Markets in India and the US had a good run last week after expectations grew that the US Federal Reserve and other central banks around the world may be done with their interest rate hikes.

In fact, hopes are that the US Fed will start to cut interest rates from the middle of 2024.

This follows softer-than-expected U.S. inflation data on Oct. 14 and a rise in non-farm payrolls.

Oil prices tumbled last Thursday as investors worried about demand due to an economic slowdown. The benchmark Brent crude contract hit $76.60 per barrel, its lowest level in four months. They recovered after analysts said OPEC+ would ensure that prices would hover in the $80-to-100/bbl range.

Indian Markets Last Week:

Stocks ended higher for the third straight week in a row. IT companies led the gains amidst expectations that central banks across the globe, particularly the US, would pivot to interest rate cuts. The weekly gains were the most in almost 2 months. The fall in global oil prices also boosted the market sentiment. But on Friday, stocks closed lower, led by banking stocks due to RBI's decision to clamp down on consumer loans.

Yields ended sharply down for the week due to a fall in US yields and in oil prices. Expectations are that the rise in US jobless claims would deter the Fed from raising interest rates. Also, expectations are that the Fed could start cutting interest rates from the middle of next year. The 10-year yield ended 8 basis points lower for the week, the biggest weekly decline since early May.

The rupee was largely unchanged from the week but slightly down on Friday due to a rise in the US dollar globally. Asian currencies rose due to a fall in US yields, but India bucked the trend amidst strong demand for the greenback from Indian companies.

Global Markets Last Week:

US stocks inched up, led by retail companies, last week after comments from Federal Reserve officials made it harder to tell when the US central bank might start lowering interest rates. Michael Barr, Vice Chair for Supervision, said he thinks the Federal Reserve is at or near the top of interest rate hikes. However, Mary Daly, head of the San Francisco Fed, and Susan Collins, president of the Boston Fed, said they need more proof that inflation is going down.

Treasury yields on two-year rose slightly Friday but recorded the biggest weekly drop since September, while 10-year treasuries rates fell to a two-month low. Yields eased by 60 basis points from its October peak after economic data showed inflation dropping, raising market hopes that the Federal Reserve is done raising rates.

The US dollar weakened against major currencies, with the USD index down 0.44⁒ on Friday, despite a small uptick in front-end US Treasury yields. Longer-end yields eased after softer-than-expected US CPI, and dollar selling had increased as Fed rate expectations have fallen faster than other major central banks' views of easing.

Corporate Bonds

Secondary Market

Yields eased by 6 basis points for tenure up to 5-year bonds last week, tracking a fall in government bond yields. Yields eased more after demand from banks picked up for corporate bonds and mutual funds traded actively at the shorter end of the curve.

Outlook For This Week

Stocks will likely fall as the RBI's decision to increase the risk weights on consumer loans could continue to weigh on banking stocks. Government bond yields could ease, but profit sales could limit the fall. Fear of open market operations could deter heavy purchases in the secondary market. The rupee is likely to be steady in the 83-8.30/$1 range.

In Other News

• India seeks to restart stalled Adani coal imports probe
• PM Modi says new challenges emerging from situation in Western Asia
• 9 states surpass the national average with a higher inflation rate
• India raises concerns over potential carbon taxes in UK FTA talks.
• Wheat sowing picks up pace in India; mustard harvest nears its end.
• Global woes pull net FDI down 77⁒ in H1, shows data.
• Banks set to increase interest rates on unsecured loans and NBFCs.
• India's forex reserves drop $462 million to $590.321 billion: RBI.
• Drilling to rescue 40 men trapped in Indian tunnel halted after snag, cracking sound.
• Citi plans management reshuffle, layoffs on Monday.
• OpenAI fires CEO Sam Altman.
• Cyclone Midhili: Rain engulfs India's northeast as storm set to hit Bangladesh.