Rising US yields may do Fed’s job, allow central bank to hold rates instead of hike: Dean Kim
With 10-year US Treasury bond yields rising to 4.9%, William O’Neil + Co believes there is a real possibility of the yields now surging to 5.25%, a level not seen since 2006, and that the market is in a ‘precarious’ situation.
On the US market
The bond market may prove to be a good tool for the US Federal Reserve to do the job for them. Given the current tight financial conditions in the United States, the Fed has the flexibility to stay the course and sustain higher interest rates instead of opting for further rate hikes, said Dean Kim, Head of Global Research Product at William O’Neil + Co.
“While the market is anticipating one more rate hike, I believe the Fed can choose to stay the course and keep rates higher for a more extended duration,” Kim said in a chat with CNBC-TV18.
Starting from March 2022, the Federal Open Market Committee (FOMC) has raised its primary interest rate on 11 occasions, reaching the present targeted range of 5.25% to 5.5%. This milestone represents the highest level witnessed in 22 years.
On the Indian market
Kim sees Sensex finding the next price support at its 100-day moving average (DMA) which is 1% below current levels. Sensex was trading 100 points down today at 65768.09.
The next few days could be critical for some banks, Kim noted. “Some public sector banks are also testing short-term moving averages and a bounce from there is crucial,” he said.
Nifty Bank, which hit a high of 46,310 in September, has been facing relentless selling pressure since, at every rise. The index was trading flat at 43,952.10 today.
On oil prices
Any escalation in the Middle East crisis could lead to a spike in oil prices. Oil prices are currently hovering around $87 a barrel and Kim sees it finding immediate support at $85 per barrel, which is its 50-DMA.
On the Foreign Portfolio Investments in India
While India stands out among emerging markets (EMs) right now, Kim expects some FPI outflows. “FPIs are moving money out of EMs and perhaps they are going to move money into the bond markets as the yields become more attractive,” he said.
FPIs were net buyers every month between March and August. Bloomberg data shows that FPIs had cumulatively bought shares worth $21.3 billion during this period.
(with inputs from CNBC)
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