All through 2016, predicting what the U.S. Federal Reserve would do in its monetary policy meetings was both as simple as flipping a coin, and as difficult as reading a poker champion's face. There was nothing in between. And yet, as we try and think of what is likely to dominate the news and provide triggers, if any, for the equity markets this week, the Federal Open Market Committee (FOMC) meeting is at the top of the list.
The expected outcome is the Federal Reserve maintaining the Federal Funds Rate target range at 0.75 percent to 1.00 percent, and hinting towards two more rate hikes in 2017. Chairperson Janet Yellen said a fortnight back that Fed's focus was shifting from stimulating the economy to keeping growth on an even keel. Yellen seemed confident about growth continuing at a healthy rate, hence the Fed's actions in trying to sustain expected growth.
Keep in mind though, that the United States, United Kingdom, and France, have all reported January-March quarter gross domestic product growth data that missed street expectations.
Since this data is likely to be revised, the Fed may not put too much emphasis on this data point. While William Dudley – who is president of Federal Reserve Bank of New York and vice-chairman of the FOMC – showed no urgency for rate hikes, he too held two more rate hikes in 2017 as appropriate. That's a view shared by other voting FOMC members like Charles Evans, Patrick Harker and Robert Kaplan.
On to the major event in Europe, where the market's view seems similarly benign. Opinion polls in France show a very slender chance of a Le Pen victory. Yes, polls got Brexit and the U.S. elections wrong in 2016, but every major columnist that I have read has called a Macron victory on the coming weekend. The markets have started pricing that in, as witnessed in the rally last week. Should there be no surprise on Sunday, there may be some more gains in store for global markets because of this event. In the less likely event of a Le Pen victory, expect some correction in European markets next week.
With little on the domestic front, Indian markets are likely to swing to the tune of global strings. The earnings calendar is not too packed, with just three Nifty names - ICICI Bank Ltd., HDFC Ltd., and Eicher Motors Ltd., – announcing results. Experts don't think this week's Nifty earnings will be a major driving force. The activity on the midcap end, however, is interesting. The market remains interested in knowing more about two companies which listed recently – BSE Ltd. and Avenue Supermarts Ltd. – which will declare their first results after going public. A few other interesting midcap results lined up this week are IIFL Ltd., MCX Ltd., and Rain Industries Ltd., but the FOMC and the French elections on Sunday are likely to be the driving forces in the near term.
Niraj Shah is Markets Editor at BloombergQuint.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
