08/09/18

RUPEE IN FREE FALL MODE, US data surpasses expectations

Highlights:

-GLOBAL and INDIAN MARKET DEVELOPMENTS

-DATA HIGHLIGHTS AND FX MARKET DEVELOPMENTS

-TECHNICALS

-STRATEGY FOR HEDGING AND SUGGESTED PORTFOLIO

-DATA AND EVENTS FOR NEXT WEEK.

Major economic events:

-Rupee in free fall mode, hits 72.

-Indian IIP and CPI are key evets for this week.

-US President set to impose new tariffs on Chinese imports. US data continues to surpass expectations.

Important developments during last week: Rupee declined 1.04% to end the week at 71.73. Rupee volatility was unabated despite some relief in Crude Oil price rally. FM said that there is no need for panic as Rupee is neither strong nor weak on relative basis. RBI intervention was sporadic and was not effective. Brutal selling in EM Currencies also contributed to negative sentiment. FII’S continued to sell out of Equities, despite smart rally in Yields. 10 year Yield is now at 8.03%. Indian Equities corrected lower after weeks of sustained rally. Markets await Indian IIP and CPI data.

FII’S have bought Rs 2739 Cr of Indian Equities in Sept till 05/9 . FII’S have sold Rs 3552 Cr of Indian debt securities in Sept till 05/9 . On a cumulative basis, FII’S have bought Rupees 2740 Cr of Indian Equities till date for this calendar year and have sold  Rupees 42325 Cr of Indian debt in this calendar year till date.

Global developments: Global risk aversion and brutal selling in EM currencies with high current account deficits continued. Trade tensions , strong US growth and USD rate hike continued to cast its influence on EM Currencies. Besides Indian Rupee, Indonesia Rupiah, South African Rand, Russian and Turkish currencies melted.          

US President could announce tariff on additional USD 200 bn worth of Chinese imports as public comments on this proposal ends on Friday. China is also prepared to retaliate against US action.

US data continued to be very strong. US ISM(mfrg) surpassed expactations and the data is the best since 2004. US employment report showed 201k growth in August, compared to expectation of 194k. Prior month’s figure was revised down from 157k to 147k though. Unemployment rate was unchanged at 3.9%. The bigger surprise, and Dollar driving one, is average hourly earnings which showed 0.4% mom growth, above expectation of 0.3% mom.

U.S. economy continues to boom with little reason for the Fed to alter its interest rate normalization plans that include another quarter point increase on September 26th.

Important developments for next week: Indian IIP, CPI data, EU and BOE meetings and US CPI

Important levels to watch for are: 1) EUR/USD: 1.13 on the downside and 1.1775 on the upside. 2) USD/INR Supports: 71.20/70.30 on the downside and 72.10/72.60 on the upside.

Market developments:

-Indian Nifty closed at 11589.

-Gold closed at 1202 and WTI Crude closed the week at USD 67.80.

-Indian 10 Year G-SEC closed the week at 8.03%. US 10 Year Yield closed at 2.94%.   

Data Highlights of last week:

-US ISM (mfrg) expanded to 61.3 and construction spending climbed 0.1% m/m.

-US trade deficit expanded to USD 50.1 bn.

-US weekly jobless claims declined to 203k, ISM(non mfrg) expanded to 58.5, factory orders   declined -0.8% m/m and ADP employment report showed that pvt sector added 163k jobs  last month.

-EU GDP climbed 0.4% q/q and German industrial production declined -1.1% m/m.

-German factory orders declined -0.9% m/m.

-EU PPI climbed 0.4% m/m. 

-EU PMI(mfrg) was finalized at 54.6

-EU PMI(services) was finalized at 54.4 and retail sales declined -0.2% m/m.

-UK PMI(services) climbed to 54.3. 

-UK PMI(mfrg) declined to 52.8.      

-UK PMI(construction) dipped to 52.9.        

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 70.33. 50 day moving average is at 69.38. 200 day moving average is at 66.22. Daily MACD is in buy zone, implying bottom at 68.30 . Important support zone is at 71.20 and later at 70.30. Important resistance is at 72.60.                            

EURO/USD: The pair is below 100 and 200 day major moving averages. Next Major resistance is at 1.1735 and later at 1.1960. Major support is at 1.13. Daily MACD is in sell zone, implying an important top at 1.1735. Weekly MACD is in sell zone, implying important top at 1.2560.

GBP/USD: Trend is bearish in daily chart. Daily MACD  is in buy zone, implying important bottom at 1.2662 and weekly MACD is  in sell zone, implying important top at 1.4375. The pair is trading below all major moving averages. Important resistance is at 1.3050 and later at 1.3250. Important support is at 1.2660.

USD/YEN: The pair is above major moving averages. Daily MACD is in sell zone, implying important top at 111.85. Next important support is at 109.70. Important resistance is at 111.85/ 113.   

Suggested Portfolio: 1) Buy USDINR on decline to 71.20 with stop loss at 70.80                

Strategy for USD/INR: USDINR payables can be covered from cost angle.                             

Hedging suggestion: Considering the volatility in the markets, suggest hedging of Currency exposures be done from costing/affordability angle.

Currency Map:

Data and Events for upcoming week: US Data: PPI, CPI, retail sales, beige book, weekly jobless claims and industrial production EU data: Zew surveys, ECB meeting UK: Industrial and manufacturing production, GDP, unemployment rate and BOE meeting Japan: Machinery orders.