Bad US job reports = Good for Indian markets
How?
In the recently released US job market dat, Unemployment rate rose to 3.9%,
But the stock markets were happy
S&P 500 & Nasdaq rose
Why did investors cheer bad jobs data?
- Bad Jobs data means people’s ability to spend will come down
- If people spend less, then inflation will come down
- This means that the central Bank’s effort to tame inflation is working
- If inflation is tamed, then interest rates will start coming down sooner
Anticipation of this made the stock markets go higher on Friday
This also showed up in the Bond markets:
10 year Treasury yields fell sharply to reach 4.57% , just 2 weeks back the yields had reached 5%
What does it mean to Indian investors?
Rising US interest rates over the last couple months was affecting the Indian markets.
Short term interest rate differential between India and US was at a historic low of 1.25%.
When the interest rate differential is low, FIIs find the risk vs reward in India not very compelling. As a result of this, we saw the stock markets correct and rupee getting weaker
Now..
- Lower interest rates in USA will reduce some pressure on the Indian interest rates
- Lower interest rates in India is good for Indian equity markets
- This is one of the reasons why Indian markets went up 1%
Although 1 months reading is too early to predict long term outlook, if the trend continues it might be good news for the equity markets, not just in the US, but even for India