Sensex, Nifty surge to defy tense global equities ahead of Fed
Equity benchmarks rose on Tuesday to extend gains for the second straight day, recovering all of the losses from a deep sell-off on Friday, even as investors remained jittery ahead of the Federal Reserve meeting this week.
The 30-share BSE Sensex index rose 78.51 points to settle at 59,719.74, and the broader NSE Nifty-50 index jumped nearly 1 per cent, or 194 points, to 17,816.25 on Tuesday.
While the Sensex index briefly surpassed the 60,000 points mark on Tuesday, it fell back to close below that level.
Global stocks were muted in anticipation of significant interest rate increases from major central banks to control inflation.
Traders prepared for yet another massive US rate increase amid growing concern that the Federal Reserve would tighten too much and increase the likelihood of a recession.
“The Federal Reserve is likely tightening policy straight into the teeth of a recession,” Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence, wrote in an email to Bloomberg.
“The stock market’s addiction to Fed easing when stocks decline may be what Jerome Powell is aiming to quash by aggressively hiking rates, in addition to inflation.”
Sweden set the tone early in the week, ahead of its American, Swiss, and British counterparts, with Asian and European stock exchanges posting minor gains thanks to Monday’s late rally on Wall Street.
The MSCI all-country stock index rose 0.2 per cent, bringing its loss from a record high in January to around 20 per cent. The S&P 500 futures edged up 0.22 per cent.
The central bank of Sweden increased interest rates by a full percentage point on Tuesday, which was higher than anticipated. Along with the Bank of England, the Fed is predicted to raise rates when its two-day meeting concludes.
“Tighter monetary policy around the world will increase the headwinds for risk assets – after all, central bankers are deliberately trying to slow aggregate demand,” ING bank told Reuters.
Luca Paolini, a Chief Strategist at Pictet Asset Management, said the US central bank would likely ease the pace of hikes next year.
“The market, in a way, is probably expecting a peak in rates,” Luca Paolini told Reuters, adding that market focus would then switch to how higher rates were affecting economies and company earnings.
“We haven’t seen it yet fully, I believe, as a significant downgrade in earnings which I think will come. The downside for bonds is limited,” Mr Paolini said.
He added that inverted yield curves or long-term interest rates below short-term rates were also a red flag historically to buying shares.
The two-year Treasury yield was fast approaching 4 per cent, after climbing to a fresh almost 15-year high of 3.970 per cent, reported Reuters.
