 75-basis-point rate hike and a 25% chance of 100 bps when the Fed meets next Wednesday. The Bank of Japan and Bank of England also meet next week.

Joachim Fels, managing director and global economic advisor at PIMCO, said in a note that although he expects a “relatively shallow” recession, “it is unlikely to be followed by a V-shaped recovery because sticky inflation will prevent central banks from easing policy in a meaningful way anytime soon.”

The U.S. dollar index was up 0.1% at 109.95, still hovering near a 20-year high, and a touch lower against the yen at 143.23.

The yen could hurtle towards three-decade lows before the year-end, according to market analysts and fund managers.

The dollar’s strength pushed China’s offshore yuan past the 7-per-dollar level for the first time in nearly two years.The pound weakened to a new 37-year low against the U.S. dollar.

The euro was a touch lower at $0.9976. Germany’s two-year bond yields hit a fresh 11-year high after the European Central Bank vice president said an economic slowdown in the euro zone would not be enough to control inflation and the bank will have to keep raising interest rates.

Germany’s benchmark 10-year bond was up 6 bps on the day at 1.787% – having touched its highest since mid-June in early trading.

Oil prices edged higher, but were on track for a weekly drop amid fears of a reduction in demand.