Sensex Gains 48 Points, Nifty Climbs as Investors Eye Federal Reserve Rate Decision

Stock Market Update: On Monday, Indian equity indices opened on a positive note, with the BSE Sensex gaining 48 points, or 0.06%, to reach 82,939, and the Nifty 50 climbing 50 points, or 0.2%, to settle at 25,406, reported by Business Standard. This moderate uptick came even as investors worldwide processed disappointing economic data from China, which has raised concerns about the global economic outlook.

Global Market Sentiment Remains Cautious

While Indian markets began with a slight rise, Asian stock markets started the week cautiously. A pivotal moment is expected in the U.S., where the Federal Reserve is anticipated to commence an easing cycle. However, the extent of the rate cut remains a key question, with market analysts divided over the potential for a larger-than-expected move.

Central banks in Japan and the UK are also set to meet this week, with both expected to maintain current rates. The economic calendar is packed with crucial data, including U.S. retail sales and industrial production figures, which could influence investor sentiment and market movements.

Trading in Asia was somewhat subdued due to holidays in China, Japan, South Korea, and Indonesia, resulting in low market participation and modest early moves. The MSCI’s broadest index of Asia-Pacific shares outside Japan remained almost flat, following a 0.8% rise last week. Japan’s Nikkei was closed, but futures traded at 36,490, slightly below the cash close of 36,581, as recent gains in the yen pressured exporters.

Disappointing Economic Data from China Weighs on Markets

Over the weekend, China released a series of economic data that fell short of market expectations. Industrial output growth slowed to a five-month low in August, while retail sales and new home prices also showed signs of weakening. This data underscored the challenges facing the world’s second-largest economy as it grapples with slowing growth and a fragile property market.

The subdued performance of Asian markets reflected concerns over China’s economic health, which has far-reaching implications for global growth prospects. China’s role as a major driver of demand for commodities and manufactured goods means that any slowdown in its economy could impact markets worldwide.

U.S. Federal Reserve’s Rate Decision Looms Large

Investors are closely watching the U.S. Federal Reserve, which is expected to announce the start of an easing cycle this week. Futures markets imply a 52% chance that the Federal Reserve will cut rates by 50 basis points on Wednesday. The probability of a larger rate cut has increased sharply following media reports suggesting the possibility of a more aggressive move.

If the Fed opts for a 50-basis-point cut, JPMorgan economist Michael Feroli expects policymakers to project a total of 100 basis points of cuts this year and 150 basis points for 2025. Current market pricing indicates expectations for 114 basis points of easing by Christmas and an additional 142 basis points next year.

The mere prospect of a significant rate cut has already led to a rally in the bond market, with two-year U.S. Treasury yields falling to 3.593%, the lowest level since September 2022. Lower yields on government bonds generally make equities more attractive to investors, providing some support to stock markets.

Central Bank Actions Across the Globe

The Bank of England (BoE) is scheduled to meet on Thursday and is widely expected to keep interest rates unchanged at 5.00%. However, there is still a 31% market-implied probability of another rate cut. Meanwhile, the Bank of Japan (BoJ) meets on Friday and is expected to hold rates steady, although it may signal potential tightening in October.

Elsewhere, South Africa’s central bank is tipped to ease monetary policy this week, while Norway’s central bank is expected to maintain its current stance. These decisions reflect varied responses from central banks worldwide as they navigate a complex global economic environment characterized by slowing growth and lingering inflationary pressures.

Commodity Markets Respond to Lower Bond Yields

Lower bond yields have provided support for gold prices, which stood at $2,579 per ounce, near an all-time high of $2,585.99. The precious metal often benefits from lower yields, as it becomes more attractive compared to interest-bearing assets like bonds.

Oil prices also edged higher, with Brent crude rising by 19 cents to $71.78 per barrel, while U.S. crude increased by 28 cents to $68.93 per barrel. The gains came as nearly a fifth of crude oil production in the Gulf of Mexico remained offline, contributing to supply concerns.

Key Takeaways for Investors

The start of the trading week has been marked by cautious optimism in Indian and global markets. While Indian benchmark indices opened slightly higher, the global market sentiment remains mixed amid concerns about China’s economic slowdown and uncertainty surrounding the Federal Reserve’s rate decision.

Investors should closely monitor the outcomes of central bank meetings in the U.S., UK, and Japan, as well as the upcoming U.S. economic data releases. These factors are likely to shape market trends and provide more clarity on the direction of global monetary policy.

In the meantime, commodities like gold and oil could remain in focus as investors seek safe-haven assets amid market volatility and geopolitical uncertainties.