Advance tax numbers likely to indicate corporate profitability and markets are betting that US economy is heading for a soft landing.
MUMBAI: September may see markets consolidating at current levels, albeit with a positive bias. The macro environment does not pose too many dangers, with the outlook on interest rates positive, the monsoon season ending and the festival season coming up.
Advance tax numbers are expected to indicate healthy corporate profitability and the financial markets are betting that the US economy is heading for a soft landing. The negatives for the market are the expensive valuations, which would deter investors.
Oil and commodity prices are peaking and could see weakness. The interest rate outlook is largely positive, with inflation seen trending down on the base effect, primary articles prices coming down as the monsoon comes to a close, and oil prices remain stable (or trending down) on slower growth outlook for world economies.
The rupee has seen short-term lows against the dollar and would tend to move with a positive bias.
The talking point on the street right now is the slowing down of the US economy. The fall in property prices in the US has led to talks of the housing bubble bursting, leading to an erosion of consumer confidence. It’s worth recalling that consumers drive the US economy and any fall in consumer confidence dents growth. A fall in US consumer sentiment also affects export-driven economies such as China, Japan and South Korea.
Oil and other commodity prices can also decline as demand from the world’s largest consumer of oil and other commodities slows down.
The US Federal Reserve has been hiking interest rates for the past three years in order to cool off a growing economy and contain inflationary pressures. The benchmark Federal funds rate has gone up from a low of 1% to current levels of 5.25% over the last three years. The pause by the Fed in its August meet and the minutes made available subsequently suggest that the Fed is looking at the fall in property prices in the US as a sign of the economy cooling.
The Fed is still worried about inflation, but feels that the rate hikes are starting to take effect and inflationary pressures can be contained. The markets are now betting that the Fed will pause in September. The biggest worry for equities now is whether the US economy will have a soft or a hard landing. The markets suggest a soft landing.
Whether the markets are right remains to be seen.
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