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Markets Today: Will US Fed announce a tapering despite weak GDP numbers?

Will Fed chair Jerome Powell pull start reducing monetary supply even though GDP numbers for the September quarter were weak and inflation remains sticky?

US Fed | US Federal Reserve | Jerome Powell

Nikita Vashisht & Puneet Wadhwa  |  New Delhi 

The will announce the outcome of its two-day monetary policy meeting later today. Fed chair is expected to approve plans for scaling back its current $120-billion in monthly bond purchases. And this could be the first step away from the core policies put in place in early 2020 to battle the economic fallout from the Covid-19 pandemic. According to Jan Lambregts, managing director and global head of financial research at Rabobank International, the Federal Reserve is expected to announce the start of tapering at its November meeting, where the central bank could announce a fixed monthly taper schedule that would reduce net asset purchases by $10 billion Treasuries and $5 billion agency mortgage-backed-securities. He also anticipates the Fed to stress on accumulated progress in the labour market and the transitory nature of supply side bottlenecks. But, given that the pace of price hikes has remained higher for longer than expected along with the United States' economy growing at a slower pace in the September quarter, market watchers are expecting a rate hike not before the second half of 2022. According to the CME Group's FedWatch tool, a widely tracked derivatives marketplace in the US, trading in federal funds futures contracts indicates a greater than 65% probability that the Fed would raise rates in June, with a second increase expected in November. A month ago, rates market indicators signalled less than 20% likelihood of a rate hike as early as June and a comparably negligible probability for two hikes next year. G Chokkalingam, founder and chief investment officer at Equinomics Research, says a rate hike would happen only in the second half of 2022 calendar year.

He cites as the reason the weak GDP numbers in the September quarter. “Central banks are concerned about Fed and others would adopt phased-exit route from a liberal policy. They may reduce bond purchases by 5-10% every month. There will be no major impact on markets,” he adds. Given this, global cues will hold importance in today's trading session. Back home, Dalal Street could see lean volumes on the bourses today as market participants would want to keep their positions light ahead of the outcome and Muhurat Trading session due tomorrow. Among stock-specific triggers, corporate earnings of State Bank of India, Bata India, and Eicher Motors, along with 39 other companies, will remain in focus today. According to analysts, SBI's Q2 profit may nearly double on a yearly basis to Rs 9,263.3 crore on the back of healthy net interest margins, recovery from DHFL, and lower loan provisioning. The lender's net interest income, however, is seen rising between 0.6 per cent and 4.6 per cent year-on-year, to up to Rs 29,309 crore. That apart, Services PMI data and IPOs of Policybazaar, SJS Enterprises and Sigachi Industries will also be on investor radar today.

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First Published: Wed, November 03 2021. 08:00 IST