US Fed Meeting Live Updates: Recession vs No recession debate heats-up as US reports 0.9% contraction for April-June quarter

US GDP: Economy shrinks 0.9% in April-June, a 2nd straight drop

The U.S. Economy shrank from April through June for a second straight quarter, contracting at a 0.9 per cent annual pace and raising fears that the nation may be approaching a recession.

The decline that the Commerce Department reported Thursday in the gross domestic product the broadest gauge of the economy followed a 1.6 per cent annual drop from January through March.

Consecutive quarters of falling GDP constitute one informal, though not definitive, indicator of a recession.

The report comes at a critical time. Consumers and businesses have been struggling under the weight of punishing inflation and higher borrowing costs.

On Wednesday, the Federal Reserve raised its benchmark interest rate by a sizable three-quarters of a point for a second straight time in its push to conquer the worst inflation outbreak in four decades.

The Fed is hoping to achieve a notoriously difficult soft landing: An economic slowdown that manages to rein in rocketing prices without triggering a recession.

Fed Chair Jerome Powell and many economists have said that while the economy is showing some weakening, they doubt it's in recession.

Many of them point, in particular, to a still-robust labour market, with 11 million job openings and an uncommonly low 3.6 per cent unemployment rate, to suggest that a recession, if one does occur, is still a ways off.

After going backward from January through March, the U.S. Economy probably didn't do much better in the spring.

Forecasters surveyed by the data firm FactSet have estimated that the nation's gross domestic product the broadest measure of economic output eked out a tepid annual gain of 0.8 per cent last quarter. Modest as it would be, that would amount to a sharp improvement over the economy's 1.6 per cent contraction in the January-March quarter.

Some economists fear that GDP actually shrank again from April through June, delivering the back-to-back negative quarters that constitute an informal definition of recession. The Federal Reserve Bank of Atlanta's running estimate of GDP growth, based on available economic data, is signalling a 1.2 per cent second quarter decline.

Most economists, though, point, in particular, to a still-robust labor market, with 11 million job openings and an uncommonly low 3.6% unemployment rate, to suggest that a recession, if one does occur, is still a ways off.

For one thing, the first-quarter economic contraction wasn't as alarming as it looked. It was caused mainly by factors that don't reflect the economy's underlying health: A wider trade deficit, a consequence of Americans' keen appetite for foreign-made goods, slashed 3.2 percentage points from first-quarter growth. And a post-holiday-season drop in company inventories lopped off an additional 0.4 percentage point.

The strength of America's job market, Fed Chair Jerome Powell said at a news conference Wednesday, ?makes you question the GDP data."

The economy posted some encouraging news Wednesday: June reports on the trade deficit (narrower), inventories (higher) and orders for high-priced factory goods (better than expected) suggested that second quarter GDP might turn out to be stronger than previously feared.

Economists at JP Morgan have doubled their forecast for April-June growth to an annual pace of 1.4%.

Even so, recession risks are growing as the Fed's policymakers pursue an aggressive course of rate hikes that, while they may ease in the months ahead, will likely extend into 2023.

The Fed's hikes have already led to a doubling of the average rate on a 30-year fixed mortgage in the past year, to 5.5%. Home sales, which are especially sensitive to interest rate changes, have tumbled.

Some economists have echoed an observation Powell made at his news conference Wednesday: That the economy, looked at as a whole, does not appear to be in the grip of recession. Reuters

Stock Markets Today: Sensex ends 1,000 points up, Nifty closes above 16,900

 Benchmark indices ended higher for the second consecutive day on Thursday with Sensex ending 1,000 points up and Nifty ending above 16,900 on back of positive cues from global market after US Fed policy outcome, good earnings in large cap space, partly short-covering and partly investment buying in some segments.India`s blue-chip stock indexes hit a three-month closing high on Thursday, led by a surge in Bajaj Finance and Bajaj Finserv, in the backdrop of the U.S. Federal Reserve raising interest rates as expected.

At the close, Sensex was up 1,041.47 points, or 1.87 per cent, at 56,857.79, and the Nifty 50 was up 287.80 points or 1.73 per cent at 16,929.60. A total of 1,904 shares have advanced, 1,427 shares declined, and 148 shares were unchanged. Bajaj Finance, Bajaj Finserve, Kotak Mahindra Bank, and IndusInd Bank were major gainers on the Nifty.

"Positive cues from global markets following the Fed policy outcome, as well as domestic large caps` upbeat earnings, drove the market rally. The Fed`s decision was as expected, while their positive comment dismissing the possibility of a recession and hinting at a slower pace of rate hikes in the coming months boosted global sentiments," said Vinod Nair, Head of Research at Geojit Financial Services.

Mid cap and small cap stocks ended on a strong note as Nifty mid cap and small rose 0.84 per cent and 0.85 per cent, respectively. Nifty IT and Financials outperformed on the National Stock Exchange.

Apart from this, Asian and European stocks also rose on Thursday on positive comments in Fed`s decision and hint of slower pace of rate hikes in the coming months. All Asian markets and Tokyo stocks closed higher.

Rupee Vs Dollar: Indian rupee sees biggest daily gain in over 2 months post Fed announcements

The Indian rupee saw its biggest single-day gain in more than two months on Thursday, tracking strength in most other Asian peers and shares, while bond yields inched lower after comments from U.S. Federal Reserve Chair Jerome Powell.

Powell sounded suitably hawkish on curbing inflation in his news conference, but also dropped guidance on the size of the next rate hike and noted that "at some point" it would be appropriate to slow down.

India's partially convertible rupee ended trading at 79.7550 compared to its close of 79.8975. It gained 0.2% on the day, its biggest daily rise since May 20.

India`s benchmark 10-year bond yield ended at 7.33%, down 1 basis point on the day.

U.S. Treasury yields edged lower as bonds rallied after the Fed raised rates by 75 bps, in line with market expectations. [US/]

The U.S. dollar slumped to a three-week low versus the Japanese yen and struggled against its other major rivals on Thursday as markets ramped up bets on a softening in the pace of rate hikes.

Expectations From RBI's MPC next week

"We expect the RBI`s monetary policy committee to vote unanimously for a 35 bps rate hike during next week`s policy review meeting," Barclays economists said in a note.

"While inflation is likely to remain elevated in the near term, we think the MPC may acknowledge that price pressures have peaked, and note the favourable tailwinds by reducing its inflation forecasts, albeit marginally."

Traders said they would also be focussing on the central bank`s views on liquidity after the recent tightness in the money markets which has pushed the inter-bank call money rate to above the marginal standing facility rate.

"With inflation drivers easing, I see terminal repo rate in range of 6%-6.25% for now, and a longish period of pause post that," said Akhil Mittar, senior fund manager at Tata Mutual Fund wrote in a note.

"I believe growth situation in India is not as bad as in west (recessionary expectations rising in the west) and RBI might not be immediately pushed to support growth," he added. Reuters

Gold rose on Thursday after U.S. Federal Reserve chair Jerome Powell signalled the central bank could slow the pace of rate hikes in coming months, but a rise in the dollar prompted the metal to pull back from a three-week peak.

Spot gold was up 0.3% to $1,739.45 per ounce by 1146 GMT, after rising as much as 0.8% - its highest since July 8.

U.S. gold futures rose 1% at $1,736.70.

"Gold`s drop from earlier highs has coincided with the dollar also finding a bit of support. I reckon it is due to investors taking profit ahead of U.S. GDP data later on," said Fawad Razaqzada, market analyst at City Index.

The key takeaway from the FOMC meeting is that pace of future hikes will depend on data, which makes it extremely difficult to predict gold`s next move, he added.

The Commerce Department`s advance second-quarter U.S. gross domestic product report is due at 1230 GMT. According to a Reuters survey of economists, GDP growth likely rebounded at a 0.5% annualized rate last quarter.

After the conclusion of the central bank`s policy meet, Powell had said another "unusually large" increase in interest rates may be appropriate at its next meeting in September, but the decision will be determined by the incoming economic data between now and then.

The Fed raised its benchmark overnight interest rate by three-quarters of a percentage point on Wednesday to combat skyrocketing inflation.

"There is an increasing view that the Fed`s hand is being forced into raising rates by events largely outside of their control - and that is supply chain problems," independent analyst Ross Norman said.

Traders have cautiously pared back expectations of further rate rises, as the second quarter GDP figures would provide clarity on the strength of the economy.

Meanwhile, the dollar index reversed course and was up 0.5%. [USD/]

Silver rose 1.2% to $19.36, while platinum fell 0.1% to $885.56.

Rupee Vs Dollar: Indian rupee gains as less-hawkish Powell calms strong rate-hike fears

The Indian rupee gained on Thursday, tracking strength in most other Asian currencies and equities, while bond yields eased after U.S. Federal Reserve Chair Jerome Powell eased trader concerns over continued aggressive monetary tightening.

Powell sounded suitably hawkish on curbing inflation in his news conference, but also dropped guidance on the size of the next rate hike and noted that "at some point" it would be appropriate to slow down.

U.S. Treasury yields edged lower as bonds rallied after the Fed raised rates by 75 bps, in line with market expectations. [US/]

India`s benchmark 10-year bond yield was trading at 7.33% by 0640 GMT, down 1 basis point on the day, while the partially convertible rupee was trading at 79.75/76 per dollar, compared with its close of 79.8975 on Wednesday.

The dollar dropped to a three-week low versus the yen, with the dollar index down 0.3%. [USD/]

Traders said focus will soon shift to monetary policy committee meeting by the Reserve Bank of India (RBI) due next week. Though the broad consensus was for a 50-bps rate hike, views are likely to be tempered after Fed`s decision.

"We now expect the RBI MPC to raise policy repo rate by 35 bps on Aug. 5 and change stance to calibrated tightening," economists at BoFA Securities said in a note.

Investors also expect the rupee to be supported by central bank intervention if there is any depreciation pressure on the local currency in the near term.

A senior source aware of RBI`s decision-making recently told Reuters that the central bank could spend up to $100 billion to protect runaway falls in the rupee.

"RBI might not have used more than $25 billion-$30 billion in defending rupee, given the increasing penchant of the regulator to intervene in NDF/Future markets," State Bank of India said in a recent note.
"Rest of the decline (in foreign exchange reserves) might be purely because of valuation. Enough support for rupee is thus still available," the lender added. Reuters

Dollar vs yen: USD sinks to 3-month's lows as Fed's Powell less hawkish than feared

The dollar dropped to a three-week low versus the yen on Thursday after Federal Reserve Chair Jerome Powell assuaged investors` worries about continued aggressive monetary tightening.

The U.S. currency sank as low as 135.105 yen, its weakest since July 6 after the Fed raised the benchmark rate by an as-expected 75 basis points to bring it closer to neutral, while noting that although the labour market remains strong, other economic indicators have softened.

The dollar-yen is highly sensitive to shifts in U.S. yields, which slid after Powell said that based on the strength of employment, he didn`t believe the economy was in recession, and that a recession was not necessarily required to tame super-heated inflation.

"The dollar lost a little bit of altitude because I think the market was bracing for the potential of Fed chair Powell to sound a little bit more hawkish," said Rodrigo Catril, a senior FX strategist at National Australia Bank.

"The markets sort of focused on his comments around the fact that we are getting very close to neutral," Catril said. "There`s potential now to slow down the pace of hikes, and the market likes that."

The dollar was last down 0.8% at 135.525 yen.

The two-year Treasury yield, which is especially sensitive to policy expectations, sagged near its lowest level this week at 2.9979%.

It remained about 20 basis points above the 10-year yield though, widely seen as signalling a looming downturn. Reuters

Parth Nyati, Founder, Tradingo on the impact of US fed hike on India

US Fed announced a 75 bps rate hike yesterday which was in line with the market expectations. We believe that the Indian markets have already priced in the hike and the impact is going to be minimal. However, the market expects the rates to stabilize around the 3% levels by the year-end and any negative surprise could be perilous for the global as well as Indian economy.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services

"Even after the 75 bp consecutive rate hike by the Fed and indication that "another unusually large increase would be appropriate in the next meeting" the US markets staged a smart bounce back with S&P 500 and Nasdaq rising by 2.62% and 4.06% respectively. The market seems to be taking cue from the Fed chief's observation that, " I don't think we are in a recession now, the labour market continues to be tight. "
Data - unemployment at 50-year lows and job vacancies at historical highs - seem to support the Fed chief's confidence about the US economy.

Asian Markets Updates

Asian shares made cautious gains on Thursday as investors scented a possible slowdown in the pace of U.S. rate hikes, comforting bond markets and sending the dollar to a three-week low on the yen.

As expected, the U.S. Federal Reserve raised rates 75 basis points (bps) to 2.25-2.5% but did note some softening in recent data.

Fed Chair Jerome Powell sounded suitably hawkish on curbing inflation in his news conference, but also dropped guidance on the size of the next rate rise and noted that "at some point" it would be appropriate to slow down. [

"The Fed no longer feel behind the curve and can now assess the appropriateness of policy `meeting by meeting`," said Elliot Clarke, a senior economist at Westpac.

"This is not to say that the rate-hike cycle is complete or even that a pause is coming, but risks look as though they are transitioning from being skewed to the upside to the downside."

The futures market still has 100 bps of further tightening priced in by year-end, but also implies around 50 bps of rate cuts over 2023.

Just the hint of a less aggressive Fed was enough to send MSCI`s broadest index of Asia-Pacific shares outside Japan up 0.5%.

Japan`s Nikkei added 0.3% and South Korea 0.9%. Chinese blue chips firmed 0.6%. Source: Reuters

MCX Gold, Silver Updates

The MCX August Gold futures were trading at Rs 50892 per 10 gram, and were up Rs 172 or 0.34 per cent. Meanwhile, the September Gold futures were trading at Rs 56014 and were up by Rs 1170 or 2.13 per cent.

Indian stock marrkets reponded positively to the US Interst rate hike of 75 bps by the Fed. At 10 am on Monday, both the BSE Sensex and Nifty50 were trading positively. The 30-share Sensex was trading at  56,367.41, up by 551.09 points or nearly 1 per cent from the Wednesday closing level. Meanwhile, the broader market Nifty50 was trading at 16791 and was up 150 points or 0.9 per cent around this time. 

US Dollar

The U.S. dollar languished near a three-week low to major peers on Thursday after Federal Reserve Chair Jerome Powell assuaged trader worries about continued aggressive monetary tightening.

The dollar index, which measures the greenback against six counterparts, slid overnight after the Fed raised the benchmark rate by an as-expected 75 basis points to bring it closer to neutral, while noting that although the labour market remains strong, other economic indicators have softened.

Powell said "another unusually large" rate increase could be appropriate at the Fed`s next meeting, but said the central bank`s decisions would be data-dependent and it would not give forward guidance. He also said he didn`t believe the economy was in recession, based on the strength of employment.

"The dollar lost a little bit of altitude because I think the market was bracing for the potential of Fed chair Powell to sound a little bit more hawkish," said Rodrigo Catril, a senior FX strategist at National Australia Bank.

"The markets sort of focused on his comments around the fact that we are getting very close to neutral," Catril said. "There`s potential now to slow down the pace of hikes, and the market likes that."

The dollar index was slightly higher at 106.54 in early Asian trading after dropping 0.59% overnight. Below 106.1 would be the lowest since July 5.

The two-year Treasury yield, which is especially sensitive to policy expectations, sagged near its lowest level this week at 2.9878%, adding further weight on the dollar.

It remained about 23 basis points above the 10-year yield though, widely seen as signalling a looming downturn. Reuters

Zee Business Managing Editor Anil Singhvi's 28th July Strategy: 
Global: Positive
FII: Positive
DII: Positive
F&O: Neutral
Sentiment: Positive
Trend: Neutral
 
Nifty support zone 16575-16625, Below that 16450-16525 strong Buy zone
Nifty higher zone 16725-16800, Above that 16875-16950 Profit booking zone
Bank Nifty support zone 36400-36475, Below that 36250-36350 strong Buy zone
Bank Nifty higher zone 36975-37150, Above that 37325-37500 Profit booking zone
Nifty support levels 16625, 16600, 16575, 16525, 16475, 16450
Nifty higher levels 16700, 16725, 16750, 16800, 16825, 16875, 16950
Bank Nifty support levels 36725, 36600, 36475, 36400, 36350, 36250
Bank Nifty higher levels 36925, 36975, 37050, 37150, 37225, 37325, 37500

FIIs Index Long at 45% Vs 36%
PCR at 1.24 Vs 0.99
India VIX down 0.25% by at 18.13
For Existing Long Positions:
Nifty Intraday SL 16425 n Closing SL 16475
BankNifty Intraday SL 36250 n Closing SL 36400

For Existing Short Positions:
Nifty Intraday n Closing SL 16800
BankNifty Intraday n Closing SL 37050
For New Positions:
Buy Nifty
SL 16575 Tgt 16700, 16725, 16750, 16800, 16825, 16875, 16950

Aggressive Traders Sell Nifty in 16800-16950 range:
Strict SL 17025 Tgt 16750, 16725, 16700, 16650, 16625, 16575, 16525

For New Positions:
Buy BankNifty
SL 36400 Tgt  36925, 36975, 37050, 37150, 37225, 37325, 37500

Sell BankNifty 37325-37500 range:
SL 37600 Tgt  37225, 37150, 37050, 37000, 36925, 36825, 36750

Daily Trading Calls - Anuj Gupta, Vice President (VP), Commodity and Currency Research at IIFL Securities

1) Buy Gold Aug at 50700 SL 50450 TARGET 51100

2) Buy silver Sept at 54700 SL 54200 TARGET 55500

3) Buy MCX COPPER Aug AT 636 sl 630 target 646

4) Buy crude oil Aug at 7750 Sl 7650 target 7900

5) Sell usdinr aug at 80.20 sl 80.40 target 79.90

US Fed Interest Rate Hike - Impact on Bullion

Anuj Gupta Vice President (VP), Commodity and Currency Research at IIFL Securities

As expected Fed decision to increased interes rate by 0.75 point basis was discounted, we saw that gold and silver prices were rose sharply and gold touched $1740 per ounce levels and silver touched $19.04 levels.

They are expected to more agrresive to hike interest rates and would likely need to move beyond this rate to about 3.4% by the end of the year, paving the way for about 100 basis points between now and year-end to curb inflation.

the Nasdaq also increased sharply after the statement Powell said in a news conference that he did not believe the U.S. economy is currently in a recession but that it is softening.

We are expecting that Gold and silver may rise further and Gold may test $1755 levels and Silver may test $19.50 to $20 levels very soon.

Pritam Patnaik, Head Commodities, HNI and NRI Acquisitions, Axis Securities

The US Federal Reserve hiked up its benchmark overnight interest rate by 75 basis points in an effort to bring down the burning inflation under control. The outcome of the meet was widely in expected lines. The Fed also indicated that the central bank could slow the pace and size of future rate hikes if the economy cools. The ongoing increases in borrowing costs against a backdrop of a decelerating economy, is a recipe for an economic meltdown. 

The dollar index and bond yields cooled off due to the forward guidance on the rate trajectory, propelling gold prices. A drop of close to 8% in the physical demand in gold  did little to dampen the rally, as the precious metal looks to unshackle from the bear grasp.

US Markets Live Updates

1) Dow30 was trading at 32,136, up by 74.50 points or 1.18 per cent at 15:05 pm US Time (12:38 am IST).

2) S&P500 was trading at 4,020.73, up by  99.68 points or  2.54 per cent around this time.

3) NASDAQ COMPOSITE was trading at 12,017, up by 454.40 points or 3.93 per cent.

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