Domestic markets faced turbulence last week as Indian stock indices gave up weekly gains on Friday following a surge in US inflation, hurling away hopes of an imminent rate cut by the US Federal Reserve. Meanwhile, government bond yields surged to a six-month high on Friday in response to the US Consumer Price Index inflation rising by 0.4⁒ for March. It's anticipated that the Reserve Bank of India may hold off on slashing interest rates until the US central bank acts. Investors will keep a close watch this week on crude oil prices and rising geopolitical tensions after the assassination of a senior official at the Iranian embassy in Damascus last week prompted growing concerns that Iran may retaliate by attacking Israel directly.

Domestic Markets Last Week

• Indian stock indices gave up weekly gains on Friday as US rate cut prospects were dashed after a rise in March inflation data. Pharma stocks slumped 1.94⁒ for the week, hurt by Sun Pharma's 4.29⁒ drop after the US drug regulator ruling on the Dadra facility. Metal shares gained for the week. On Friday, Financial and IT firm stocks pulled benchmark indexes down.
• Government bond yields rose to a six-month high on Friday after the US CPI inflation rose 0.4⁒ for March but ended flat for the week. Investors expect that the US inflation rise will stop the US Fed from cutting its interest rates sooner. They predicted that the Reserve Bank of India may slash interest rates only after the US central bank takes a rate cut action this year.
• The rupee fell against the dollar on Friday and reported a weekly drop. The dollar soared to its highest level in nearly five months, while state-run banks' dollar sales limited losses. The dollar index rose 0.5⁒ to 105.85, its highest level since mid-November, on predictions that the US Fed would hold higher interest rates for longer.

Global Markets Last Week

• US stock indexes fell on Friday, led by banks, after JP Morgan and Wells Fargo reported their net interest income lower than expected. All three major indices had a weekly loss owing to higher US inflation data, changing Federal Reserve policy expectations, and geopolitical worries. The S&P 500's weekly percentage drop was the most since January, while the Dow Jones Industrial Average was the sharpest since March 2023.
• Treasury yields rose on Friday as investors lowered their Federal Reserve rate cut forecasts after higher-than-expected inflation data last week and geopolitical concerns drove buying of safe-haven bonds. Boston Fed President Susan Collins said she expects that the US Fed might lower rates twice this year amid expectations that it could take some time to get inflation back to the 2⁒ target.
• The US dollar Friday rose to its highest level since November as demand for safe-haven picked up amid Middle East geopolitical uncertainty. After a senior official in Iran's Damascus embassy was killed a week ago, Israel awaited a strike by Iran or its agents.

Corporate Bonds

Secondary Market

Yields were up by 5 to 7 basis points across tenures last week, tracking yield rise in government bonds and US treasuries after US CPI inflation rose for March. Few mutual funds traded actively for shorter tenure papers in the secondary market.

Outlook For This Week

This week, domestic shares will be focused on the quarterly results of major IT companies. The market is expected to remain range-bound. Following the ease in CPI inflation for March in India at 4.85⁒, government bonds are expected to open unchanged on Monday. The swings in crude oil prices will determine the direction of bond markets.

In Other news

• Iran launches a retaliatory attack on Israel with hundreds of drones and missiles.
• Quantum MF asks ICICI Bank to stall ICICI Sec delisting over irregularities.
• March retail inflation eases to a 10-month low of 4.85⁒; IIP grows 5.7⁒ in Feb.
• India's foreign exchange reserves hit a peak of $648.56 billion.
• Moody's Analytics projects India's economy to expand by 6.1⁒ in 2024.
• Election season may hit govt capital expenditure spending and FDI inflows.
• RBI rejects two applications for small finance banks under extant guidelines.
• US: China is boosting Russia's war machine in Ukraine.
• EC against Modi-Gates chat broadcast.
• TCS reports dip in Q4 hiring, full-year attrition cools.