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Market Optimism Prevails Amidst Global Developments and Earnings Season Beginnings

 


Dear Reader,

Welcome to this week's edition. In our previous issue, we discussed how bond markets reacted to hawkish Fed minutes and a strong private jobs report, causing bond yields to rise. However, the sentiment shifted later in the week as the US non-farm payrolls report fell below expectations. This brought back smiles to investors' faces, and their optimism continued into this week.

Global food inflation remained largely under control in June, as indicated by the decline in the FAO food price index. However, domestic food inflation saw an increase, with food prices rising by 2.5% on a month-on-month basis. Notably, pulses and vegetable prices experienced sharp increases. While the monsoon tracker highlighted an improvement in the uneven rainfall situation, the risk to agriculture still persists.

In domestic inflation data, the positive aspect was a decline in core inflation. An analyst, pointed out that while this was good news for inflation-watchers, the US inflation backdrop was even more favorable. US CPI stood at a seasonally-adjusted 0.2% compared to a month ago and 3% compared to a year ago.

Meanwhile, those keeping an eye on potential recessions are finding their wait getting longer. The analyst also highlighted that the most anticipated recession has turned into the most postponed one, with the US economy showing a GDP growth of 2% in Q1 and forecasts suggesting a similar trend for Q2. The probability of a 2023 recession has diminished in analysts' forecasts, with a soft landing becoming a more likely scenario.

As equity indices continue their upward trajectory, some may feel it's too late to join the party, while those already invested may contemplate their exit strategy. Understanding investor psychology is crucial in making financial decisions, as discussed by Vijay Bhambwani. Emotional behavior plays a significant role in market volatility, and it's essential to course correct and strike a balance.

While macro concerns continue to fade, investor focus will shift to micro factors, with earnings being a key aspect to watch. The domestic earnings season has already commenced, with IT giants such as TCS and Wipro reporting their numbers. Although challenging times were expected for IT companies, investors seem to have already priced in these expectations, as their reactions to the results have been relatively muted.

To get a more detailed analysis of the results, do check out our research team's take on TCS, Wipro, and HCL Tech.


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