From inflation to commodity prices, key factors influencing the tone of the markets

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Domestic equities will take shape this week based on developments in global markets and economies. The week will also mark the end of the last quarter of the FY22 financial year and will also see the opening of the first quarter of the 2022-23 financial year. Auto and metal stocks will be in focus ahead of their monthly data. Stocks are likely to battle if crude oil prices do not move from their record highs and interest rate hikes coming in the week, however, a positive stance cannot be ruled out either. The war between the Kremlin and Ukraine and inflationary pressures will hold dominance in major markets.

On Friday, Sensex ended at 57,362.20 down 233.48 points or 0.41%. Nifty 50 closed at 17,153 down 69.75 points or 0.40%. From March 21 to 25, the 30 scrips index fell more than 0.5%, while the 50 scrips index took a big hit and fell just over 1%.

From March 7 to March 17, both benchmarks returned nearly 10% before correcting last week.

Regarding last week’s performance, Vinod Nair, Head of Research at Geojit Financial Services, said: “After the recent 10% rally, the market turned around with a negative bias due to higher prices commodity prices, monetary policy tightening and inflationary pressures. The market is showing strong resilience, but whether the trend continues will depend a lot on the outcome of the war and commodity prices.”

Rupak De, Senior Technical Analyst at LKP Securities during last week’s session, said, “Nifty remained sideways before ending the session with a marginal loss. The benchmark found support at the line of an upward trend on the daily chart for the second consecutive session.”

Going forward, market sentiment will swing as investors assess US employment and inflation data, Eurozone inflation, crude oil prices and developments in the conflict. Russian-Ukrainian.

Global factors:

The U.S. is set to release its March jobs report on Friday, which should provide much-needed clarity on the U.S. Fed’s approach to rate hikes. Reuters poll economists expect the US economy to add 475,000 jobs after adding 678,000 in February. Moreover, these economists expect the average hourly wage to increase by 5.5% year over year, while the unemployment rate is expected to fall to 3.7%. Arguments for continued strength in the US labor market argue for a more aggressive stance on interest rate hikes as the Fed prepares to battle record inflation.

Additionally, the US will release its February inflation data ahead of the jobs report on Thursday. The US consumer price index hit a 40-year high of 7.9% in January, prompting the Fed to hike rates by a quarter of a percentage point and the expectation of six more hikes future rates.

Meanwhile, the Eurozone will announce its inflation data on Friday. The annual rate in the Eurozone soared to a new all-time high of 5.9% in February 2022 as energy prices escalated to record highs. Expectations are that Eurozone inflation could exceed 6% and even reach new levels amid soaring energy prices coupled with crude oil prices. The ECB maintains an inflation target of 2%.

Christine Lagarde, President of the ECB, in an interview on March 26, said: “The war is expected to have a considerable impact on the global economy, and in particular on the European economy because of Europe’s proximity to Russia and its dependence on Russian gas and oil. This will likely slow Eurozone growth and push up inflation in the near term through higher energy and commodity prices, confidence effects and disruption of international trade.”

Asked about the worst-case inflation scenario of 7.1% in 2022, Lagarde said: “This is not the baseline scenario in the ECB staff projections. It is also important to stress that in all our scenarios, inflation is expected to decline and settle at levels around our 2% target in 2024.” Regarding rate hikes, she said: “Our forward guidance is very clear on the conditions we need to see before consider raising interest rates.”

In this environment, oil prices and bond yields will continue to influence the markets. So far this year, crude oil prices have hit new highs with an increase of around 50% due to sanctions imposed by major economies to condemn Russia’s invasion of Ukraine. Yields on 10-year Treasuries hit nearly three-year highs as markets struggle to maintain sustainability amid soaring inflation.

Future prospects :

Geojit’s Nair said: “After a strong rally last week, the market has turned with a negative bias as global signals haunt domestic investors, forcing them to stay away. High crude prices, a tightening of Fed monetary policy, higher levels of inflation as well as an increase in covid cases in some parts of the world has led to this downward trend. positive for the market, however, due to continued global uncertainties, domestic retail investors lacked confidence to take new positions.The easing of covid restrictions in India is a boost to sectors like hospitality, multiplex, transport, etc., which led to its outperformance.”

“The domestic market will continue to monitor global developments. The end of the war and increased oil supply may help India maintain resilience, otherwise high volatility will be a short-term concern,” added Nair.

The LKP Securities technical analyst said: “Going forward, instability is likely to continue as long as the Nifty remains below 17330. On the lower end, support is visible at 17000, below which the current trend may turn negative. However, a decisive move above 17330 may induce a directional trend in the market.”

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