Last week witnessed a complex interplay of financial movements across both domestic and global markets. As the fifth consecutive week of losses weighed down domestic stocks, driven by apprehensions over inflation and concerns over liquidity following the Reserve Bank of India's policy meeting minutes, investors found themselves poised for a week of heightened volatility.

Meanwhile, the global landscape showcased a different narrative, as US stocks rebounded during the latter part of the week. The prospect of higher interest rates proposed by the US Fed Chair Powell initially roiled the markets, yet they managed to regain footing and close on a positive trajectory.

Powell's commitment to a prudent approach to rate hikes, despite acknowledging the need for containment of inflation, offered a mixed message that investors are anticipated to dissect further in the week ahead.

Amidst these intricacies, the upcoming week is poised to deliver further market dynamics driven by central banks' actions, investor sentiments, and economic resilience.

Indian Markets Last Week:

Stocks closed lower on Friday, extending losses for the fifth week in a row, dragged down by banks and IT companies following the RBI policy meeting minutes, which highlighted near-term inflation risks driven by food prices and a liquidity overhang in the banking system. Investors avoided major positions as they waited for US Fed Chair Powell’s speech later on Friday.

Yields on government bonds ended almost unchanged on Friday but fell one basis point for the week after climbing for four weeks in a row ahead of Federal Reserve Chair Jerome Powell's address on Friday.

Rupee ended a three-day surge weaker on Friday, but it had its best week in a month and a half because of the RBI’s attempt to restrict arbitrage transactions between onshore and offshore markets.

Global Markets Last Week:

US stocks finished higher on Friday after a tumultuous afternoon as investors digested comments from Federal Reserve Chair Jerome Powell that the US central bank may need to boost interest rates further to keep inflation under control. The S&P 500 and Nasdaq both finished the week higher, with the Nasdaq climbing nearly 2.3% and snapping a three-week losing run.

US Treasury yields jumped on Friday after Federal Reserve Chair Jerome Powell suggested the Fed may need to hike interest rates further to keep inflation at the 2% objective established by policymakers. Powell stated that inflation remained too high and that the Fed is willing to maintain tight monetary policy until policymakers are confident that the rate of rising prices is on a sustainable path "towards our objective."

US dollar kept firm on Friday, on track to end the week strongly, as Federal Reserve Chair Jerome Powell indicated the central bank may need to hike interest rates further to ensure inflation is contained but vowed to proceed "carefully" at upcoming meetings. The US dollar index, up 0.6% for the week, was on track for its sixth consecutive week of gains, buoyed by signs of economic resiliency in the United States, which has bolstered the case for interest rates being higher for longer.

Corporate Bonds

Secondary Market

Yields dropped by 4 basis points across tenures as investors waited on the sidelines in the secondary market and lapped up the massive supply of bonds that was made available in the primary market the last week. Few public sector banks and insurance companies were on the buying side. Market participants avoided trading big volumes as they looked for fresh cues on US Central Bank’s stance on interest rates.

Outlook For This Week

Equities, bonds, and currency markets will react sharply Monday after Federal Reserve Chair Powell mentioned at an annual gathering of global central bankers on Friday that the US Fed is prepared to raise interest rates further to curtail rising inflation.

Domestic stock markets will take cues from the global markets which is expected to be gloomy this week as investors exercise prudence amid escalating concerns about the global economy and rising bond yields. Foreign portfolio investors and domestic institutional investors will be actively watched by market participants.

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