What was different on Friday? Not much, except data showing that labour cost increases came in at the fastest pace since 1989. This data shows that inflation perhaps plateaued a little bit at higher levels.
Post-Friday, global financial literature points to the fact that the US Federal Reserve (Fed) may be inclined to be more hawkish compared to before. That showed up in the Federal Open Market Committee (FOMC) pricing for the full year – 2022. Market pricing increased even more on Friday at close as compared to Thursday.
The SGX Nifty change is milder – if the market gets a 100-150 points gap down than the sell-off that was witnessed on Friday, that will be welcome because there have been sharp cuts in the US market. The US markets were down 0.72 percent, NASDAQ sold off 4.17 percent, and the S&P 500 was down 3.63 percent.
Currently, NASDAQ is down 15.6 percent, the S&P 500 is down 3.2 percent week-on-week, and the dollar index is up 4.9 percent in April month-on-month.
The market will react to the Fed decision on Thursday morning. The good part is that it is well advertised. There is absolutely no doubt that there is a 50 basis points (bps) hike, and there will be a start of the balance sheet run-off as well.
How the market will react? There is pre-positioning, and there are already extremely hawkish expectations. So, the bar for even more hawkish surprise is quite high. The hurdle for the market to get short and sell-off on the Fed decision is quite high, and that, at the margin, maybe a piece of good news.
Watch the accompanying video of CNBC-TV18’s Prashant Nair for more details.