RUPEE AND EQUITY MARKETS AWAIT ELECTION OUTCOME

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 declines as Yuan falls further.

-Indian trade deficit climbs to 5 month high of USD 15.4 bn.

-US escalates trade tensions with China.

Important developments during last week:           Rupee closed at 70.22 as against prior week close of 69.91. Rupee was negatively impacted by US-China trade tariff war and FPI selling of Indian equities.. Yuan declined further to 6.87 and soured EM Currency sentiment. Indian Equities climbed on Friday and reversed the first four days of last week decline. Focus is on Indian election outcome.

Indian Exports climbed 0.64% in April to USD 26 bn and imports climbed 4.4% to USD 41.4 bn. Trade deficit hit 5 month high of 15.4 bn. Crude purchase rose 9.6% to USD 11.38 bn.Non oil imports climbed 2.78% to USD 30.02 bn. Gold imports spiked higher to USD 3.97 bn.

Indian retail inflation ticked higher to 2.92% in April from March data of 2.86%. Food inflation climbed 1.1% in April.                                                                                              

FII’S have nett sold  Rs 3857 Cr of Indian Equities in May till date. FII’S have nett bought Rs 64815 Cr of Indian Equities in this calendar Year till date. FII’S have sold Rs 855 Cr of Indian debt securities in May. FII’S have nett sold Rs 1965 Cr of Indian debt in this calendar year till date.

Rupee could gain if election outcome is in line with market expectations. However, gains could be capped at 68.30.

Global developments: Last week started on a jittery note as Global stocks declined due to Chinese retaliatory action, despite US President’s caution to China. China announced new tariff on US imports worth USD 60 bn. China has said that it cannot accept trade law changes which are bitter and harmful to its interests and vowed to retaliate, even if talks continue. US spokesman said that China has to make legal changes to back its trade agreement deal. Market is worried over possible US tariff on the remaining USD 300 bn Chinese imports and retaliatory action by China.

In another sign of trade bitterness, US President signed an executive order banning US companies from using telecom equipment made by companies deemed to pose a national security risk. US added Chinese tech giant Huawei and 70 of its subsidiaries in entity list banned from buying US technologies without US govt approval.       

Chinese Govt official said that national security should not be used as a mask for trade protectionism and added that US tariff hikes brings greater difficulties to consultations and there should be mutual respect to sovereignty.

US could escalate trade issues with EU and Japan as it has set 6 month time frame for these countries to resolve Auto imports issue. US confirmed that auto imports pose a national security issue.

Chinese industrial production growth slowed to 5.4% yoy in April, missed expectation of 6.5% yoy. That’s also sharp deterioration from 4-year high of 8.5% yoy in March. Retail sales growth slowed to 7.2% yoy, down from 8.7% yoy and missed expectation of 7.2% yoy. That’s also the lowest growth since May 2003.

Eurozone GDP rose 1.2% yoy while EU28 GDP grew 1.5% yoy. German GDP grew 0.4% qoq in Q1, matched market expectation. That was also a significant improve over Q4’s 0.0% growth.

Pound declined steeply last week as probability of no deal Brexit increased after talks collapsed between Govt and opposition.

Important developments for next week: Indian election outcome and US FOMC minutes

Important levels to watch for are: 1) EUR/USD: 1.1110/1.0970 on the downside and 1.1265 on the upside. 2) USD/INR Supports: 69.75/69.50 on the downside and 70.50/70.80 on the upside.

Market developments:

-Indian Nifty closed at 11407.

-Gold closed at 1277 and WTI Crude closed the week at USD 62.75.

-Indian 10 Year G-SEC closed the week at 7.36%. US 10 Year Yield closed at 2.39%.   

Data Highlights of last week:

– US retail sales declined -0.2% m/m, industrial production declined -0.5% m/m.

-US weekly jobless claims declined to 212k, building permits was reported at 1.3mn and housing starts climbed to 1.24 mn.

-EU GDP climbed 0.4% q/q. 

-EU and German Zew surveys improved to -1.6 and -2.1 respectively, industrial production declined -0.3% m/m.

-EU CPI climbed 1.7% y/y.

-UK claimant count change is at 24.7 k and unemployment rate declined to 3.8%.     

Technicals:

USD/INR : Spot closed between major moving averages. 20 day moving average is at 69.82. 50 day moving average is at 69.56.200 day moving average is at 70.78. Daily MACD is in buy zone, implying bottom at 69.20. Important support zone is at 69.50.Important resistance is at 70.50 and later at 70.80 .

EURO/USD: The pair is below all major moving averages. Next Major resistance is at 1.1265. Major support is at 1.1110 and later at 1.0970. Daily MACD is in sell zone, implying an important top at 1.1265. Weekly MACD is in sell zone, implying important top at 1.1570.

GBP/USD: The pair has turned bearish and is trading below major moving averages.Daily MACD  is in sell zone, implying important top at 1.3175 and weekly MACD is  in sell zone, implying important top at 1.3385. Important resistance is at 1.2775 and later at 1.2865. Important support is at 1.2480.

USD/YEN: The pair is below  major moving averages. Daily MACD is in sell zone, implying important top at 112.40. Next important resistance is at 110.85 and later at 112.40. Important support is at 108.50 and later at 107.75.

Suggested Portfolio: 1) Buy USDINR on decline to 69.75/69.50 sl 69.20.      

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: New and existing home sales, FOMC minutes, durables order and weekly jobless claims EU data: Consumer confidence, PMI(mfrg and services) and German Ifo UK: CPI, RPI, PPI(output) and retail sales Japan: Machinery order.