The Morning Edge: Fed Warns of Difficult Trade-offs Ahead as Inflation, Unemployment Risks Mount

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Global Sentiment: Risk-off
Factors:  US FOMC minutes

TODAY’S WATCHLIST
 - US Jan-Mar second GDP estimate
 - Bajaj Auto earnings

THE BIG STORY
US Federal Reserve officials acknowledged at their May 6-7 meeting that they may face "difficult trade-offs" in the months ahead as the twin risks of rising inflation and higher unemployment loom. According to the minutes released on Wednesday, the Fed also flagged concerns about financial market volatility, the potential loss of the US dollar’s safe-haven status, and mounting recession risks.

While President Donald Trump’s decision a week after the Fed’s meeting to postpone severe import tariffs—including a 145% levy on Chinese goods—has helped ease market turmoil, the Fed’s discussion underscores the uncertainty surrounding US economic policy. Officials agreed that inflation could prove more persistent than expected, and that any shift in the US dollar’s role or in bond market dynamics could have lasting consequences for the economy.

The Fed signalled caution, emphasising the need for a careful approach until the full impact of the Trump administration’s policy changes becomes clearer. 

DATA
US homeowners and prospective buyers are more uncertain about the housing market than at any time since 2023, a Bank of America survey found, as rising mortgage rates deter buyers. Among 2,000 respondents, 60% said they could not tell if it was a good time to buy a home, up from 57% last year and 48% in 2023. The sluggish start to the spring contrasts with the first quarter, when Bank of America saw an 80% surge in mortgage applications as lower bond yields boosted demand. Despite that, 52% of potential buyers said the market was better than a year ago, though 75% are waiting for lower home prices and rates before purchasing, up from 62% in 2023.

WHAT HAPPENED OVERNIGHT
US stocks closed lower on Wednesday as investors reacted to cautious Fed minutes and a late-session selloff in chip stocks, with Cadence Design Systems plunging 10.7% after reports of new US-China tech trade restrictions. While Nvidia rose 5% post-market on better-than-expected earnings, its disappointing Q2 revenue forecast and the FT's report of expanded semiconductor export controls highlighted persistent trade tensions. 

US Treasury yields edged higher on Wednesday as markets absorbed the latest Federal Reserve minutes, which revealed officials could face “difficult trade-offs” in coming months, balancing the risks of rising inflation against a potential uptick in unemployment. The benchmark 10-year yield rose 3.9 basis points to 4.473%, while the 30-year yield gained 2.8 basis points to 4.9676%. An auction of $70 billion in five-year notes, which cleared at 4.071%, saw strong foreign demand, helping to stabilise sentiment in a market still wary of inflation and fiscal challenges.

The US dollar rose for a second day on Wednesday, lifted by optimism over potential trade deals brightening the US economic outlook. President Donald Trump’s delay of 50% tariffs on European Union imports and an earlier agreement with China to reduce mutual tariffs helped ease economic pessimism. The dollar strengthened 0.35% to 144.82 against the Japanese yen after soft demand for 40-year Japanese bonds, while it was flat at 0.827 against the Swiss franc. The euro dipped 0.32% to $1.1292, and the dollar index gained 0.39% to 99.92.

Brent crude oil prices climbed over 1% on Wednesday amid supply concerns after OPEC+ left its output policy unchanged and the US barred Chevron from exporting Venezuelan crude. Brent futures rose 81 cents, or 1.26%, to $64.90 a barrel, while US West Texas Intermediate crude gained 95 cents, or 1.56%, to $61.84.

Day’s Ledger

Economic Data:

• EIA to release weekly petroleum, natural gas storage report
• US Jan-Mar second GDP estimate
• US initial unemployment insurance claims

Corporate Actions:

• Jan-Mar earnings: Alkem Laboratories, Amara Raja Energy & Mobility, Bajaj Auto, Campus Activewear, Century Plyboards, Concord Biotech, Engineers India, Gujarat Pipavav Port, Ipca Laboratories, KNR Constructions, Lemon Tree Hotels, Mazagon Dock Shipbuilders, NBCC (India), Prestige Estates Projects, Samvardhana Motherson International, SJVN, Sobha Ltd, Suzlon Energy, Welspun Living, Wockhardt.
• Fiberweb (India) to consider right issue 
• GB Global to consider voluntary delisting of shares
• Motherson Sumi Wiring to consider issue of bonus shares
• NHC Foods to consider raising of funds
• Taylormade Renewables to consider issue of warrants
• Thirumalai Chemicals to consider fund raising
• Vardhman Special to consider fund raising

Policy Events:

• Fed Barkin Speech

Tickers

• 3M India March quarter profit slumps 59% on higher tax bill
• Adani Energy board to meet Saturday for fundraising through securities
• Bata India's March quarter profit down 28% YoY; FY25 profit up 26%
• Birlasoft’s March quarter net profit falls 32%, revenue dips 3.4%
• Cohance Lifesciences net down 21% in March quarter; revenue jumps 59%
• Consumer Affairs Ministry asks e-commerce firms to self-audit and remove deceptive ‘dark patterns’
• Deepak Nitrite's March-quarter profit slumps 53%, misses estimates
• Elgi Equipments March quarter net profit jumps 33% to ₹1.02 billion, revenue up 15%
• Infosys launches Agentic AI Foundry to fast-track AI agent adoption
• InterGlobe Aviation appoints Vikram Singh Mehta as new chairman
• LTIMindtree, Aramco Digital launch NextEra to boost Saudi Arabia’s digital push
• MMTC March quarter net profit plunges 99% YoY; FY25 profit inches up 2%
• Natco Pharma March quarter profit rises 5% but misses estimates; revenue up 14%
• NCLT approves ₹5.02 billion resolution plan for Topworth Urja & Metals
• NCLT approves merger of Iluminar Media into Nykaa Fashion
• Nuvama Wealth March quarter profit drops 13% YoY; FY25 profit surges over sixfold
• Reliance Power subsidiary wins 350 MW solar project with 175 MW/700 MWh battery storage
• RHI Magnesita swings to profit in March quarter, announces investment in subsidiary
• RITES signs MoU with Shree Cement to develop rail infrastructure
• SAIL posts 16% rise in March qtr profit on better sales and lower coal prices
• Schaeffler India opens new plant in Tamil Nadu, to invest ₹3.30 bln
• SEBI bars ex-IndusInd Bank MD Sumant Kathpalia, 4 others from trading
• Zydus Lifesciences' ALS drug Usnoflast gets US FDA fast track status

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