Warsh said inflation numbers in the US were more concerning and added that he would be hard pressed to describe broad financial conditions as restrictive, remarks that markets could read as a signal that the Fed may not be done fighting inflation.
He also said the Fed would have work to do if policymakers were not confident that inflation was moving back to its 2 % target.
For Indian equities, the immediate risk is not just the Fed’s next move but what the speech does to the dollar, US bond yields, crude oil and foreign flows. A more hawkish Fed usually makes emerging markets less attractive in the short run as global money shifts towards dollar assets.
Global cues turn heavier
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Warsh warning that inflation remains too high can keep US yields elevated. On Friday, the bond market reacted more sharply than equities after Warsh’s prepared remarks were released, with yields moving in the minutes after the speech.
Higher US yields are usually negative for Nifty because they can put pressure on foreign institutional flows. They also support the dollar, which can weigh on the rupee and increase imported inflation risk for India.Also Read: US Fed chairman Kevin Warsh says inflation is elevated and ‘concerning’ at Jackson Hole
Vinod Nair, Head of Research at Geojit Investments, said markets had been waiting for the Fed chair’s comments at Jackson Hole for clarity on the US interest-rate outlook and global liquidity conditions. Domestically, he said Q1 earnings had largely ended on a healthy note, but the focus is now shifting to the sustainability of earnings growth amid changing global macro conditions.
“While supportive domestic liquidity conditions provide stability to the market, unresolved West Asia tensions and elevated crude oil prices remain key monitorables, keeping investors watchful of potential risks to growth and corporate profitability,” Nair said.
Technically, Nifty is still struggling to show momentum. The index has moved back into a rising channel, but it remains below its 50-day exponential moving average, keeping the near-term trend weak.
Rupak De, Senior Technical Analyst at LKP Securities, said Nifty remained confined to a narrow range and lacked momentum. He said 24,200 will act as immediate resistance.
“As long as the index remains below 24,200, the broader sentiment is likely to stay weak, with a possibility of a decline towards 23,900 in the near term. A fall below 23,900 could trigger further correction. On the other hand, a decisive move above 24,200 may lead to an improvement in market sentiment and might strengthen the near-term trend,” De said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)