The domestic markets are likely to continue lacklustre trading on Tuesday, ahead of a crucial US Federal meeting. Analysts expect narrow range-trading to continue with a positive bias. SGX Nifty at 18,752 indicates a gap-up opening of about 70 points, as Nifty futures closed at 18,683 on Monday.

With the macro numbers surprising positively, analysts expect renewed buying from foreign portfolio investors, who have booked profits in the last couple of sessions.

Inflation has continued to ease, falling to 4.25 per cent in May 2023 — the lowest in the past 25 months — helped by base effects, even as both food and core inflation have risen sequentially. Core inflation has stayed at 5.2 per cent YoY. “We are currently tracking June CPI at about 4.3 per cent, and maintain our FY24 forecast at 4.8 per cent (RBI: 5.1 per cent), further supporting our view of a continued rate pause, with upside risks from adverse weather conditions and global volatility,” said Emkay Global Financial.

Aditi Nayar, Chief Economist, said: “The hawkish tone of the June policy document, with the Committee’s focus on bringing down CPI inflation to 4 per cent, along with the 5 per cent+ CPI inflation projections for the next three quarters, implies that a pivot to rate cuts is quite distant. “As a result, ICRA expects an extended pause through FY2024, and the stance will remain unchanged over the next couple of policy meetings,” she added.

IIP

However, the IIP (Index for Industrial Production) for April has surprised on the upside, printing at 4.2 per cent in the month in spite of the unseasonal rainfall, she said. “The YoY performance of most available high frequency indicators improved in May relative to April, which should support a 4-6 per cent expansion in May,” she added.

This week is dominated by G-3 monetary policy meetings.While rate decisions look relatively well signalled at this week’s G3 meetings, forward guidance is likely in flux, said Emkay Global. Clearly, higher underlying DM inflation and still-tight labour markets have compelled the DM central banks to restart the hiking cycle, depicting “pause ≠ terminal hike”. This week will likely see: The Fed’s pause will be hawkish and likely to hint an additional hike this year; the ECB hike will follow with a hint of more hikes, but likely to eschew very strong guidance on terminal rate; and the BoJ may adjust its YCC band, but may guide against hikes/ normalisation.

“The bias for more tightening in DMs will keep the EM central banks on tenterhooks. While Latam has been ahead of DM in terms of hikes and may not face as much pressure on offering higher risk premia, EM Asia may be more stressed. In this fast evolving world, it is unlikely the RBI would be too adventurous on either side of rate actions, implying higher for longer. While RBI’s pivot is being debated on account of the easing inflation dynamics back home, the RBI is unlikely to precede the Fed in reversing its course of rate hikes in the future,” the domestic brokerage further said,

Overnight, US stocks closed firmly higher. In early deals on Tuesday, equities across the Asia-Pacific region are largely up, but some such as China, Hong Kong and the Australian markets are down marginally.

“Cautious optimism was the preferred theme as benchmark Nifty fluctuated in a narrow range, with investors gearing up for this week’s key macroeconomic events such as CPI & IIP data, the US FOMC meeting and ECB rate decision,” said Prashanth Tapse, Senior VP (Research), Mehta Equities.

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