INDIAN MFRG CONTRACTS IN FEB, CPI @ 2.86%

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:

-USDINR fwd premia remains volatile, IIP disappoints.

-IMF cuts Global growth estimate, Chinese trade data offers hope.

Important developments during last week:           Rupee closed at 69.17 as against prior week close of 69.22. Fwd markets continued to be volatile. 1 Year fwds is now at 2.96 (4.25% annualised). RBI’S liquidity operations through USD buy/sell swap is contributing to fwd premia volatility.

IIP growth slowed to 0.1% in Feb. Apr-Feb growth has slowed to 4% as against 4.3% in the corresponding period. Mfrg contracted by 0.3% in Feb. Capital goods declined by 8.8% and Power sector grew by 1.2% and mining grew by 2%. Consumer durables grew by 1.2% and non durables by 4.3%.

CPI climbed modestly by 2.86% in March as against 2.57% in Feb. Food inflation climbed by 0.3%.                                                                                                              

FII’S have invested  Rs 13308 Cr in Indian Equities in April. FII’S have nett bought Rs 61248 Cr of Indian Equities in this calendar Year till date. FII’S have sold Rs 2212 Cr of Indian debt securities in April. FII’S have nett bought Rs 1248 Cr of Indian debt in this calendar year till date. FII’S have nett invested Rs 9685 Cr in Equities in 2018-19 fiscal, with most of the investment coming in Feb and March 2019. FII’S have nett sold Rs 45892 Cr in debt papers in 2018-19 fiscal.

Global developments: World bank projects Indian GDP growth at 7.4% for FY 19-20. IMF downgraded Global growth rate to 3.3% from 3.6% for this year. US is expected to grow at 2.3% and EU at 1.3%. China is expected to grow at 6.3%. India is expected to grow at 7.3%. US President tweeted his intention to escalate trade issues with EU.

ECB maintained status quo and ECB Chief added that incoming data implies weak growth momentum. He said that economic sentiment is dented by trade protectionism.

FOMC minutes showed that members were more dovish. They felt that 2% inflation target may not be breached significantly and economic uncertainity prevails due to EU growth, Brexit and Chinese trade issues. Members felt that rate could shift in either direction depending on incomimg data.

China trade surplus widened to USD 32.6B in March, well above expectation of USD 8.1B. Exports jumped 14.2% yoy in USD 198.7B, well above expectation of 7.7% yoy. Imports, however, dropped -7.6% yoy to USD 166.0B, much weaker than expectation of -0.1% yoy.      

Important developments for next week: US retail sales

Important levels to watch for are: 1) EUR/USD: 1.1120 on the downside and 1.1420 on the upside. 2) USD/INR Supports: 68.30 on the downside and 69.70/70.40 on the upside.

Market developments:

-Indian Nifty closed at 11643.

-Gold closed at 1293 and WTI Crude closed the week at USD 63.80.

-Indian 10 Year G-SEC closed the week at 7.41%. US 10 Year Yield closed at 2.56%.   

Data Highlights of last week:

– US factory orders declined -0.5% m/m.

-US CPI climbed 0.4% m/m.

-US weekly jobless claims declined to 196k and PPI climbed 0.6% m/m.

– EU sentix investor confidence indicator was reported at -0.3.  

-EU industrial production declined -0.2% m/m.

-UK industrial production climbed 0.6% m/m, manufacturing production climbed 0.9% m/m and GDP climbed 0.2% m/m.

Technicals:

USD/INR : Spot closed below major moving averages. 20 day moving average             is at 69.02. 50 day moving average is at 70.15.200 day moving average is at 70.64. Daily MACD is in buy zone, implying bottom at 68.30. Important support zone is at 68.30.Important resistances are at 69.70 and later at 70.30.

EURO/USD: The pair is below all major moving averages. Next Major resistance is at 1.1450. Major support is at 1.1170. Daily MACD is in buy zone, implying an important bottom at 1.1175. Weekly MACD is in sell zone, implying important top at 1.1570.

GBP/USD: The pair is sideways and trading between major moving averages.Daily MACD  is in sell zone, implying important top at 1.3385 and weekly MACD is  in buy zone, implying important bottom at 1.2440. Important resistance is at 1.3385 and later at 1.3575. Important support is at 1.2950.                                                                                                                  

USD/YEN: The pair is above  major moving averages. Daily MACD is in buy zone, implying important bottom at 109.75. Next important resistance is at 112.20 and later at 113.20. Important support is at 110.85 and later at 109.75.

Suggested Portfolio: 1) Sell USDINR on rally to 69.70/70.40.        

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: NY mfrg index, trade balance, industrial production, retail sales, building permits, housing starts and weekly jobless claims,  EU data: EU and German Zew surveys, PMI(mfrg and services) UK: Unemployment report, CPI, PPI(output), RPI and retail sales Japan: Core machinery orders