Markets look toward US Fed

The markets in all probability will continue to remain under pressure as the investors will be on two minds on whether the United States Federal Reserve will up the September interest rates. There is also the possibility of the Fed pushing it by few months. Janet Yellen, the most closely watched person at the moment, has said at the Jackson Hole meeting that there was a good case for raising the interest rates. She did not, however, provide any timeline.

Up in interest rates

According to Yellen, in case the Federal Reserve took the decision to raise the interest rates, it will be gradual. Stanley Fischer, the vice-chairman of the Federal Reserve, was more upfront when he mentioned the possibility of a September release. Yellen’s comments saw American stocks to sacrifice gains and end lower. In contrast, there were an increase in the US Treasury yields. Asian stock markets may possibly open lower there was an increase in the bets on a hike in September.

The tightening of US interest rates would possibly result in reversing the foreign money flow to India. The Foreign Institutional Investors or FIIs are the traditional equity buyers in India from July. They have injected almost $3 billion into the Indian economy. The inflow of foreign cash, however, slowed down during the preparation to the yearly meeting of all US policymakers at the Jackson Hole, Wyoming meeting. This happened during the appreciation of the dollar vis-a-vis major world currencies. An increase in bets of the earlier than expected hike will most probably weigh much more on the markets.

Less hike probability

In the opinion of UR Bhat of Dalton India, a September hike has less than 50 percent probability. There  is a chance of a hike to occur in December. For India, this could be a little negative. However, as the markets have enough time to analyze this information, the simple possibility of such a big outflow is low in India.  Similar views have been echoed by Mihor Vora of Max Life. He said that the statements made by Yellen has reiterated the belief of the Fed that the American economy is on the path to a more stable growth and low rate of unemployment. The country will also move closer to the two percent inflation target. This leads to the possibility of a tax hike increase. Indian equities at present, after their big hike in July, are now at a consolidation phase.

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