US Fed keeps rates unchanged; UBS sees rate tightening, trade war among key investor concerns in India

By: | Published: November 9, 2018 10:53 AM

Even as the US Federal Reserve keeps rate unchanged in line and hinted that a rate hike could come in next month, UBS notes that expectations of Fed rate tightening is one of the key macro concerns for Indian investors.

Notably, Sensex and Nifty opened on a negative note Friday following weak global cues after the US Federal Reserve left key interest rates on hold last night.

Even as the US Federal Reserve keeps rate unchanged in line with expectations at its Thursday meeting, and hinted that a rate hike could come in next month, UBS notes that expectations of Fed rate tightening is one of the key macro concerns for Indian investors. “We expect the current pattern of a hike a quarter to continue through Q1 of next year,” HDFC Securities said in a note. “Higher Fed rate expectations, rising US Treasury yields and ongoing US/China trade tensions have weighed on fund flows into emerging markets (EM) and widened India’s financial stability risks,” UBS said in a recent note.

Notably, benchmark stock indices Sensex and Nifty opened on a negative note Friday following weak global cues after the US Federal Reserve left key interest rates on hold last night, but hinted a rate hike next month. The Federal Open Market Committee (FOMC) has increased interest rates three times this year and is widely expected to do so again next month.

Also read: Share market LIVE updates: Sensex, Nifty trade lower; Bharti Airtel top index drag; rupee gains as crude eases

According to the CME group’s FedWatch tool, the likelihood of the Fed raising rates by another 25 basis points in December is 75 percent, Reuters reported. “Whenever the U.S. Fed increases their policy rates, there are tendencies for capital to go to safer assets, so emerging markets usually suffer some sell-off,” said AP Securities analyst Rachelle Cruz told Reuters. The US central bank said yesterday that “economic activity has been rising at a strong rate” and job gains “have been strong.”

Taking stock of the recent global developments, Geojit said in a note that keeping rates unchanged was in line with its expectations. “The European Commission said Thursday that growth in the euro zone will stall in the coming years. U.S. markets closed lower on Thursday following big gains in the previous session as investors digested the latest monetary policy decision from the Federal Reserve. The Fed kept interest rates unchanged, as was widely expected,” the firm noted.

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