US Tax Reform Woes Dent Sentiment

Global financial markets ended the week on a mixed note after concern from investors over potential obstacles to Republican’s tax overhaul and a slate of policy meetings from major central banks in Europe.

In the US, uncertainty over the progress of House and Senate Republicans in finalizing tax reform legislation sparked some volatility late in the week. However, the US markets ended the week on a positive note following reports that Republicans had agreed to extend the child tax credit. The Dow Jones industrial average jumped 139 points to 24,652, a record. The S&P 500 gained 0.9% to finish at 2,676.

Major European stock indexes were generally down for the week. On Thursday, both the European Central Bank and Bank of England left interest rates unchanged. The ECB promised to hold rates low for an extended period and even maintained a pledge to provide more stimulus if needed. The decisions come a day after a US Federal Reserve meeting where the central bank announced a widely expected interest rate hike but left its rate outlook for the coming years unchanged. German and French markets were down by 0.4% and 0.9% respectively this week, while UK’s FTSE was up by 1.3% over the week.

Investor sentiment in Asia was hit by concerns about tax-reform efforts in the US. Shares in China declined as investors booked profits, reacting to a hike in interest rates following a hike by the US Federal Reserve. In Japan, shares in insurance, banking and communication sectors led the market fall.

The Nikkei fell by 1.1% and closed at 22,553 whereas, China’s Shanghai Composite fell 0.7% over the week.

Back home, benchmark indices in India bounced back on Friday and ended the week on a positive note on the back of the outcome of Gujarat and Himachal Pradesh exit polls. On the currency front, the Indian rupee strengthened by 30 paise to close at 64.04 against the US dollar from its previous close at 64.34. The BSE Sensex ended the week marginally higher by 0.6%.

Key World Markets During the Week

On the sectoral indices front, Auto, Consumer Durables and IT stocks led the gainers this week. On the other hand, stocks from Telecom and Realty witnessed selling pressure.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by.

In the news from global financial markets, the US Federal Reserve raised its interest rates by 25 basis points in its policy meeting on Wednesday. This marks as the third rate hike by the Fed this year.

As per the news, the US Fed took the decision to raised interest rates on expectations that the job market will remain robust. According to the quarterly economic projections, Fed officials expected the unemployment rate will maintain at 4.1% by the end of 2017 and will further drop to 3.9% in 2018.

The Fed also raised forecast for economic outlook and noted that there are hopes that the US economy will grow 2.5% both in 2017 and 2018. This was higher than its forecasts in September which projected a 2.4% growth for 2017 and 2.1% increase for 2018. Regarding the Fed’s balance sheet, the central bank confirmed that it would step up the monthly pace of shrinking its balance sheet, as scheduled, to US$ 20 billion.

In the news from the macroeconomic front, as per a leading financial daily, inflation based on the wholesale price index (WPI) accelerated to an eight-month high of 3.9% in November. This was against the WPI of 3.6% in October. Retail inflation unexpectedly jumped to a 15-month high of 4.9% in November, and industrial production slowed to 2.2% in October.