US Fed cuts interest rate by half percent; Indian bulls optimistic

For the first time in four years, the US Federal Reserve (Fed) has cut interest rates by 0.5%, bringing the target range down from 5.25%-5.50% to 4.75%-5.00%. While US markets initially rallied, they closed with minor losses. However, futures markets are now showing significant gains, and Asian markets are on the rise. Indian markets are expected to follow suit and open higher today.

Fed Chair Jerome Powell assured that the cut was designed to strengthen the job market, with no imminent risk of a recession. The Fed plans an additional 0.5% cut this year, followed by a 1% reduction in 2025 and a further 0.5% cut in 2026.

The aggressive US rate cut is likely to pressure the Reserve Bank of India (RBI) to follow suit. the RBI may begin cutting rates as early as October to avoid a weaker rupee. So far, the RBI  has resisted rate cuts due to concerns over rising food prices.

Meanwhile, fears of the Middle Eastern conflict have caused the dollar index to climb, and the rupee may weaken further today. Profit-taking caused a slight dip in gold prices after an initial surge.

Global market trends

European markets closed lower on Wednesday, driven by concerns over the Fed's decision. The Bank of England is expected to announce its monetary policy today.

Despite initial optimism, US markets fluctuated after the rate cut announcement. The Dow Jones touched a new high of 41,981.97, while the S&P 500 hit 5689.75. However, profit-taking led to a slight decline by the close.

The Dow Jones dropped 103.08 points (-0.25%) to 41,503.10, while the S&P 500 lost 16.32 points (-0.29%) to end at 5618.26. The Nasdaq fell 54.76 points (-0.31%) to 17,573.30.

US futures are up strongly this morning, with the Dow gaining 0.27%, the S&P 500 up by 0.48%, and the Nasdaq rising 0.74%. Meanwhile, the yield on US 10-year Treasury bonds fell to 3.732%.

Asian markets also rose this morning, with Japan’s Nikkei climbing 2.25%. The Bank of Japan will announce its monetary policy today, with markets expecting no rate hikes until December. Chinese markets, however, remain subdued.

Indian markets 

The Gift Nifty closed at 25,355 on Wednesday night, and early indicators show a rise to 25,420 this morning. This suggests that Indian markets are likely to open on a positive note.

The Indian stock market saw volatile trading on Wednesday. After opening lower, the indices surged to record highs before retreating slightly by the close. The Sensex touched 83,326.38, and the Nifty hit 25,482.20, before closing with minor losses.

IT stocks were hit hard, with the IT index down by 3.05%. After a 30% rise since June, the IT index hit a new record on Tuesday but saw a steep fall on Wednesday. Mphasis dropped 5.63%, while TCS fell by 3.5%, Persistent by 3.38%, L&T Technology Services by 3.25%, and Infosys by 3.08%. Pharma, healthcare, oil, and metal sectors also saw significant declines. Banks and financial companies, however, posted gains.

On the NSE, 958 stocks rose while 1,839 declined. On the BSE, 1,527 stocks advanced, and 2,437 fell.

The Sensex closed 131.43 points (-0.16%) lower at 82,948.23, while the Nifty lost 41 points (-0.16%) to close at 25,377.55. Bank Nifty gained 561.75 points (+1.08%) to finish at 52,750.40.

The mid-cap index dropped by 0.71% to 59,752.85, and the small-cap index fell by 0.39% to 19,389.75.

Foreign institutional investors (FIIs) bought shares worth ₹1,153.69 crore in the cash market on Wednesday, while domestic funds and institutions bought shares worth ₹152.31 crore.

Despite profit-taking, market sentiment remains bullish. Many analysts believe that the Fed's rate cut will force the RBI to reduce rates next month. Nifty is expected to break 25,500 for a potential rally towards 25,800. For today, Nifty has support at 25,305 and 25,260, with resistance at 25,455 and 25,500.

Gold slips after initial surge

Gold prices surged following the Fed’s rate cut but retreated due to profit-taking. After reaching a high of $2,600 per ounce, gold closed at $2,559.20 and dipped to $2,554 this morning. December futures are priced at $2,577.

In Kerala, gold prices dropped by ₹120 on Wednesday, bringing the price to ₹54,800 per sovereign, with further declines expected today.

Silver prices fell to $30.15 per ounce.

The dollar index closed at 100.60 on Wednesday after the rate cut but has since risen to 101.45 this morning. Analysts believe the cut will not push investors away from the dollar, and ongoing tensions in the Middle East are also strengthening the currency.

India’s forex markets were closed yesterday for a holiday, but the rising dollar could put pressure on the rupee today.

Oil, commodities

Crude oil prices dipped slightly on Wednesday, with Brent crude closing at $73.42. This morning, Brent is trading lower at $72.99. WTI crude is at $70.19, and UAE’s Murban crude is at $73.42.

Cryptocurrencies are on the rise, with Bitcoin reaching $62,200 and Ethereum hitting $2,400.

Industrial metals saw modest gains yesterday. Copper rose by 0.26% to $9,265.89 per tonne, aluminium climbed by 0.50% to $2,536.50, and nickel increased by 0.15%. Tin, however, dropped by 0.47%.

Market snapshot (Wednesday, September 18)

• Sensex: 82,948.23 (-0.16%)
• Nifty: 25,377.55 (-0.16%)
• Bank Nifty: 52,750.40 (+1.08%)
• Midcap 100: 59,752.85 (-0.71%)
• Smallcap 100: 19,389.75 (-0.39%)
• Dow Jones: 41,503.10 (-0.25%)
• S&P 500: 5,618.26 (-0.29%)
• Nasdaq: 17,573.30 (-0.31%)
• Dollar: ₹83.75 (₹0.00)
• Dollar index: 100.60 (-0.29)
• Gold (ounce): $2,559.20 (-$10.80)
• Gold (sovereign): ₹54,800 (-₹120)
• Crude oil (Brent): $72.80 (-$0.90)