One night can make a sea change of difference to the world of finance. On Wednesday, the Sensex fell for the third straight day to its lowest closing in nearly two months. The Nifty breached its crucial support of 7,840 in intraday trade and bears were hoping to make a comeback. The rupee was struggling around 61.50 per dollar, the lower end of its 58-62 range.
However, the Federal Reserve's minutes of its September 16-17 meeting, released overnight, seem to have completely changed the sentiments across the globe. The Dow Jones in the US witnessed its best day of the year as expectations of an early hike in US interest rates eased. The dollar lost traction leading to a global rally in risk assets and currencies. (Read the full story here)
Here's your 10-point cheat-sheet to understand the latest developments,
1) The US Fed wants to hike interest rates, starting next year, because its domestic economy is improving. Wednesday's minutes, however, indicate that policymakers in the US are worried about the threats that a rising dollar and slowing global economy pose.
2) A rising dollar threatens Fed's 2 per cent inflation target for the US economy. That's because a strong currency is good for imports and hurts exports, thereby impacting the productivity of the domestic economy. It will also contribute to the US' current account deficit. The Fed is targeting higher inflation in the US to ensure higher prices and wages, which are signs of a robust economy.
3) A tightening of rates in the US will also adversely impact the global economy as funds will flow out from many countries into the US. This could exacerbate slowdown in Europe, Japan and China - economies that are vital for US exports.
4) The first impact of US Fed Minutes was felt on bonds. Bond prices rallied because they move opposite to rates. As a result, yields on the benchmark 10-year note fell to its lowest in more than a year.
5) The US dollar, which had gained sharply over the last three months on hopes of higher interest rates in the US, slipped to a two-week low against a basket of currencies. This was welcome news for other currencies like the euro and the India rupee, which closely tracks the euro.
6) The rupee hit over two-week high of 60.91 per dollar in intraday trade. The Japanese yen and most other emerging market currencies traded higher against the dollar. (Read)
7) The weakness in dollar lifted commodity prices across the globe. Commodities are priced in dollars, so when the dollar falls, less of domestic currency is needed to buy the same commodity. This leads to higher demand and consequently lifts commodity prices. (Read more)
8) US gold futures jumped over 1 per cent to $1,224.30 - also close to a two-week peak, while silver futures rose nearly 2 per cent. Prices of most actively traded December contract in gold rose Rs 170 per 10 gram in India.
9) Brent crude futures also rebounded from a 27-month low hit in the previous session and held steady above $91 a barrel on Thursday.
10) Finally, stock prices surged. The Sensex jumped as much as 440 points (over 1.5 per cent) and the Nifty ended at 7,960 after rising 118 points as fears of overseas investments (FIIs) moving out of country receded. (Read)
(With inputs from Reuters)