Dollar index is on up trend again
In recent times, the US currency has also strengthened as expectations for additional rate increases have grown. As investors were uneasy, the dollar index rose to a new five-week high of 108.26 on Monday. Rupee also declined to levels of 79.86 per Dollar.
US bond yield is 10 yr high
For the first time in a month, the yield on the US 10-year bond touched the 3% level. On July 21st, the US yield last surpassed 3%. When yields trend higher bonds being backed by the sovereign government become more attractive and hence there is an exodus of funds from emerging market equities to bonds.
Muted Asian Indications
Investor sentiment was also negatively impacted by muted Asian indications. While investors wait for the annual Fed meeting in Jackson Hole, Wyoming, for rate guidance, Asian stocks were mixed after China cut an interest rate that affects mortgage lending, according to AP. Last week, minutes from the US central bank’s July board meeting confirmed plans for more increases despite signs of weaker economic activity.
Mr Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd. on market has said, “The weakness in the Indian market continued for the second consecutive day amidst concern over Fed’s commitment to hike policy rates aggressively. Nifty opened down and continued to drift lower throughout the session to finally end near days’ low at 17493 with loss of 265 points (-1.5%). Broader market too reeled under pressure with midcap100/smallcap100 down 2%/1.6% respectively. All the sectors ended in red with metals and Realty falling more than 2%. India ViX gained 4% to 19 level.”
He added, “Global markets were weak as dollar index strengthen over hawkish statements made by US Fed Chairman. On the other hand, China’s property market continued to be in trouble, which forced China to cut policy rates yet again.”
He furtehr added, “Nifty witnessing profit booking on account of concerns over interest rate hike and weakening Indian rupee which could dampen demand as we step into festive season. Nifty fell close to 3% in 2 consecutive days and closed below 17,500 mark. It is taking a pause after the sharp rally of the last eight weeks. Technically the major support for Nifty is currently at 17350 and 17250 zones. In the absence of any domestic trigger, focus has again shifted back to global cues. Even valuations are not supportive at the current levels. Markets are thus likely to consolidate in the near term, till the risk reward turns favourable.”