Jerome Powell, Chairman of the US Federal Reserve, confirmed that interest rate cuts would begin soon. In his remarks at the annual economic symposium in Jackson Hole, Wyoming, Powell emphasised the need to cut interest rates. He highlighted the rising risks to the job market and the importance of reaching the Fed's 2% inflation target. This explicit endorsement of an imminent policy easing reflects the urgency of the situation.
Top 3 Leads Today
- India approves assured pension scheme for federal government employees.
- India's forex reserves rise to $674.66 billion as of Aug 16.
- Goldman Sachs Group cuts India's 2024 and 2025 GDP growth forecasts.
Market Recap: The Week That Was
- Money Markets Minute: The call money rate fell below the RBI's Standing Deposit Facility rate of 6.25% last week due to excess liquidity in the banking system. The one-day call rate jumped in the middle of the week due to the outflow of goods and services tax payments.
- Government Bond Brief: Yields climbed slightly on Friday, but they ended the week modestly lower. Traders reduced their holdings ahead of US Fed Chair Powell's speech on Friday, while the secondary market remained quiet after taking up new supply during the weekly auction. The yield on 10-year benchmark paper fell to 6.86% on Friday, down from 6.87% the previous week.
- Corporate Bond Beat: Corporate bond rates remained steady last week as investors stayed on the sidelines due to a lack of new triggers and sluggish trade. The 10-year corporate bond yield has stayed constant at 7.41-7.42% during the last six trading sessions. Only a few insurance companies were seen buying corporate bonds, while mutual funds were selling them.
- Forex Flash: The rupee ended the day at 83.89 against the U.S. dollar, slightly up from its previous close of 83.9525. The currency rose modestly week on week. The rupee rose on Friday, matching most Asian currencies, as investors awaited Federal Reserve Chair Jerome Powell's comments, which were likely to shape market expectations for rate cuts in the world's largest economy.
- Stocks Spotlight: On Friday, Indian shares surged for a seventh straight session, their longest run this year. However, caution set in ahead of Federal Reserve Chair Jerome Powell's speech, which is expected to signal a U.S. rate reduction. Rising US rate cut bets and persistent domestic inflows have lifted the Nifty 50 and Sensex by 3% in the past seven sessions.
Trading Trends
Most actively traded Corporate bonds in the Standard Lot Market:
| ISIN | Security Name | Volume (Cr) | Avg. Yield(%) |
|---|---|---|---|
| INE261F08EJ7 | 7.64 NABARD 06DEC29 | 5125 | 7.51 |
| INE047A08182 | 6.99 GRASIMIND 04APR31 | 3000 | 7.5 |
| INE134E08KH0 | 7.42 PFCL 19NOV24 | 2151 | 7.27 |
| INE092A08071 | 7.81 TATA CHEMICALS LTD 20AUG2027 | 950 | 7.81 |
| INE0KUG08043 | 7.36 NBFID 12AUG44 | 888 | 7.35 |
Most actively traded Corporate bonds in the Odd Lot Market:
| ISIN | Security Name | Volume (Cr) | Avg. Yield(%) |
|---|---|---|---|
| INE918K07PJ0 | 9.85 NUVAMAWEALTH 09AUG27 | 20 | 9.47 |
| INE756I08256 | 8.40 HDB 22DEC33 | 18 | 8.31 |
| INE572J07737 | 10.50 SPANDANA 14APR27 | 17 | 11.21 |
| INE0OOQ07213 | 15.00 TRUCREDITS 28JUL25 | 16 | 15.42 |
| INE018E08367 | 8.25 SBICARDS 08AUG34 | 16 | 8.19 |
Traded volume in corporate bonds by maturity:
| Maturity | Volume(in Cr) |
|---|---|
| 1Y | 7617 |
| 3Y | 7099 |
| 5Y | 9655 |
| 7Y | 3255 |
| 10Y | 4121 |
Source: Harmoney data analytics
The Week Ahead
- Money Markets: Due to the demand for funds from banks in the early trading hours, the one-day call money rate may open around the RBI’s repo rate of 6.50% on Monday. However, the call rate is expected to fall and may trade between 6.20-6.60% at the start of the week.
- Government Bonds: Yields will likely decline on Monday, reflecting the drop in US bond yields after US Federal Reserve Chair Powell hinted that the central bank may begin decreasing its key interest rate shortly. Investors will also keenly track crude oil prices. The 10-year benchmark yield is expected to trade between 6.82% and 6.90%.
- Corporate Bonds: This week, domestic government bonds may influence secondary market corporate bond yields. On Monday, yields in the secondary market may fall slightly due to expectations that the Fed will begin reducing interest rates soon. Trade activity in the secondary market is expected to be muted due to a slew of issuances in the primary market this week.
- Forex: The rupee may strengthen against the dollar this week, hoping that the Fed will cut rates at its September meeting after Fed Chair Powell pointed to rising job market risks and the importance of reaching the Fed's 2% inflation target. The rupee will likely move between 83.75 and 84.00 per dollar this week.
- Stocks: Domestic markets may open higher on Monday, mirroring the gain in US and global shares last week after Powell’s speech on Friday. On Monday, market players will follow US durable goods order data for July. Investors will also keep a close eye on second quarter India’s GDP and infrastructure output data for July on August 30.
Events This Week
August 26, Monday:
- US Advance report on durable goods for July.
August 27, Tuesday:
- US Quarterly house price index for Q2.
- US Monthly house price index for June.
- US Consumer confidence index for August.
August 28, Wednesday:
- US Metropolitan area employment and unemployment for July.
August 29, Thursday:
- US 2nd estimate GDP for Q2.
- US Unemployment insurance weekly claims report for Aug 24 week.
- US Weekly export sales.
August 30, Friday:
- US Personal income and outlays for July.
- US Agricultural prices for July.
- India Federal fiscal deficit for July.
- India FX reserves Aug 19 week.
- India GDP quarterly for Q2.
- India Infrastructure output for July.
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