Fed Meeting minutes signal 1st rate cut next month

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Equity markets gain with Fed minutes hinting rate cut

By S Jha

New Delhi, August 22: The minutes of the last meeting of the US Federal Reserve have raised traders’ bets for a certain rate cut next month. The US bourses closed higher after the release of the minutes of the last meeting of the US Fed.

Nasdaq, S&P, and Dow Jones closed higher after the release of the minutes of the meeting of the US Fed. Analysts in the US are now speaking of a certainty that a 25-basis points rate cut is guaranteed.

Analysts are also claiming that the US Fed in the first rate cut may even shed 50-basis points. Some of the officials in the US Fed meeting even wanted the rate cut in July itself, reports said.

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CME Group’s FedWatch tool said that traders are now are betting on 39 per cent chance for 50-basis point rate cut in September. It added that there is unanimity of views that 0.25 percentage rate cut is definitely on the card.

The certainty of the first rate cut next month is being reported on the back of the recent fears of recession in the US. But better macro-economic data in the US lifted the pall of gloom.

The report of the definite rate cut may bring cheers to the equity markets globally. The Asian markets were trading higher in the early sessions.

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The US 10-year treasury yield has now crashed to 3.778 per cent. A low treasury yield is a net positive for the equity market.

The bond yield in the US is now at a 52-week low. The crude oil is also on a falling trajectory. Both the factors may guide a rising trend in the equity markets.

The retail inflation in the US also cooled off. The retail inflation in India also hit a five-year low. The inflation in India now is below four per cent at 3.54 per cent.

The US Fed rate cut may potentially set off a cascading effect globally. The UK Central Bank had last month cut rate.

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A low-rate regime conventionally is known to pump additional money into the equity market. The emerging economies such as India may benefit from additional fund flow into the equity markets.

The shares of Asian Paints were trending in the yesterday’s session. Falling crude oil is widely known to bring rally in shares of paints companies.

Besides, the theme of the rate cuts may also bring cheers for investors of the banking and the realty stocks. Shares of a number of housing finance companies such as PNB Housing Finance were trading higher ahead of the release of the minutes of the US Fed.

Disclaimer: This article makes no recommendation for buy/sell of shares of any company.

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