Vinod Bhat's Market Pulse - Mar 15, 2023
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The US CPI release indicates that price pressures remained elevated in Feb.
Importantly, core CPI inflation ticked up on a month-on-month basis to 0.5% mom – above expectations it would remain unchanged at 0.4% mom – marking a continuation of an uptrend that started in December.
Given that inflation remains elevated, Fed is likely to deliver another 25bp rate hike at its March meeting and recent bond market moves are likely to unwind.
At the same time, now that the FDIC has stepped in to make depositors whole, and the Fed has made it easy for banks to borrow against their securities holdings, a chain reaction of large-cap bank failures is unlikely in the US. Consequently, markets breathed a sigh of relief and S&P500 & Nasdaq were up 1.6% and 2.3%, respectively on Tuesday.
Although there is no direct impact from the events in the US on Indian markets, volatility has increased and some rotation into defensive sectors such as Utilities has been seen.
On the positive side, rural economy has been doing better in the past few months with rabi likely to be a bumper harvest and upbeat tractor sales. However, consumption expenditure is still tight with total recovery at least 6 months away. There is clear evidence of downtrading from big brands as local and regional players are making a strong comeback.