Global Uncertainty Dampens Domestic Market Sentiments
Domestic markets faced a sharp decline, with indices dropping more than 2% on Friday, driven by growing geopolitical tensions in the Middle East and a steep rise in crude oil prices. Concerns over foreign investor outflows and technical market breaches added to the volatility, with analysts suggesting further downside risk. With global market signals turning negative, both domestic and international investors are closely watching key technical levels and upcoming economic data.
Escalating tensions in the Middle East have spooked markets globally, and India is no exception.
The surge in crude oil prices, compounded by fears of disrupted supply, has pressured markets further. Foreign institutional investors (FIIs), who have been instrumental in supporting the markets, turned net sellers, pulling out Rs 15,243 crore on Thursday, while domestic institutional investors (DIIs) attempted to counterbalance with purchases worth Rs 12,914 crore.
However, this was not enough to offset the sharp declines seen in equities.
Ajit Mishra, Senior Vice President of Research at Religare Broking, commented on the technical market outlook: “Geopolitical uncertainty and concerns over a potential decline in foreign inflows have spooked the markets. With Nifty breaching multiple support levels—including the 20-day exponential moving average (DEMA) around the 25,580 level and trendline support near 25,350—the market could face further downside.”
Pre-Market Signals and Technical Analysis
GIFT Nifty, formerly known as SGX Nifty, hinted at a weak start for Indian markets, with futures trading 106.5 points lower, indicating a 0.42% drop to 25,415.50. On the technical front, key support levels are now seen at 25,000 and 24,750, while resistance is anticipated at 25,500.
Hardik Matalia of Choice Broking noted that “Traders should closely monitor these levels, as a break below the support could trigger further downside, while resistance at 25,500 may cap any short-term recovery attempts.”
Meanwhile, India VIX, a key measure of market volatility and investor sentiment, surged by 9.8% to 13.17 levels, reflecting the rising fear in the markets.
Global Market Trends
— Global cues further exacerbated domestic volatility. U.S. stocks closed lower ahead of a crucial U.S. payroll report, with the Dow slipping by 0.44%, S&P 500 dipping 0.17%, and Nasdaq edging down 0.04%.
— Asian markets offered mixed signals, with Japan’s Topix gaining 0.6%, but Australia’s S&P/ASX 200 falling 1%. Hong Kong’s Hang Seng futures dropped 0.3%, and Euro Stoxx 50 futures were little changed, signaling potential choppiness in European markets as well.
Oil, Currency, and FII/DII Activity
Oil prices remained high in early Asian trading on Friday, holding onto their weekly gains as investors weighed the ongoing Middle East conflict and its impact on crude flows. The sharp rise in oil prices added pressure to India’s already fragile domestic market, as rising crude costs have a direct impact on inflation and corporate profitability.
The dollar, benefiting from its status as a safe-haven asset, gained strength and hovered near a six-week high, poised for its largest weekly gain since April. This, coupled with weak foreign inflows, led to the depreciation of the Indian rupee, which closed 14 paise lower at 83.96 against the US dollar on Thursday.
Outlook
With FIIs reducing their net long positions significantly from Rs 3.38 lakh crore on Tuesday to Rs 1.62 lakh crore by Thursday, the market sentiment remains fragile.
Investors are advised to stay cautious as key economic data such as the U.S. non-farm payroll report, due later in the day, will influence global risk appetite and the Federal Reserve’s future interest rate outlook.
Asian Shares Tumble as Oil Prices Surge Amid Middle East Tensions
Asian stock markets experienced sharp declines on Friday as escalating geopolitical tensions in the Middle East fueled investor caution.
Oil prices continued their upward trajectory, poised for their biggest weekly gains in over a year, driven by fears of potential disruptions in crude supply. The sell-off in equities comes ahead of a crucial U.S. jobs report, adding further uncertainty to global markets.
Middle East Tensions Ignite Market Volatility
Geopolitical risks in the Middle East have rattled markets, with the conflict between Israel and Hezbollah intensifying and the U.S. mulling strikes on Iran’s oil facilities.
U.S. President Joe Biden’s comments on potential military retaliation against Iran in response to Tehran’s missile attack on Israel sparked a surge in oil prices. Israel’s airstrikes on Hezbollah targets in Beirut further stoked fears of a broader regional conflict, which could threaten global oil supply chains.
— Oil prices, already climbing earlier in the week, surged to new highs as investors weighed the potential for disruption in Middle Eastern oil exports.
— Brent crude futures slipped marginally by 0.04% to $77.59 per barrel on Friday but remained on track for a 7.8% weekly gain, the largest since February 2023.
Similarly, U.S. West Texas Intermediate (WTI) crude futures held steady at $73.71 per barrel, poised for an 8.1% gain over the week, the most significant increase since March 2023.
Global Equities Under Pressure
The rising uncertainty around the Middle East conflict and its impact on oil prices left most Asian equities in the red.
Investors opted for caution, selling off riskier assets and turning to safe-haven investments such as the U.S. dollar, which hovered near a six-week high.
The market’s focus now shifts to the U.S. nonfarm payrolls report, which will provide critical insight into the health of the U.S. labor market and influence the Federal Reserve’s interest rate policy. Expectations are for the U.S. economy to have added 140,000 jobs in September, slightly down from the previous month’s 142,000. A strong labor report could diminish the chances of a rate cut, further weighing on equities.
U.S. Economic Resilience and Fed Outlook
Recent U.S. economic data has pointed to a resilient economy, with the services sector activity hitting a 1.5-year high in September, buoyed by robust new orders. Additionally, a Labor Department report showed the labor market remained strong through the third quarter. As a result, traders have reduced their expectations for a significant rate cut by the Federal Reserve, with futures now pointing to just a 35% chance of a 50-basis-point cut next month.
“The U.S. services ISM beat expectations, signaling robust economic activity. Our base case is that the labor market is normalizing rather than faltering,” said Alvin Tan, Head of Asia FX Strategy at RBC Capital Markets.
Currency Markets and Commodities
The U.S. dollar continued to benefit from its safe-haven status, with the dollar index holding near 101.92, close to a six-week high. The euro remained relatively unchanged at $1.1031, though it was on course for a 1.2% weekly drop.
Meanwhile, the British pound recovered slightly to $1.3131 after falling more than 1% on Thursday, following dovish remarks from Bank of England Governor Andrew Bailey, who hinted at possible rate cuts should inflation data continue to improve.
In the commodities market, spot gold edged up 0.06% to $2,657.89 per ounce, as investors sought safety amidst growing global uncertainties.
Under The Lens
As the geopolitical situation in the Middle East continues to unfold, the global markets remain on edge, with oil prices rising and equities facing significant downward pressure.
Investors are now looking to the U.S. nonfarm payrolls report to gauge the Federal Reserve’s next moves, with hopes that stable economic indicators could ease market jitters.
However, with the ongoing volatility in the Middle East and its potential impact on global energy supply, caution is likely to persist in the coming days.
The road ahead appears volatile, with market participants advised to brace for continued uncertainty as geopolitical tensions persist and crude oil prices remain elevated. Traders will be closely watching for any signs of recovery or further downside as technical levels are tested in the coming sessions.
