The latest remark by the US Federal Reserve Chair Jerome Powell on interest hikes has triggered volatility in global markets. While the Indian markets after a day off on the occasion of Holi opened in negative with Sensex down by 323.09 points and Nifty down by 88.10 points the US Benchmarks fell by over 1 per cent. Even equity futures for Hong Kong, Japan, and Australia saw a decline.
Powell on Tuesday said that the Fed is prepared to hike rates and take tougher measures if economic data suggests that there is a need to control rising prices. His remarks come after data showed an unexpected jump in inflation in January and the US government also reported a large increase in payroll jobs for the month.
Global impact
After this statement by Powell, Dow Jones Industrial Average fell by 1.75 per cent with a decline of 575 points, to close at 32,856.46. S&P 500 also saw a drop of 1.5 per cent to 3,986.37 and Nasdaq falling by 1.3 per cent to 11,530.33.
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In the European market STOXX 600 saw a 0.77 per cent fall and MSCI's broadest index of Asia-Pacific shares outside Japan went down by 0.81 per cent.
While Japan's Nikkei went up by 0.25 per cent, Australian shares went down by 1 per cent. Even New Zealand's benchmark index went down to 7,294.3 points, a decline of 1 per cent.
Canada's main stock index also saw a decline of 1 per cent.
Impact on Indian markets
Indian indices continued to stay in the red on Wednesday, at 2 pm Sensex was down by 0.09 per cent at 60,169.96 and Nifty was down by 0.05 per cent at 17,703.20. India is considered among the more sensitive markets to US rates, said UBS analysts, and the Indian equities will have a downfall risk as the interest rates can directly impact the foreign institutional investors movement.
There has already been a sell-off in tandem with FIIs and this can cause panic in the market.
Despite a strong internal growth engine, India is impacted by the global aftershocks and has started to show signs of weakness.
US fed hike
The US central bank since earlier last year has already raised the lending rate eight times as inflation remains above its long-term target of 2 per cent. Last month the rate was raised by a quarter percentage point to 4.50-4.75 per cent, which is the highest level since the global financial crisis.
After Powell's comment experts expect the Fed to increase the rates by 50 basis points in the upcoming meeting which is to be held on 21-22 March.
