Third session of market declines; US bond and gold prices surge due to Middle East tensions

The US Federal Reserve’s dwindling expectations of an early rate decrease contributed to the selling pressure brought on by the Middle East war, causing the domestic equities market to drop for the third consecutive day. Tuesday’s BSE Sensex dipped 0.62% to close at 72,943.68, while the NSE Nifty50 shed 0.56% to close at 22,147.90, led by US-sensitive IT firms.

The past three sessions saw 2.7% corrections in each of the two benchmark indexes. The Nifty has lost points while the Sensex has lost 2,180 points since reaching its all-time high on April 10. According to Vinod Nair, head of research at Geojit Financial Services, “heightened concerns arose after stronger-than-anticipated US retail sales, amplifying the assumption that the US Fed might delay rate cuts, leading to a notable uptick in the dollar index and US bond yields.”

The market had anticipated that the Fed would lower rates three times this year. Less rate reduction are indicated by recent US employment, inflation, and retail statistics. This is good news for the bond market but a significant downer for global stocks.

RBI may adopt a similar strategy. The Reserve Bank of India (RBI), according to Morgan Stanley analysts, is unlikely to cut interest rates in the current fiscal year given the country’s strong economic development and shifts in the US Federal Reserve’s policy orientation. The yield on a US 10-year bond increased 14 basis points to 4.66%, which is the most since 2024. According to analysts, yields may cause foreign portfolio investments (FPIs) to leave developing nations like India. On Tuesday, FPIs sold shares for a net total of Rs 4,469 crore.

In addition to bonds, gold prices are rising. Comex gold achieved $2,370 after advances overnight, while MCX gold increased by Rs 300 to reach 72,600. According to Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities, “gold traded strongly as global markets reacted negatively to Israel’s statement regarding Iran’s drone attack retaliation, leading to increased safe-haven buying in gold prices.”