The valuation band can reduce if the outlook does not improve in the next quarter or global market advances to a recession. Risk of recession is the key discussion in the global financial market today. Recently, the US treasury yield hit a 2.5 year historic low of 1.53%, fearing that a global slowdown could tip the US economy to a recession. In the last Fed policy meeting on 31st July, interest rate was reduced by 25bps to the range of 2 – 2.25%, the first rate cut since the financial crisis. Federal Reserve Chairman Jerome Powell said the Fed will ‘act as appropriate’ to sustain expansion. He also added that he does not view this as a move to start a long series of rate cuts but rather as a one-time decision. On that day, 10 year yield was stable marginally cut by 5bps and closed the quarter at 2.01%. But since then bond yield has turned extremely volatile and lowered by 51bps in the last three weeks. The market is concerned that trade-war, Brexit, geo-political issue in Argentina and Italy are slowing the world economy. US GDP for the quarter of July 2019 has slowed to 2.4% from 3.2% last year same quarter. It seems a lot has changed since the speech, and market will now cautiously wait for Powell’s keynote speech at the annual policy conference in Jackson Hole on Friday. A dovish view will be considered positive by the market.
At home, market is waiting to see the steps to be undertaken by the government. PMO and FMO are working on measures to boost the economy. Though there is optimism, the risk is that the fiscal position of the government is weak, reducing the chances of an come-out with action-packed stimulus. As a result, the market is range-bound today with a negative bias, bold reforms are the way to rebound.
Posted: August 2019