Indian stocks trade under pressure at the stock witness sell-off right after a gap up opening on Friday, the 17th December 2021. The alerted investors seem to be booking their profits in the long rally after the rise in Omicron cases are being reported. All Asian shares trade under pressure.
The flagship index of the National Stock Exchange, Nifty, opened at 17267. After making a high of about 17292, the prices started to take a plunge pushing the index down near its major support of 17000. A similar drill was noticed in the Bombay Stock Exchange’s Sensex that opened at 58021 and started coming down right from the first minute. Until 11 AM on 17th December 2021, Sensex had made a low of 57122.
Let us look at various factors that are keeping the Asian markets under pressure.
The dollar struggled for traction after a slew of Federal Bank meetings, which highlighted the risks posed by rising inflation. The US dollar weakened against most major currencies on Wednesday after the Federal Reserve said it would start to reduce its bond purchases later this year and raise rates next year.
The yield on the 10-year Treasury notes was at 1.4275%, which is lower than its recent range. The two-year yield was at 0.6330%, which is also lower than its recent highs.
Impact of US Federal Reserve Meeting
The Federal Reserve’s decision to raise interest rates was the central bank’s main event of the week. Other central bank officials also took a more hawkish turn. There are still competing dynamics at present, with the Fed’s tougher rhetoric and concerns about inflation weighing on the economy.
Since the Fed’s more hawkish statement has been priced in, yields would typically rise in anticipation of the central bank’s tightening cycle.
Recently, the UK reported the highest number of Covid-19 cases since the pandemic began. However, the Great Britain Pound gained on Thursday after the Bank Of England surprised markets by raising interest rates. The rates were up by 0.15% to 0.25%.
The Euro currency also gained after the European Central Bank indicated that it would start winding down its stimulus program.
The Bank of Japan will end a busy week with a policy meeting on Friday. It is expected to keep its ultra-loose monetary policy in place.
The markets have failed to find a direction since the Fed meeting in the US. On the other hand, the S&P 500 gained 0.69% as tech investors moved away from big tech and towards value stocks.
The Nikkei fell almost 1% in early trading on Friday after posting its best day in seven weeks the previous day. The MSCI Asia-Pacific index is down 0.2% for the week and is on track for a 1.6% decline. It is near its year low.
Technology stocks have been a major drag on the Hong Kong market, with the Hang Seng index falling to its lowest level in over a decade on Thursday.
Oil prices fell in early Friday trading after reaching a two-day high the previous day. Brent crude was down 0.6% at $71.75 a barrel and US crude was down 0.6% at $71.94 a barrel.
Several companies in the US have been added to the list of sanction companies, which has an impact on both the companies and the market sentiment. It’s expected that the Hong Kong Stock Exchange will continue to consolidate before year-end. The US imposed restrictions on several Chinese companies, including drone maker DJI, accusing them of supporting the oppression of minorities in China.
How does the Dollar Index affect Indian share prices?
The Dollar Index, denoted as USDX, is a relative index of the value of the US dollar against a basket of major trading currencies. It is similar to other trade-weighted indices. Most of India’s foreign trade and debt are carried out in US dollars. Therefore, as USDX goes up, prices of Indian shares that have an inverse relation to the dollar value come down and vice versa. Most IT businesses are dependent on USD and hence, when USDX goes up, the price of such Indian shares also rises.
What are the major Asian peers?
Some of the major Asian peers that have an impact on Indian stock exchanges are Japan’s Nikkei, China’s Shanghai Composite, Hong Kong’s Hang Seng, South Korea’s KOSPI, etc.
What is the impact of inflation on the economy?
Inflation lowers the purchasing power of consumers. It also lowers the value of many assets, such as stocks and real estate. As more money goes out to chase fewer items, there is a shortage of cash for investing and saving. This leads to lesser investments in the stock market and due to lack of demand, stock prices tend to trade lower.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.