Sensex Opens In The Red As Global Financial Conditions Tighten

Indian equity benchmarks reversed a sharp rally in the previous session and started cautiously on Monday, tracking a fall in Asian shares following another setback on Wall Street as investors brace for a more aggressive tightening in financial conditions worldwide, with all the risks of recession it entails.

The latest meeting minutes showed Reserve Bank of India’s Monetary Policy Committee (MPC) may rely more on statistics when determining the country’s key interest rate as inflation is predicted to begin to ease.

That dovish tone by the RBI did not help Indian stocks.

The BSE Sensex index and the broader NSE Nifty index reflected a sea of red in Asian bourses.

Indeed, Hong Kong, Australia, and Japan saw stock drops, with technology companies leading the way. The S&P 500 and Nasdaq 100 contracts rose after falling on Friday, when Treasury rates soared as inflation estimates for the coming year rose.

Global stocks have been impacted by worries about the world economy as well as a rise in demand for safe-haven assets as the Federal Reserve swiftly raised interest rates this year in an effort to rein in soaring inflation, which enticed capital back to the United States and drove up the value of the dollar.

While the S&P is an eye-watering 25 per cent off its peak, BofA Economist Jared Woodard warned the slide was not over given the world was transitioning from two decades of 2 per cent inflation to a time of something more like 5 per cent inflation, reported Reuters.

“$70 trillion of ‘new’ tech, growth, and government bond assets priced for a 2 per cent world are vulnerable to these secular shifts as ‘old’ industries like energy and materials surge, reversing decades of under-investment,” Mr Woodard wrote in a note.

“Rotating out of 60/40 proxies and buying what is scarce – power, food, energy – is the best way for investors to diversify,” he added.

As everyone turns their attention to UK bonds now that the Bank of England’s (BoE) emergency purchasing spree is done, worries about financial stability are added to the toxic mixture.

“The BoE was doing emergency bond-buying that’s technically identical to QE with one hand, while furiously raising the policy rate with the other,” Analysts at ANZ said in a note.

“Monday’s market action will provide a test, not only for the survival of Truss’ low-tax vision, but also her political future.”As everyone turns their attention to UK bonds now that the Bank of England’s (BoE) emergency purchasing spree is done, worries about financial stability are added to the toxic mixture.

Investors must deal with news from Beijing, where President Xi Jinping stated that China’s global power had strengthened while issuing a warning of “dangerous storms” to come.

There were few indications that the Covid-Zero campaign or the housing market regulations that are straining the economy will ease up. Mr Xi also asserted that despite escalating hostilities with the US, China would triumph in its struggle to develop crucial technology.

On other market news, oil recovered some of its losses after a weekly decline as concerns about an economic downturn continue to cloud the outlook for demand.

After a choppy week in which the dollar appreciated due to speculation about a more aggressive Fed rate hike, gold prices stabilised in Asia.