Market awaits Fed policy decision and Powell's speech to determine next trigger

• Along with the FOMC, BoJ and ECB will also be announcing their policies in this week.
• Market watchers will be glued to the commentary by the Fed chief, Jerome Powell, regarding future inflation and rate trends.
• In the past month, the Indian benchmarks — Sensex and Nifty — have cumulatively gained about 6 percentage points.

Market watchers believe that the near-term market trend will be influenced by a two major factors - the ongoing Q1 results and some major global macroeconomic policy action. The major one is the US Federal Reserve meeting outcome on Wednesday. The market expectation is that the Fed is likely to raise rate by 25 bps but the market movement will be decided by the commentary of the Fed chief, Jerome Powell, regarding future inflation and rate trends.

Along with the Federal Open Market Committee (FOMC) decision, Bank of Japan (BoJ) and European Central Bank (ECB) will also be announcing their policies in this week. Also, on the cards is the US and Australian inflation reading.

In the past month, the indices — Sensex and Nifty — have cumulatively gained about 6 percentage points. Several analysts have been pointing out that any further rally from the current peak seems unlikely as valuations were higher.

All eyes on Powell

The Fed is likely to raise rate by 25 bps on Wednesday, but the market movement will be decided by the commentary of the Fed chief, Jerome Powell, regarding future inflation and rate trends.

"On July 26, the US Federal Reserve will announce its policy decision, and there is an expectation of a 25 basis point rate hike. Market participants will closely analyse the comments made during the announcement. Additionally, on July 28, the Bank of Japan will also reveal its policy decision," Santosh Meena, Head of Research at Swastika Investmart Ltd, said.

Recent US Fed Rate Action
Date	Rate
June 14	5.25%
May 3	5.25%
March 22	5%
Feb 2	4.75%
Dec 15, 2022	4.50%

Source: FOMC Data


VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services agrees. “The Fed is likely to raise rate by 25 bp on Wednesday, but the market movement will be decided by the commentary of the Fed chief regarding future inflation and rate trends. Investors may wait and watch these events unfold.”

The US Federal Reserve's monetary policy committee paused the key interest rate in its latest meeting. The policy rate has been maintained at 5.0-5.25 %, which was near zero after the outbreak of COVID-19.

Barring the latest pause, the US central bank has hiked the interest rate for the tenth consecutive time which was necessitated in the fight against soaring inflation.

"While a 25-basis point rate hike is widely expected, investors will be more interested in the committee's commentary on future rate actions, seeking clues for the anticipated future rate pause," Vinod Nair, Head of Research at Geojit Financial Services, said.

What else will be in focus

Market watchers expect the the July F&O expiry on Thursday to introduce some volatility into the market.

"We expect higher volatility this week due to the scheduled monthly expiry of July month derivatives contracts. However, the prevailing buoyancy on the global front, especially the US markets, would help in keeping the tone positive," Ajit Mishra, SVP - Technical Research at Religare Broking Ltd, said.

The rupee movement against the US dollar and global oil benchmark Brent crude will also remain in focus this week.

(With text input from wires)