Equities slip as rate cut hopes fade; Sensex logs heaviest fall in 7 months
Equity markets fell into the red across the globe due to a slow progress in US-China trade talks, fading hopes of Federal Reserve rate cut after strong US jobs data and disappointment over the Indian budget. However, most of the Gulf market bucked the trend and closed in the green.
On Monday, India’s Sensex fell 2 per cent to close at 38,702 points as investors were disappointed by some budget proposals such as higher tax incidence for portfolio investors and high net worth individuals. Nifty lost over 2 per cent to close at 11,558 points.
Among the Gulf bourses, both Dubai and Abu Dhabi closed in positive columns. The Abu Dhabi index added 0.2 per cent with Abu Dhabi Commercial Bank gaining 1.3 per cent while the Dubai index increased 0.3 per cent, led by a 2.5 per cent jump in its largest-listed developer Emaar Properties.
Saudi indices were lifted by financial shares while Kuwait rose for the eighth straight session following MSCI’s decision to include the country in its main emerging markets index. The Saudi index gained 0.2 per cent on Monday, taking its year-to-date gains to nearly 13 per cent. Kuwait’s index closed 0.2 per cent higher.
In India, Bombay Stock Exchange plunged for the second consecutive day of trading on Monday after the budget on Friday, taking the two-combined losses to nearly 3 per cent. Since the fundamentals are strong, analyst expect Indian equities to go upward in coming sessions.
“Given the inflation numbers in India which are expected at 3.2 per cent for the year, fundamentals look really strong. India also has a very stable currency now and we can expect Nifty to climb back above 12,000 and make a new high,” he said.
India’s first woman Finance Minister Nirmala Sitharaman presented budget on Friday that would make the country a $5 trillion economy. But the budget failed to live up to the expectations of the investors, sending the market down for the second consecutive day.
“Equity markets were expecting some kind of fiscal stimulus from the budget but there has been a big disappointment,” said Rusmik Oza, head of research at Kotak Securities.
Among other markets, Tokyo, Hong Kong and Shanghai all declined as hopes of Fed rate hike faded after unexpectedly strong US employment data.
The Shanghai Composite Index fell 2.6 per cent to 2,933.36 and Tokyo’s Nikkei 225 lost one per cent to 21,534.35. Hong Kong’s Hang Seng retreated 1.5 per cent to 28,331.69 and Seoul’s Kospi declined 2.2 per cent to 2,046.17.
Australia’s S&P-ASX 200 gave up 1.2 per cent to 6,672.20 and India’s Sensex was down two per cent at 38,736.86. Taiwan, New Zealand and Southeast Asian markets also declined.
“Markets remain convinced the Fed will cut rates at the end of the month,” said Edward Moya, senior market analyst at Oanda.
“But the strong labour market has many questioning whether we will see just two rate cuts in 2019 and not what some call the required three to see US stocks make another 3-5 per cent push higher into uncharted territory,” he said.
He added that the focus will now turn to Fed boss Jerome Powell’s congressional testimony this week, with investors hoping he will provide some forward guidance on the bank’s plans.
European stock markets were lower across the board as deep reductions in US borrowing costs appeared to be off the cards, at least for now. Among the leading European indices, the blue-chip CAC 40 in Paris and the DAX 30 in Frankfurt were both down by just under half a per cent in mid-afternoon trade, while London’s FTSE showed a loss of around 0.1 per cent.
On the other side of the Atlantic, Wall Street fell on worries over slowing global growth and diminishing hopes for an aggressive Federal Reserve interest rate cut. The S&P 500 and the Dow Jones Industrial Average slid 0.4 per cent each while the Nasdaq composite dropped 0.8 per cent in early trade.