Last week was heavy, with stock indices in India and the US reaching record highs. The markets were powered by cooling inflation and the Federal Reserve holding interest rates last week after 15 months of hikes.

The markets initially made light of the Fed’s resolve to hike rates again this year to cool inflation. But comments from Federal Reserve Officials Tom Barkin and Christopher Waller reinforced the Fed’s resolve late Friday.

It remains to be seen if more Fed officials join in next week with hawkish assessments.

Interestingly, the rupee rose past the 82/$1 mark.

Indian Markets Last Week:

Major stock indices reached all-time highs Friday and the indices closed higher for the fourth week in a row. Economic data in the US showed inflation was slowing, fuelling anticipation that the Fed may cease its rate-hiking campaign. After Morgan Stanley's optimistic assessment that private banks are in a favourable position since their asset quality has normalized, shares of banking and financial services companies soared.

Yields were stable for the week in the absence of significant domestic events. They generally followed the US treasury market. Since Friday afternoon, the market has appeared disappointed by weaker-than-expected demand at the weekly auction of bonds, and traders have begun to question if the demand from insurance firms, which has been strong for the past two months, will sustain and pressure up the long-term bonds. The range of 7.00-7.05% seen during trading may prevail over the next few weeks.

Rupee rose past the 82/$1 threshold on Friday because of the dollar's overall weakness after the US central bank left interest rates unchanged and inflation showed signs of moderating. Strong corporate dollar inflows also assisted the rupee. Once the rupee reached 82, importers rushed in to purchase dollars, preventing a further rise.

Global Markets Last Week:

The Fed's decision to halt rate hikes this week boosted the stock market throughout the week. On Thursday, the stock indices reached their all-time highs for 2023 due to moderating inflation and steady economic development. Friday, however, stocks declined, headed by tech giants, as two Fed officials signaled, they may support additional rate hikes as core inflation remained elevated. There were worries that the market had been oversold.

Yields increased for the week, with the 2-year yield staying near its 3-month highs after Fed officials Barkin and Waller advocated for additional rate increases to reduce core inflation on Friday. After the initial euphoria of the Fed's statement, the market began to question whether the Fed could raise rates again after halting this month. The yields have increased for the second consecutive week.

During the week, the dollar declined, but on Friday, it regained ground. The dollar index declined as ECB raised interest rates this week while the Fed did not. The European Central Bank is expected to raise rates again in the next round, despite traders' doubt that the Federal Reserve will be able to raise rates as planned.

Corporate Bonds

Secondary Market

Yields were steady during the week, unmoved by inflation and Fed’s decision. PDs and insurance companies were on the selling side, while banks and mutual funds bought bonds.

Outlook For This Week

Next week, stocks may continue rising, albeit with mild corrections. Buoyancy in global markets will continue to aid the domestic market. Government bond yields could rise slightly as US yields rose. Trade is likely to be choppy and yields in a narrow band. The rupee will likely fall below 82/$1 mark.

In Other news

Key Events This Week

• June 20: Fed Bullard Speech.
• June 21: Powell presents Monetary Policy Report to US House Financial
• Services Committee.
• June 22: RBI to release minutes of Monetary Policy Committee's
• meeting held on Jun 6-8.
• June 22: Unemployment Insurance Weekly Claims Report - Initial Claims.
• June 22: US Jobless Claims.
• June 22: EIA Weekly Natural Gas Storage Report.
• June 22: EIA Weekly Petroleum Status Report.
• June 22: Existing Home Sales.
• Jun 30: Balance of payments for Jan-Mar, by RBI.
• Jun 30: CPI for Industrial Workers for May, by Labour Bureau.
• Jun 30: Core sector output for May, by Office of the Economic Adviser.
• Jun 30: Government finances for May, by CGA