WEEKLY MARKET ROUND-UP

Indian markets are done and dusted with the monetary policy of the Reserve Bank of India and all eyes are now on the one from the US Federal Reserve.

The MPC dashed all hope of an early pivot to rate cuts in India.

It left the repo rate untouched at 6.5 percent as expected. But contrary to expectations it also left its stance of "withdrawal of accommodation" also untouched, signaling that rate cuts are not on the table at this point in time.

"Let me re-emphasize that headline inflation still remains above the target and being within the tolerance band is not enough. Our goal is to achieve the target of 4 percent going forward. As Mahatma Gandhi had said "The ideal must not be lowered." The continuation of the stance of withdrawal of accommodation should be seen from this perspective," Governor Das said in a separate read-out statement.

The markets are now mixed as to when the RBI could cut rates. A majority now expect rate cuts in February. Some said April would be a better bet.

But all eyes are now on the Fed. Some officials had guided that the central bank can afford to skip a rate hike week. But all that now depends on US inflation for May due for release on Jun 13, a day ahead of the FOMC decision.

Fed may have to go back on its guidance if inflation surprises on the upside.

A key data point released last week, which showed higher jobless claims, strengthened hopes of a pause in rate hikes.

Indian inflation too will be eyed this week, but it will be of low consequence ahead of the Fed meeting.

Domestic Markets Last Week:

Stocks held on to the gains for the week despite two straight sessions of losses on Thursday and Friday. Markets were consolidating after a sharp rise in the past few sessions. After taking the MPC statement in its stride on Thursday, the market turned edgy on account of the RBI's stance on Friday. Next week is heavy with central banking action. Fed, ECB, and BoJ announce their decisions. Inflation data will be released in the US and in India.

Government bond yields rose by close to 5 basis points during the week. After a muted initial reaction, traders felt the central bank dashed any hopes of rate cuts this year. It dawned on many, after Friday's auction result, that large bond supplies have to be absorbed by the market with limited or no RBI support in the form of liquidity infusion or rate cuts.

Rupee rose on Friday against the US dollar tracking its other counterparts in Asia but closed the week lower. The dollar gave up some of its earlier gains after US jobless claims data strengthened the case for the Fed to skip a rate hike next week. The rupee moved in a narrow range on most days last week.

Global Markets Last Week:

Stocks managed to notch up weekly gains, the fourth one in a row, even as traders said the market has pulled itself out of a bear grip. The Nasdaq Composite had its longest streak of weekly gains since 2019. Tesla continued to rise. It was helped by General Motors' assertion that it would produce electric vehicles with Tesla charge ports. Chip makers, too, continued to rise.

Bond yields rose on Friday. The two-year hit a 3-month high, rising 8.5 basis points on Friday. The 10-year rose by 3 bps. Traders expect the Fed to skip a rate hike next week, but talk up its hawkish stance. The surprise rate hike by Canada rattled the markets here.

The dollar rebounded from a 2-week low. The market expects the Fed to stay hawkish even if it opts to pause its rate-hiking campaign next week. The Fed is expected to signal a rate hike in July. The market also awaits inflation data which is expected to stay well above the Fed's target.

Corporate Bonds

Secondary Market

After RBI policy, 10-year bond yields jumped 3-4 basis points. The Repo Rate pause kept shorter-term bond yields steady. Fresh supplies in primary market slowed trade in the secondary market.

Outlook For This Week

Markets in India and across the globe will wait for the Fed's decision and its statement that would offer cues to its thinking about future actions. If US inflation surprises on the upside, the Fed, which guided the market for a skip in rate hikes, will have to increase yet again. Markets have been on tenterhooks after surprise rate hikes by Canada and Australia.

India's inflation will fall to a 20-month low of 4.4 percent as per a Informist Poll. But Fed, more than the RBI, is dictating terms even in India.

In Other news

• Nageswaran says FY23 GDP growth of 7.2 percent likely to be revised higher.
• Impact of kharif MSP hike on inflation seen limited, say economists.
• Net inflows into open-ended equity MF schemes fall to 5-mo low in May.
• FCI food grain stocks down 10 percent on year at 57.6 mln tn as of Jun 1.
• Govt to soon clarify on overseas credit card tax issue, says official.
• SBI board OKs raising up to 500 bln rupees via debt in FY24.
• First-year premium of life insurers down 4.1 percent YoY in May.
• Bank deposits up 20 bps at 10.2 percent in FY23 as term deposits rise.
• May CPI inflation seen at 20-month low of 4.4 percent.
• UBS finalises $10 bln deal with Swiss government over Credit Suisse losses.
• Tesla jumps as GM deal makes its charging network closer to US standard.
• JPMorgan chief Jamie Dimon to be deposed again in Epstein lawsuits.
• Erdogan names Erkan to head Turkey central bank, policy pivot expected.
• El Nino conditions present, may strengthen in winter, says global body.
• France strong-arms big food companies into cutting prices.
• Canada's May unemployment rate rises for first time in nine months to 5.2 percent.