Ajay Bagga: Fed Rate Cut Tonight Could Boost Indian Markets

Caution is the word on global markets as the Fed meeting outcome is around 15 hours away.  A rate cut is more or less certain. Strong US retail sales and resilient inflation numbers make a jumbo cut a low probability, but a behind-the-curve Fed has done a jumbo cut a year back when it cut by 50 bps in September 2024. So nothing can be ruled out. US markets treaded water and Asian markets, European futures are also flat to negative this morning. 

Oil is up on fears that Ukrainian attacks on Russian refineries and export hubs could curtail global supplies. Gold is holding near its record levels but we could see some profit booking as the Fed rate cut cycle resumes. The Dollar index is down and the Euro, Yen and Swiss Franc are stronger .

The news on the trade war front is positive, as the US-China Madrid summit is described as positive. TikTok's US operations may be taken over by a group of US investors led by Oracle . A Trump-Xi phone summit is planned for Friday.

In a major development, with a US trade team in India to discuss future steps towards a trade deal. Talks that went on for over 7 hours were described as "positive" by both sides.

Trump is in UK for an unprecedented second state visit. Amidst the Royalty pomp, expect some tariff and investment deal announcements as well.

In a relief for market sentiment, Trump and PM Modi spoke for the first time since June. Trump called to wish Modi a happy birthday. Both posted warm messages on social media, reiterating commitment towards the Indo-US Strategic Partnership and to ending the Ukraine conflict.

Indian market futures are positive this morning unlike the US and Asian markets which are in wait-and-watch mode. Any US de-escalation of tariff rhetoric will be a sentiment booster for the Indian markets. The Fed rate cut tonight will be positive for EM flows on the back of a softer US dollar outlook.

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