Have you been tracking the markets lately? If so, the recent developments may have left you questioning the stability of global equities and currencies. Let’s explain what’s happening and why the US Federal Reserve’s latest decision has triggered such significant market movements.
The Nifty50 Under Pressure
The Indian equity benchmark, the Nifty 50, has been reeling under pressure, with a three-day losing streak that saw it shed 550 points. On Wednesday, it nearly breached last Friday’s low of 24,190, signaling a growing bearish sentiment. Adding to the tension, today marks the weekly options expiry for Nifty 50 contracts, further amplifying market volatility.
Gift Nifty Indicates a Worrying Opening
As of 7:15 AM, the Gift Nifty, which indicates how the Indian equity markets may open, was down by 320 points. This points to a gap-down start for both the Nifty 50 and Sensex. By the time trading commenced, the Gift Nifty was trading 340 points lower, or 1.4% below yesterday’s close. Within the first 10 minutes of trade, Nifty fell 290 points, bringing it below the 24,000 mark and even breaching 23,900 at one point.
Indian Markets Feel the Heat
The opening bell on Thursday painted a harsh picture for Indian markets. At 9:15 AM, the Sensex was down 717.57 points, or 0.89%, to 79,464.63, and the Nifty fell 217.10 points, or 0.90%, to 23,981.75. This marked a continuation of the bearish trend, with all sectors trading in the red.
The Gift Nifty’s sharp decline signals that Indian equities are not immune to these global headwinds. Over the last three sessions, Indian markets have lost nearly 600 points due to profit booking and caution ahead of the Fed’s decision. Thursday’s sharp drop added to these woes as sectors across the board faced selling pressure.
Sectors like IT, Auto, and Banking bore the brunt of the selling pressure, with indices such as Nifty IT, Nifty Auto, and Bank Nifty falling by up to 2%. IT stocks, in particular, witnessed sharp selling as investors rushed to offload their holdings, reflecting diminished hopes of further rate cuts. This capped the tailwinds for the export-oriented services sector.
Notable losers on the Nifty 50 included Wipro, Hindalco, and Infosys, which dragged the index down.
Source: Money Control
Wall Street’s Longest Losing Streak Since 1974
This grim start to the trading day follows a sharp sell-off on Wall Street, where the Dow Jones Industrial Average recorded its 10th consecutive day of losses. The Dow plunged nearly 1,100 points or 2.5%, marking its longest losing streak in 50 years. The S&P 500 and Nasdaq Composite weren’t spared either, falling by 3% and 3.3%, respectively.
The Trigger: US Federal Reserve’s Rate Cut
The US Federal Reserve announced a 25 basis point (bps) interest rate cut, bringing the target range to 4.25-4.5%. While the rate cut was widely anticipated, the Fed’s updated projections caused a stir. The Fed now expects just two instead of the four rate cuts forecasted for 2025 in its September projections. Fed Chair Jerome Powell emphasized this cautious outlook on future rate cuts and reiterated the central bank’s commitment to taming inflation.
Global Market Fallout
The Fed’s cautious tone triggered a widespread sell-off across asset classes:
- Gold: Prices fell to a one-month low.
- Bitcoin: The cryptocurrency saw a sharp decline.
- US Treasury Yields: The 10-year yield climbed back above 4.5%, while the two-year yield rose 10 bps to 4.35%.
- US Dollar: The dollar index surged past 108%, hitting its highest level since November 2022.
Dollar Surges To 2-Year Highs
The U.S. dollar emerged as the day’s clear winner, with the dollar index (DXY), followed by the Invesco DB USD Index Bullish Fund ETF (NYSE: UUP), climbing 1.2% to reach its highest level since November 2022. The dollar’s strength further pressured gold and Bitcoin, leading to notable declines in both asset classes.
Source: Yahoo! Finance
US Sectoral Stocks Plunge Across the Board
All major U.S. equity sectors finished in the red, reflecting the broad-based impact of the Fed’s cautious stance:
- Consumer Discretionary: Plunged 4.5%, leading to declines as rising rates weighed heavily on growth-oriented industries.
- Real Estate: Dropped 4%, struggling under the pressure of higher interest rates.
- Technology: Fell 3.2%, with chipmakers and software companies bearing the brunt of the selloff.
- Communications and Materials: Both declined 2.9%, showing vulnerability across cyclical sectors.
- Financials: Dropped 3%, reflecting broader economic concerns.
- Even traditionally defensive sectors couldn’t escape the selloff: Utilities and Consumer Staples fell 2.4% and 1.5%, respectively.
Yen Weakens Further as Bank of Japan Stays Steady
The Japanese yen weakened past the key level of 155 against the dollar after the Bank of Japan maintained its current interest rate policy. The currency slid from 0.4% to 155.44, a level not seen since November. This followed a 0.9% decline on Wednesday after the Fed’s cautious stance on future rate cuts dampened rate hike bets.
The yen’s weakness has been prolonged, marked by a six-day losing streak through Monday—the longest since June. Analysts believe the yen may continue to face significant volatility, with levels like 160/USD likely unless the Bank of Japan signals a shift toward policy normalization.
Source: Yahoo! Finance
Volatility index VIX Soars
The fear gauge India VIX spiked 2.5% to 14.74, highlighting heightened uncertainty in the domestic market. Even in the US, investor anxiety spiked, as reflected by the CBOE Volatility Index (VIX), also known as Wall Street’s fear gauge. The VIX skyrocketed 58% to 25, signaling heightened uncertainty about the future trajectory of interest rates.
What Lies Ahead?
With global and domestic pressures mounting, the immediate future for Indian markets remains uncertain. Key questions linger over whether support will emerge at lower levels and if technical setups can provide some relief. Additionally, upcoming events like the RBI’s monetary policy meeting and the Union Budget could be critical in shaping market sentiment.
Conclusion
The Fed’s cautious approach, rising market uncertainty, and negative global trends have created tough conditions for investors. As Nifty and Sensex face more potential losses, the focus is on key support levels and how traders handle this challenging phase. Understanding these factors can clarify the current situation and what to expect next.
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
