Domestic markets are likely to bounce back sharply on Thursday, thanks to the dovish stance of the US Federal Reserve. As global stocks are rejoicing the Fed mood, Gift Nifty too climbed sharply to 19,216 as against Nifty futures closing of 19,060, signalling a gap-up opening of 150 points.

Equities across the Asian region have opened higher after investors took comfort from the Federal Reserve meeting. The Nikkei 225 and Australian markets are trading 1.2 per cent higher, while Korea’s Kospi is trading 1.6 per cent higher.

“As widely expected, the Fed unanimously kept rates on hold, retaining its guidance for potential “additional policy firming.” However, the policy message is *becoming “more two-sided.”* The statement did add that “financial” as well as credit conditions should weigh on the outlook, and in his presser, Chair Powell acknowledged the Fed is monitoring how long tighter conditions might persist. Owing to this, yields fell and stocks rose while USD weakened too,” said Madhavi Arora, Economist at Emkay Global.

Powell sounded quite pleased with the effort to bring down inflation, where he saw “pretty significant progress.” He sounded optimistic that fading pandemic distortions and rising labour supply (notably from immigration) could help this process—although Powell noted that he, like most of the FOMC, still believes some further softening of the labour market and slowing of growth will be necessary. 

Dhawal Ghanshyam Dhanani, Fund Manager, SAMCO Mutual Fund, said: “Unsettled world order and yet to impact economic activities due to alleviated interest rates, US Fed has taken a sensible approach by keeping interest rates unchanged for second consecutive time, raising hopes of pivot by market participants. Wait and watch is what the US Fed is doing and so should the investors”.

According to Madhavi Arora, “While we continue to see Fed on hold in December and through the first half of next year, we think the US Treasuries bear steepening would find some solace as Fed’s tone gets softer. However, the rising term premium will likely be the next structural driver of higher yields in coming years.”

Financial markets will have to wait to see if the US economy finally breaks, and that removes the risk of a re-acceleration with inflation that comes with more interest rate hikes, said Edward Moya, Senior Market Analyst, The Americas, OANDA, adding that “The Fed wants higher rates to help them, which means they might drop now.”

Meanwhile, weak results such as Tata Steel will keep the market on the edge. Analysts said FPI selling may tone down slightly, but results are mixed. “Investors sentiment was also primarily clouded by lingering concerns about corporate India’s Q2 earnings which as of now is uninspiring,” Prashanth Tapse, Senior VP (Research), Mehta Equities. 

Analysing the Open Interest (OI) data, the highest open interest for call options was observed at the 19,100 strike price, followed by the 19,200 strike price. On the put side, the highest OI was found at the 18,900 strike price, signalling the market movement, said Choice International.

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