US Fed Rate and Trump Policies Bring Down the Cheers in the Emerging Market

The morning trading session witnessed a heavy jolt in the Indian market. NSE benchmark Index Nifty opened 100 points gap down and made a new low of 8274 intraday after making a high of 8475.

This panic is more to do with the decision of the US Federal Reserve to increase the interest rates. This increase has been long highlighted by the three month US treasury yield which has shot up to 0.47 per cent. The last time such big breakout took place was during the months of November and December of 2015. This is mainly because the increase in the interest rates is highlighted in the short time Government bonds which have shot up massively and an anticipation of interest rate hikes leads to outflow of US dollar from the emerging economies. 

 

Last time when Indian currency surged from 65.6 to 68.14 was during that one month period of last year when the global economy has collapsed. Today the INR rupee spot has opened gap up by 1 per cent from a low of 66.30 that was made in yesterday’s trading session.

Global emerging market currencies have all been affected by the anticipated interest rate hike and they have all shown signs of depreciation against USD. In the last few days, Indian markets have already seen heavy out flow of foreign funds as it is. More than Rs 8000 crores of FII investment in the equity market has already left in the month of October. 

Donald Trump pledged to restrict imports and add fiscal stimulus that has seen hastening interest-rate hikes by the Federal Reserve. More than US$ 1 trillion was wiped off the value of bonds this week, something that has happened only once before in the last two decades, as Treasuries lost the most since 2009.

What is very concerning is that the MSCI (Morgan Stanley Capital International) Index of the emerging has already given downside breakout which confirms the fear that global markets, especially the emerging ones, might not be a big beneficiary of the Trump policies. The next few week before the FED meet on 14^th December, markets will show nervousness and signs of panic will be inevitable. 

 

The major indices of India Nifty and Sensex have both responded accordingly with the upcoming rate hike news. Nifty share price did not see the green side of the market even once today. The index is down by more than 200 points while drawing close to the weekend. 

 

Heavy fund outflow have effected the emerging economies on the back of the upcoming Fed Rate hike and Donald Trump policies.