Sensex, Nifty Rise To Extend Tuesday’s Sharp Rally Of Over 2%

Indian equity benchmarks extended their gains from a sharp rally on Tuesday, in line with a rise in broader Asian shares, reflecting the late night rebound on Wall Street even as investors broadly downplayed the impact of rising oil prices.

Still, downside risks remain after strong US economic data reiterated the Federal Reserve’s aggressive rate hike path.

The BSE Sensex index rose over 440 points, and the Nifty opened in the green to add to the more than 2 per cent rally on Tuesday.

On Wednesday, Indian markets were closed on account of Dussehra.

As US futures advanced, the MSCI’s index of Asia-Pacific shares outside of Japan increased by 0.4 per cent in early trading. After declining 13 per cent in September, the index is up 4 per cent this week.

Australian shares rapidly recovered early losses, and stocks in Japan and South Korea opened higher, tracking a surge in US futures that overcame a slight dip in the S&P 500 on Wednesday.

While the dollar suffered from the overall bullish mood after Wednesday’s biggest single-day jump in a week, the rise in oil prices threatens to keep inflation above target for a longer period, dashing hopes that central banks will soon scale back their aggressive interest rate hikes.

On Wednesday, a cartel of oil producers led by Saudi Arabia agreed to drastic production cuts, sending Brent crude futures to a three-week high of $93.99 per barrel.

“An adjustment higher in oil prices could have an impact on the inflation numbers,” Rubeela Farooqi, Chief US economist for High Frequency Economics, told Bloomberg and added that undoes a gentle decline over the past two months. “Inflation measures could reverse in October if prices continue to rise.”

The US services sector continued to expand in September, data released overnight showed, with the labour market doing well and the trade deficit declines.

The San Francisco Fed’s president, Mary Daly, reiterated that policymakers’ primary concern is containing inflation while downplaying market expectations for interest rate cuts in 2023.

“Inflation fears may get assuaged, but then they turn into growth fears, and that turns into a problem for corporate earnings,” said Emily Roland, Co-Chief Investment Strategist for John Hancock Investment Management, in an interview with Bloomberg TV. “Even if rates fall, it’s probably too early to call the all-clear on stocks.”

The Reserve Bank of Australia’s unexpected decision to raise rates by only 25 basis points earlier this week, together with US economic data that suggested the labour market and economy were weakening, fueled prospects for more cautious interest rate hikes by central banks and boosted risk sentiment.

However, those aspirations were dashed when a data from the Institute for Supply Management that came in slightly above expectations revealed a comeback in the employment index for the US services sector.

“The optimism that buoyed financial markets earlier this week receded as U.S. data continued to articulate the need for further, decisive central bank policy action,” Analysts at ANZ told Reuters.

“Attention is now firmly focused on the September labour market report…The market needs to prime for a strong number.”