Market mood shifts: Recovery in sight

Wall Street’s main indexes closed lower on Monday, with the S&P 500 declining 0.25% and the Nasdaq 100 falling 0.36%, both drifting just below record territory. Following last week’s strong rally, stocks showed choppy trading as investors remained cautious ahead of Tuesday’s Consumer Price Index release and other key economic reports this week.

The market’s indecisive session reflected trader reluctance to make significant moves before crucial inflation data that could reshape Federal Reserve rate cut expectations. Economists forecast July consumer prices in US to rise 0.2% monthly after June’s 0.3% increase, with the annual rate expected to tick up to 2.8% from 2.7%. Core CPI is projected to increase 0.3% monthly, pushing the annual rate to 3.0% from 2.9%.

Current market positioning suggests strong expectations for monetary easing, with CME Group’s FedWatch Tool indicating an 86.5% probability of a quarter-point rate cut next month by US Federal Reserve. Recent Federal Reserve personnel changes and emerging labour market weakness could prompt the central bank toward a more dovish policy stance later this year.

Beyond Tuesday’s CPI data, reports on producer price inflation, retail sales, and industrial production will command attention throughout the week. Investors also continue monitoring U.S.- China trade developments and the potential economic impact of recently enacted tariffs.

Stocks Nvidia and AMD declined after agreeing to pay the U.S. government 15% of Chinese AI chip revenue for export licenses, creating uncertainty for tech giants with overseas exposure.

Bitcoin briefly hit $122,000 before falling to $118,800 amid rising volatility ahead of CPI data. Gold dropped 1.5% to $3,347/oz after Trump clarified tariffs won’t apply to bullion imports.

Lithium stocks surged up to 10% as China’s CATL suspended mine operations, lifting global prices. Trump extended the Chinese tariff pause by 90 days to November, easing immediate pressure but maintaining trade policy uncertainty.

The Nifty recovered all of Friday’s losses during yesterday’s session, gaining 221 points (0.91%) to close at 24,585.

The short-term trend has turned positive as the Nifty has closed above its 5-day DEMA (24553) for the first time in 13 sessions. For the past three consecutive sessions, the Nifty has found support around the 24340 level, establishing it as a strong short-term base. On the upside, the 20-day DEMA at 24793 and the 50-day DEMA at 24841 are expected to act as short-term resistance levels.

Market sentiment improved as immediate fears over US tariffs faded, but uncertainty lingers with a second round of tariff hikes scheduled later this month. Indian markets are poised to open mildly subdued on the back of soft global cues today.

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Source: HDFC Securities Prime Research