Stock markets begin seeing US Fed as benign angel

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Global equity markets extend gains with liquidity flow hopes

By S Jha

New Delhi, September 27: The global equity markets strongly rallied on Thursday. The US bourses lifted higher while Asian indices rose sharply.

The equity markets are dropping fears of recession in the US. Also, the street is gathering sense that the four-year of high-interest rate regime is now over.

Dow Jones and Nasdaq closed sharply higher on Thursday. The Chinese exchange continued to trend after the unveiling of the stimulus package.

Hang Sang further gained over four per cent. Japan’s Nikkei added another two per cent.

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The Indian bourses saw sharp short covering on Thursday. Nifty posted gains of over 200 points.

The macro data in the US unveiled on Thursday affirmed that the economy is gaining strength. The weekly jobless claims for second week in a row came down.

The US Labour Department said that “initial claims for state unemployment benefits dropped 4,000 last week to a seasonally adjusted 218,000”. The market cheered the fresh set of data that made jobless claims lowest since mid-May.

Also, the data showed that the consumer sentiments were strong as revealed in the durable goods orders for August. Additionally, the second-quarter GDP reading remained unchanged at three per cent.

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Reuters quoted economists saying that the Federal Reserve may not be aggressive in the November rate cut. But the CNBC quoted Chris Larkin of Morgan Stanley, saying: that the macro-economic data “will likely keep soft-landing hopes alive and well”.

The US Fed had surprised the street with 0.50 points cut this month. The Fed is also expected to cut rate in November.

The street is expecting two more rate cuts this year. The Chinese stimulus package and rate cut by the Fed promise improved liquidity in the equity markets.

The Reserve Bank of India (RBI) per observers may also have to decide on a rate cut sooner. Inflation in India is at a five-year low.

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The monthly policy meeting of the RBI is slated for early next month. If the RBI decides for a rate cut in the next month’s meeting, it will be a first after holding the rate for several months.

The CNBC in a report said that the Federal Reserve has sent out a clear message of interest rates going considerably lower in the future. It added that the US central bank may be accommodative of a little higher inflation but lower rate regime.

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