THE CLIMB UP OF RATES CONTIUES …….

The Fed yesterday did what was widely expected. For the fourth time in a row, the Fed hiked rates by 75 bps to fight inflation. The good news from this – though the rate hikes will continue till inflation is not reined in, the rate hikes will now possibly be in smaller increments but to higher levels than previously anticipated. With this now, the benchmark rates in the USA stands at 3.75% and 4%.

Jerome Powell added a rejoinder saying that reducing the size of rate increases didn’t mean the Fed thought it was close to pivoting away from raising rates and warned, “It is very premature to be thinking about pausing, we think we have a ways to go.”

The US media have put out reports saying that the latest rate increase will bring the fed-funds rate to a level last seen in the first three weeks of 2008, when the economy was sliding into a deep recession, after which the Fed accelerated rate cuts as a global financial crisis was unfolding.

The one underlying message which came across loud and clear – we all need to stop obsessing about how fast rates are increasing and instead focus on how high they could get in this combat against inflation.  Though this is a discouraging message, it’s a necessary one to change the goalpost in our minds and accept that rates hikes are here to stay, there will be no quick U-turn.

Following this, Hong Kong raised its rates by 75 bps and so did Philippines. And today, RBI is holding an unscheduled meet and many tongues have started wagging, saying that we could see a surprise rate hike. Well, nothing of that sort is expected – today’s meet is a regulatory obligation; it needs to provide an explanation for failing to bring down inflation within the mandated band for three straight quarters. So, breathe easy, today a rate hike to follow-up on Fed’s action is not going to happen. The MPC meet for a policy decision is scheduled for 5 -7 Dec – now that meet will be most watched!

Sure, the market is going to react negatively to Fed’s rate hike but most likely, it will take this on its chin – there will not be a floor shattering crash.

These are trying times and we need to stay clam and cautious. We will likely continue to see stock-specific action and most of them, result driven. Today, we are going see the earnings from HDFC, Hero Moto, HPCL, Adani Wilmar, Raymond, JK Lakshmi Cement, Bank of India, Indian Bank, Vodafone, Adani Entp, Adani Total Gas.