The closed Friday’s session 1.72% down at 17,327.35 but the continued the momentum and fell to a low of 17,127, although it recovered a bit and closed just above the crucial support of the 17,200 mark. Our market has been falling after the US Fed’s rate hike on 21 September 2022.
Here I’ll try to give you a view of what is currently happening in the global markets after the Fed’s rate hike. The unexpected selling pressure in our markets is largely on the back of ‘exceptionally weak’ global cues. The US markets are showing a much stronger weakness. The breached its June 2022 low and is trading to the lowest level since November 2021. Meaning all the returns for 2022 have evaporated. The and are barely hovering above their June 2022 lows, below which they would also turn negative for the year. The same weakness is spread across other markets as well, especially the European ones.
Equity sell-off generally diverts capital flows to which is one of the most popular and time-tested safe havens. In fact, gold is also investors’ favorite to tackle high inflation. But what’s happening in the bullion market when both factors are in favor of gold, i.e. high inflation and investors’ hunt for safety? On Friday, gold in the international market fell to the lowest level since April 2020, almost a 2.5-year low! That is not what gold is supposed to do when it has favorable conditions to appreciate in value. In the first week of September 2022, also hit a 2-year low. All other metals are also falling sharply while prices of agri-commodities are also easing.
Oil prices which shot up massively amid the Russia-Ukraine war have corrected sharply in the last few weeks. In fact, brent oil fell to around US$85.5 per barrel on Friday, the lowest level since the start of the war. Lower oil prices are definitely beneficial for India as more than 80% of our consumption is fulfilled via imports. However, one thing to note is, what is the reason for this fall? An expectation of a global recession! If a recession comes, the benefit of lower oil prices has to be put against the loss that could potentially be incurred due to a slowdown. Therefore, lower oil prices on the back of a global recession is probably not-so-good for India as well.
Currently, the turmoil in the currency market is absolutely crazy. All currencies are taking a massive hit against the US dollar. The closest example is the Indian rupee which tumbled at a mind-boggling pace in the last two sessions, surpassing 81 like a knife slices through butter. The Pound Sterling tanked to the lowest level against the US dollar since the 1980s! The Euro on Friday plunged to an almost 2-decade low against the US dollar. Even the Japanese Yen hasn’t been spared which is also considered a safe haven amongst currencies. Although, the yen shot up aggressively on Thursday after Japan’s intervention in the forex market.
Cryptocurrencies have long been underperforming equity markets. has crashed significantly from ~US$48,000 at the start of the year to the current price of US$18,800 and there’s no sign of recovery. Bitcoin has also failed the thesis of being better than gold to fight inflation.
Clearly, everything under the roof is being sold off as uncertainties regarding a global recession is gradually becoming a reality. Despite a two-consecutive quarter of GDP contraction, the US Fed went on for a third 75 bps rate hike and coupled with its hawkish commentary for the remaining year is surely taking the US towards some more pain. The soaring inflation and energy crisis in Europe are also sufficient enough to take a toll on their economy, which is clearly reflected in the relentless weakness of European currencies. The winters are almost here, which is only going to amplify their existing energy crisis.
So where the money is going if everything is being sold off? The US dollar. That’s the only asset that’s currently luring investors on a ‘gigantic level’. The (which is a basket of 6 currencies against the US dollar) rose to the highest level in 2 decades, over 112 on Friday. The thing is, the aggression with which the Fed is raising interest rates, all the money is flowing to the dollar to buy the US-backed securities which are serving two purposes – Sovereign safety of the world’s largest economy and a lucrative return on their parked money. Hence, gold is also losing its shine against the US dollar as it does not provide any fixed return.