Right after the landslide win of Donald Trump-led Republicans in the US, Jerome Powel’s (Chief of Fed) announcement of a fed rate cut of 25 basis points in the US Fed meeting came as a boon for Wall Street. In the two-day-long FOMC meeting, where it was unanimously decided to cut the Fed rate by 25 bps as expected by Wall Street, the market rejoiced with the broad market indices touching new highs. The current fed rate is within the bracket of 4.5% to 4.75%.
Factors Behind the Rate Cut and Outlook
The primary factors behind this latest US fed rate cut are –
- Inflation in the US is declining and inching towards the FED’s target of 2%.
- The job market has widened and labour market conditions have eased
In the past four years, this is the second rate cut after the earlier 50 bps and the US Fed policy makers anticiaptes another interest rate cut by the end of the year and that could be by 50 bps. In 2025, the fed rate is expected to be down by another 100 bps or one full percentage point which can bring down the fed rate in the range of 2.75% to 3%.
Indian Stock Market Reaction
Both Sensex and Nifty 50, the broad market equity indices are down today though marginally. Both the indices are down by around 0.20% compared to yesterday’s level. While the India market rallied over 1% as the US election results were announced a day back, today the market became sluggish following the rate cut decision by Fed.
The reason is pretty simple and that is market is worried about losing our foreign investments. As equity market is expected boom in the US with the back to back rate cuts, the curbing inflation, the investments will rise and thus FIIs will fly back to the West.
However, the decline in the Indian market today is very nominal which shows the faith of the domestic investors in the market as well as FIIs, and FPIs as India has better prospects that other emerging market currently, and in the reign of Trump for next four years, India is expected to be least affected by his America-first policies.
Asian Market Reaction
Asian markets as a whole seems to be rejoicing the Fed rate cut as Japan’s Nikkei 225 gained 0.74%, Topix gained 0.49%, South Korea’s Kospi gained 1%, Hong Kong’s Hang Seng index future gained during the opening. Even Hong Kong Monetary Authority (HKMA) cut 25 basis point of its interest rate following the Fed rate cut.
US Markets
Wall Street undoubtedly had the best Fed day ever in the history and the broad market indices skyrocketed after Jerom Powel’s announcement of rate cut. The stocks touched new highs and the commodities and bonds even took part in the rally. S&P 500 and Nasdaq touched fresh highs on Thursday post the US Fed meeting. However, Dow Jones was flat at the end of the day but the tech-rich Nasdaq Composite index jumped around 1.5% as companies like Meta, Microsoft wholeheartedly welcomed the move by Fed and that too right after the US election results.
Wrapping up
Since the Fed rate cut was expected by the markets around the world, it made nominal movement in the market and India’s negative market movement post this rate cut is justified as well. However, it is all about time that how things turn around in the long run as currently the markets are soaking in the US election results 2024 and the fed rate cut news.
Source: Livemint
______________________________________________________________________________________
Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.