As the global financial community awaits the US Federal Reserve's policy update tonight (November 1), well-known investor Adrian Mowat predicts that the central bank will stand pat on rates, given the strong economic indicators.

Share Market Live

NSE

The rise in bond yields has been a key factor influencing this perspective. Yields have climbed from under 4% in July to almost 5% now, a trend that has not gone unnoticed by the Fed and has prompted a more careful strategy.

Also Read:

Why are oil traders scared of the Fed?

Mowat is 'nervous' about the Nifty Bank Index in India as 'the index currently exhibits technical weakness' even as the Indian market displays notable strength. Negative earnings revisions by banks have also added a layer of concern from a fundamental perspective.

"Until July, India's market was in sync with the performance of the US market. However, things took a turn with the sharp increase in US bond yields and the strengthening of the US dollar since July. Consequently, the Indian market has experienced a correction that mirrors major global markets, particularly those in the United States," he noted.

Last month, Laurence Balanco, Technical Analyst at CLSA, also pointed out that the weakness in the bank index had the potential to drag the market lower. "The recent price action exhibits signs of relative and absolute vulnerability," he said in a conversation with CNBC-TV18 on Monday (October 23).

Also Read: Gold softens on caution ahead of Fed's policy decision

Mowat will closely watch the US bond market to see if they break above 5%. "If we get that comfort over the next month or so, then I think you will start to add to risk assets and that would include the Indian market, but for now I would be cautious,” Mowat said.

US 10-year treasury yields have been flirting with the 5% mark, a 16-year high, over the last few days. When bond yields rise sufficiently to surpass returns from stocks, the opportunity cost of investing in stocks escalates, making them less attractive. Consequently, fund flows may shift from equities to debt markets. Given the safe-haven status of US treasuries, investors tend to favour them.

Also Read | US Fed minutes flag high rates for "some time" while risks shift

For more details, watch the accompanying video

Also, catch all the live updates on markets with CNBC-TV18.com's blog

(Edited by : Shweta Mungre)

First Published:Nov 1, 2023 1:08 PM IST