Relief to market ahead of Budget 2018 as US Fed leaves rates unchanged

The domestic market is expected to open higher on Thursday ahead of Union Budget 2018 after Asian markets bounced back as US Federal Reserve kept interest rates on hold in its policy meeting that concluded overnight.

At 7:40 am, SGX Nifty, an early indicator of Nifty50’s movement that trades on Singapore Stock Exchange, was trading at 11,089, up 30 points or 0.27 per cent.

Sentient will remain cautious with just a few hours left for the government to unveil its annual budget.

Experts believe it would be more of a populist budget and markets have partly factored in the possibility of a fiscal slippage.

Fed leaves rates unchanged

The US Fed kept interest rates unchanged on Wednesday but said inflation likely would rise this year, bolstering expectations borrowing costs will continue to climb under incoming central bank chief Jerome Powell.

Citing solid gains in employment, household spending and capital investment, the Fed said it expected the economy to expand at a moderate pace and the labour market to remain strong in 2018.

“Inflation on a 12-month basis is expected to move up this year and to stabilize” around the Fed’s 2 per cent target over the medium term, the central bank said in a statement following a two-day policy meeting, the last under Fed Chair Janet Yellen.

Jerome Powell succeeds Janet Yellen

It also said its rate-setting committee had unanimously selected Powell to succeed Yellen, effective February 3. Powell, a Fed governor who has worked closely with Yellen, was nominated by President Donald Trump and confirmed by the U.S. Senate.

Powell is expected to hew closely to the policies embraced by Yellen, who spearheaded the gradual move away from the near-zero interest rates adopted to nurse the economy back to health and spur job growth after the 2007-2009 recession.

Fed policymakers have been encouraged in recent months as the economy picked up speed and the unemployment rate fell to a 17-year low of 4.1 per cent.

The Fed, which raised rates three times last year and in December forecast three more hikes for this year, said on Wednesday it expected “further gradual” rate increases will be warranted. The target range for the federal funds rate currently is 1.25 per cent to 1.50 per cent.

“The use of ‘further’ opens the door to four hikes and likely closes the door on two,” Michael Gapen, chief US economist for Barclays, wrote in a note to investors.

Global market trend

Asian shares eked out modest gains on Thursday, clawing back sharp losses from earlier this week.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1 per cent in early trade, slowly recovering after Tuesday’s 1.4 per cent fall. Japan’s Nikkei also gained, rising 0.5 per cent from a four-week low hit the previous day.

On Wall Street, the S&P 500 erased earlier gains to end almost flat, up 0.05 per cent at 2,823.81. The Dow Jones Industrial Average was up 0.28 per cent, however, most of the benchmark’s gains were driven by a 4.9 per cent rise in index heavyweight Boeing following its strong earnings. Stripping out Boeing’s rally, the index would have been down 0.18 per cent.

(With inputs from Reuters)