Post FOMC markets expectation

Three probable outcome from FOMC

1. Hawkish guidance signalling start of rate-hike cycle in June-September 2015 (leading to weak equity & bonds and strong dollar)

2. Dovish guidance deferring the rate hike to beyond 2015 (leading to strong equity, firm bonds and weak dollar)

3. Neutral stance being cautiously patient in wait-and-watch mode looking for better clarity on growth, inflation and unemployment rate (leading to stability at current levels with mild bullish undertone on equity & bonds and consolidation on the dollar).

Impact on India markets:

See NIFTY at 8470-8620 (on hawkish tone); 8850-9000/9120 (on dovish stance) and consolidation at 8620-8850 (on neutral stance).

USD/INR extreme scenarios are at 63.00-63.50 (on hawkish stance); 61.50-62.00 (on dovish stance) and consolidation at 62-63 (on neutral stance)

EUR/INR extreme scenarios are at 63.50-64.50 (on hawkish stance against EUR/USD at 1.0-1.0250); at 68.00-69.00 (on dovish stance against EUR/USD at 1.10-1.1250) and consolidation at 66-67 (on neutral stance with EUR/USD at 1.05-1.0750).

10Y bond may not have much traction with whatever outcome from FOMC, with most domestic (and external) cues in favour of inflation and twin-deficits for consolidation not beyond 7.60/7.65-7.80/7.85%.

Fingers crossed, and may not be surprised if FOMC turn out to be non (and irrelevant) event!

Moses Harding