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Global Markets: Dust settles on stocks surge, OPEC+ talks supply cuts

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World stocks clung to two-week highs on Wednesday, although another aggressive rate increase from New Zealand tempered the idea that central banks may be close to slowing down the pace of rapid monetary tightening.

Oil prices inched higher before a meeting of OPEC+ producers to discuss a big cut in crude output, after gaining more than 3% in the previous session.

The S&P 500 index posted its biggest single-day rally in two years on Tuesday after softer U.S. economic data and a smaller-than-expected interest rate hike from Australia stirred hope for less aggressive tightening by the Federal Reserve.

Yields on 10-year U.S. Treasuries, which move inversely to prices, are down 12 basis points this week, as hopes for a slowdown in rapid Fed tightening took hold.

But a more cautious tone surfaced on Wednesday, with a sharp rate rise in New Zealand dampening hopes for a pause or slowdown in aggressive hikes from other major central banks.

“There is a growing sense that the market may have got ahead of itself in thinking that inflation has peaked and central banks will start to dial back on their hawkish stances,” said Stuart Cole, Head Macro Economist at Equiti Capital.

“Until we see material falls in CPI I think central banks will remain in hawkish mode and willing to accept a moderation in growth – ie mild recession – if that is the price to pay to get the inflation genie back in the bottle,” he added.

Also Read: Global Markets: Stocks, bonds rally as investors spy possible central bank ‘pivot’; pound

European shares fell, sending the region’s STOXX 600 index down 0.9% by 1114 GMT after a 5% rally in the previous three sessions. S&P 500 futures fell by 0.8%.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 2.4%, catching up with the strong gains seen on Wall Street during the previous session.

That left MSCI’s World Stock Index up around 0.1%, having touched its highest level in around two weeks earlier in the session.

WAITING FOR OPEC+Investors closely awaited a crucial supply decision from OPEC+ due later on Wednesday, which could have global implications for already high energy prices and inflation.

After making strong gains the previous day, U.S. crude rose 0.6% to $87.08 a barrel and Brent crude gained 0.7% firmer at $92.43 per barrel.

OPEC+, which includes Russia and Saudi Arabia, could cut between 1 and 2 million barrels a day, according to a Reuters report.

U.S. Treasury yields headed back higher and the dollar steadied, having suffered its heaviest setback in more than two years on Tuesday. The yield on benchmark 10-year Treasuries , were 6.6 basis points higher at 3.6828%.

The dollar was 0.2% firmer at 144.4 yen, while the euro was around 0.7% softer at $0.9920, having gained 1.7% on Tuesday in its biggest one-day percentage gain since March.

“Despite European assets rebounding quite sharply, it’s hard to point to any material change in the eurozone’s outlook that would warrant a significant return of market appetite for the euro just yet,” said ING currency strategist Francesco Pesole.

Elsewhere, spot gold traded at around $1,709 per ounce, down about 1%.

Rupee likely to depreciate on strong dollar, elevated crude prices; USDINR pair to trade in this range

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The Indian Rupee is likely to depreciate to 80 in coming sessions amid strength in dollar, volatility in equity markets, US Fed rate hike and inflation concerns. Rupee has fallen 6.51% against the US dollar so far in 2022. In comparison, Australian dollar has declined 7.5%, Pakistani rupee fell 23.77%, and Japanese Yen slipped 19.79% against the greenback YTD. On Tuesday, Chief Economic Advisor V Anantha Nageswaran had said that India is not defending rupee, and that the Reserve Bank of India is taking necessary steps to ensure that the movement of the rupee is gradual and in line with market trends. Rupee is being managed in a manner that reflects the fundamentals of the economy, he added.

Dilip Parmar, Research Analyst, HDFC Securities

Also Read: Share Market LIVE: Nifty, Sensex stare at positive start; Tamilnad Mercantile shares to debut on bourses today

“The pair is trading within the range of 79.90 to 79.10 with rising volatility indicating consolidation before a directional trend. The confidence in positioning coming back from foreign institutions as the accelerated buying in the domestic equities after the worst sell-off in the last couple of months. The 5-day moving average of net foreign inflows increased to $289.4 million, rising above the 20-day average of $269.2 million, according to data from the Central Depository Services (India) Ltd.”

Anuj Choudhary – Research Analyst, Sharekhan by BNP Paribas

“Indian rupee depreciated by 0.38% yesterday on strong US Dollar and deteriorating global risk sentiments. US Dollar surged as US CPI rose unexpectedly to 8.3% y-o-y in August compared to expectations of 8.1% while core CPI increased to 6.3% y-o-y in August compared to expectations of 6.1%. This raised expectations of yet another aggressive rate hike by FOMC in its September meeting. Apart from increased odds of a 75 bps rate hike, there are talks of even a 100 bps rate hike.”

“We expect Rupee to trade with a negative bias amid risk aversion in global market worries that the US Federal Reserve may be more hawkish than previously expected. Investors may also take cues from PPI data from US today. However, India’s WPI inflation eased to a 11-month low of 12.41% in August which may support Rupee at lower levels. USDINR spot price is expected to trade in a range of Rs 78.80 to Rs 80 in next couple of sessions.”

Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities

“USDINR spot closed 79.44, up 30 paise, due to strong rally in US Dollar Index and sell-off in equities. However, RBI intervention and FPI flows may have capped the advance beyond 79.60. The sharp drop in the forward premium could be a sign of RBI selling in forwards. Post US CPI, odds of a 100-bps hike next week has increased. These odds can keep USDINR supported till Fed meeting. We expect a range of 79.20 and 79.80 on spot.”

Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors

“USDINR to open flat at 79.50 as the dollar index is at 109.72 US 10-year yields at 3.42 oil is $ 94 per barrel. Asian currencies are still on the weaker side against $ which will not allow the rupee to gain much against the dollar. The range for the day is expected between 79.30 to 79.80 as the market braces in for a 75 bps rate hike by FED on 21st. India’s trade deficit was higher though export figures were also revised to slightly higher. Trade deficit still remains a matter of concern for the country. Exporters to sell above 79.80 while importers to buy below 79.30.”

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