US bond yields, dollar & oil prices among key factors that may guide markets this week

Investors were concerned over the relentless selling by foreign investors, who have sold nearly two lakh crore worth of shares so far this year.

The week saw US bond yields inverting, raising fears of a recession. The Fed also hiked the policy rate by 75 basis points and hinted at a similar rate hike in the next meeting.

For the week, the Sensex slipped 5.42 per cent to 51,360.42. The BSE midcap index declined 1194.39 points or 5.31 per cent to 21,295.93, while the BSE Smallcap index fell 1,723.54 points or 6.67 per cent to 24,133.88. The Nifty50 tanked 908.30 or 5.61 per cent to 15,293.50.

“We believe there is a fair possibility that the US economy will do a hard landing. We also believe that in the next Fed meeting on July 26th and 27th, there could be another 75-basis-point rate hike. However, we think it will be challenging to control inflation,” said Sunil Damania, Chief Investment Officer, MarketsMojo.

Eyes on Wall Street, Dollar

Markets will continue to dance to the tune of global markets, especially what is happening in the US, its bond yields and also on the dollar front.

“As there are no other major domestic or international macro events in the coming week, Indian indices are expected to be jittery, moving in tandem with global peers. Investors should therefore remain cautious and begin making small, selective investments in fundamentally superior companies that are available at reasonable valuations,” said Yesha Shah of Samco Securities.

Oil price weakness

Eyes would also be on oil prices, which fell 6 per cent on Friday to a four-week low on concerns over recession in the US. Brent futures fell $6.69, or 5.6%, to settle at $113.12 a barrel, while US West Texas Intermediate (WTI) crude fell $8.03, or 6.8%, to settle at $109.56.

SMC Global, in a note, said that while a rise in the dollar index and treasury yield has put pressure on commodities prices, the fall has not been as deep as it was expected due to tight supplies. A stronger greenback makes dollar-priced oil more expensive for holders of other currencies, curtailing demand, it noted.

PSU banks may hog limelight

Public sector bank stocks will be in focus as Finance Minister Nirmala Sitharaman is all set to evaluate bad loans of Rs 100 crore or more in a meeting on June 20. A senior finance ministry official confirmed the development and said that the assessment of asset quality and recovery is a part of the performance review of state-run lenders, ET reported this week.

FPI trend

Trends in investment by foreign institutional investors and the movement of the rupee against the dollar will also be closely watched by the investors. Foreign institutional investors remained net sellers in the capital market on Friday as they offloaded shares worth Rs 7,818.61 crore, as per exchange data. The rupee settled the week at 78.05 against the dollar.

Global economic readings

On the global front, investors would be eyeing a few economic data from the world’s largest economy, the United States, starting with Chicago Fed National Activity Index on June 21, followed by Initial Jobless Claims, Kansas Fed Composite Index on June 23, Michigan Consumer Sentiment Final, New Home Sales on June 24.

Technical set up

Nagaraj Shetti, Technical Research Analyst,

Securities, said on the higher side, the area of 15,600 levels (mid part of Thursday’s long bear candle) is expected to be a crucial overhead resistance ahead and is unlikely to be broken on the upside in a hurry. After a small upside bounce, the Nifty50 could slide down to the 15,000-14,800 levels in the near term, he said.

“The ongoing momentum indicates that we are heading towards the lower levels, but there is one ray of hope for the bulls.The Long to Short ratio of FIIs in index futures is near 11 per cent and generally such kind of oversold positions result in some bounce in the markets. Thus we expect a sharp bounce in the markets once the Nifty starts trading above the 15,500 mark,” Mehul Kothari – AVP, Technical Research, Anand Rathi Shares & Stock Brokers.

In that scenario, we might see levels like 15,800/ 16,200, but that would be a tough nut to crack since that is a major gap area. On the other hand, a close below 15, the 200 might force the index to breach the 15,000 mark and test 14,800 or lower levels in the coming week,” Kothari added.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)