The dilemma in the Fed on interest rates , at least in their communication keeps the market guessing . Just when the market celebrated Fed’s dovish stand it turned a bit hawkish the next day .
Managing interest rates is difficult enough , but managing market expectations is well just too much of a job ! You have the bulls and the bears and the investors and the traders !! All these players interprets every golden word spoken by the Fed coloured by their own perception.
The prejudices and wishful thinking by the market participants keeps distorting the carefully crafted signals sent out by the Fed.
What can the Fed do to change things ! To simulate market reaction to its every move .
Simple : Talk about a market rate hike and check the market reaction . Then desist from a rate hike …. It's almost like giving the market a rate cut without doing anything .
So we can expect the financial markets to take some profit off the table in the next few days . Indian equity markets also saw some profit booking yesterday .
Traders on both the buy and sell side can make money depending on when they exit and their holding power ! However the risk return looks favourable for the long positions . Please keep our safety belts on if you want to enjoy the turbulence . ( stop losses with enough room to filter out the market noise )
On rupee it can weaken a bit more . The intermittent strengths we see in rupee are good levels cover forward dollar requirements .
How will the recent Oil strength affect inflation and thus interest rates in India ?
On specific stock Biocon looks good from a three year perspective. It will be a good idea to build your portfolio when there is a bit of overall price correction in the market.