The markets rose 1% last week, with a bulk of the gain coming in on Friday - the markets were up 2% on that single day. Friday was also the best day for the three major US indices in the last two years, with the Nasdaq rising 7.3% in a single day.
US inflation - scare and hope
The week had two contrasting highlights:
The US Fed Chairman’s negative comments on Wednesday suggested that a pause isn't on the cards anytime soon
The Consumer Price Index for October was up 7.7% compared to last year, which came in lower than consensus expectations
The Indian markets too moved higher on Friday, primarily driven by optimism around the world on the US inflation data. While inflation came in lower, it still has been way above Fed’s 2% target.
We’re nowhere out of the woods yet.
India's Industrial Output - Higher, As Expected
In India, as expected from the data on growth in the eight core industries, the IIP (Index of Industrial Production) grew by 3.1% in September, beating expectations.
This is against a contraction of 0.8% in output in August. Much of the improvement was led by sectors of electricity and mining.
India’s GDP projection - another cut
For the second time, Moody’s has cut India’s growth estimates for 2022, now to 7% (from 7.7% earlier, and 8.8% even earlier), because of the global slowdown and rising domestic interest rates.
Interest rate hikes are intended to slow things down - both inflation and growth. With inflation way above the comfort levels of central banks, and inflation and growth still just starting to slow, we’re not out of the woods. There’s still some time before things get under control.
💡 Our View: Growth (economic and corporate) tapering off is a natural outcome of rate hikes. With a global slowdown and more rate hikes coming, we still find the risk-reward unfavourable in the near-term, especially given peak valuations. We’d rather buy on dips than enter now.