The two-day FOMC meeting by the US Fed will kick off today which would be the next big event for the global markets including India. Ahead of the meeting, the US markets are roaring strong with the gaining around 200 points in yesterday’s session. Most market participants expect a 75 bps rate hike, while some are also betting on a whole 1 percentage rate hike.
The rate hike is not just certain but a minimum of 75 bps is a sure-shot call from the US Fed. The central bank has already made 2 consecutive 75 bps rate hikes in the last two meetings which already showed the Fed’s aggressive stance on bringing down inflation and correcting its mistake of estimating rising inflation as only ‘transitionary’. The 3rd consecutive 75-bps hike (which is almost certain) would throw the US economy closer than ever towards recession. In fact, the US has already recorded two consecutive quarters of GDP contraction, technically termed a recession.
However, the market might not react negatively to a 75 bps hike. That’s because there’s also a possibility of a 1 bps hike, therefore in a relative sense if a 1 bps hike happens, it would be the real trigger for a sell-off in the equity markets. Also, a 75 bps hike is probably already been discounted by the market, leaving a little surprise for investors.
The meeting would conclude on 21 September 2022, around 11:30 PM IST, therefore the effect of the rate hike would be reflected in the Indian markets on 22 September 2022, that is on the weekly expiry day of the benchmark indices.
The has remained volatile over the last few sessions. Huge gap ups and gap downs followed by intraday recoveries have made it tough even for seasoned traders to keep up with the direction. The volatility is definitely quite high and not for novice traders. On top of that, a major event is coming up in the next couple of days. As per the spot levels, 18,000 is still holding to be a stiff resistance but could be breached amid the rate hike decision. On the downside, 17,450 is looking good support for the current weekly expiry. The range is quite big for the next two days to account for heightened volatility.
The current market environment is best suited for mean reversion trading as opposed to trend-following. It means buying on dips and selling on rallies is working better in this market rather than buying/selling on breakouts/breakdowns.