MUMBAI: In a recent speech, the Federal Reserve Chair signaled a likely pause in the rate hike cycle as the central bank assesses inflation and growth dynamics. However, the Fed Chair left room open for further rate hikes amidst tightness in the labor market and above-trend growth. This announcement came on the heels of data showing US jobless claims fell to a 9-month low at 198,000.
Meanwhile, tensions in the Middle East escalated, raising the possibility of more countries getting embroiled in the conflict. Core inflation in Japan eased to a near 12-month low of 2.8% from 3.1% in Aug’23 but stayed firmly above BoJ’s 2% target. GfK’s consumer confidence index for the UK fell to a 3-month low in Oct’23 at -30, amidst elevated inflation in the region.
In India, the Reserve Bank of India (RBI) highlighted in its monthly bulletin that growth is likely to benefit from festive spending and inflation is expected to moderate further in the coming months.
Global stocks ended in the red tracking developments in the Middle East and comments from the Fed Chair. Amongst major markets, stocks in Asia declined the most led by Hang Seng and Nikkei. In India, Sensex fell by 0.4%, led by a fall in metal and oil and gas stocks.
Most global currencies appreciated against the dollar, with DXY falling by 0.3% as the probability of further rate hikes by the Fed this year diminished after the Fed Chair’s speech. EUR edged up the most by 0.4%, while INR recovered even as oil prices inched up.
Oil prices rose further as investors assessed the developments in the Middle East.
Overall, the sell-off in the global bond market continued, with US 10Y yield rising the most by 7bps after the Fed Chair’s speech. While investors expect the Fed to remain on hold in Nov’23, the possibility of elevated rates for a longer period has increased substantially.
In terms of capital market flows, FII, and mutual fund data showed mixed trends.
