28/04/18

RUPEE HITS 66.90, INDIAN EQUITIES SURGE, YIELDS TICK HIGH

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 to 66.90.

-Indian G-SEC yields harden. US 10 Year yield spikes to 3%.

-Oil buoyant. Aluminum declines, Sterling falls.

Important developments during last week: The week was dominated by signs of slowing global economic growth, rising interest rates, higher commodity prices and lingering trade uncertainty.  Indian Equity markets shrugged off rising crude prices, weakening Rupee and rising yields as India Inc reported better than expected results. TCS joined USD 100 bn market cap club and Reliance is heading towards the same. Nifty posted 5 th week of gains even as Rupee decline was unabated.

Rupee weakened 0.8% w/w to close at 66.66 as against prior week close of 66.12. RBI tried to contain weakness at different levels. There was continuous bidding of USD as crude prices threatened to pull up futher every day. Easing of Korean tensions did not provide any relief to Rupee. FII’S were net sellers of Equities and debt in April. FII’S have sold heavily in debt markets.

Indian Core sector data, auto sales are to be released in coming week.

Expect USDINR to trade in the 65.90-67.40 range in coming weeks.

FII’S have sold Rs 5552 Cr of Indian Equities in April till date . FII’S have sold 10035 Cr of Indian debt securities in April . On a cumulative basis, FII’S have bought Rupees 9331 Cr of Indian Equities till date for this calendar year and have sold  Rupees 11937 Cr of Indian debt in this calendar year till date.

Global developments: Oil remained buoyant, Gold declined, Aluminium prices fell steeply, Sterling was down on weak UK GDP and inflation data, US Yields spiked higher and Korean tensions eased.

US GDP grew 2.3% annualized in Q1. While that was a slowdown from 2.9% growth in Q4, it beat expectation of 2.0%.Price index rose 2.0%, below expectation of 2.2%. Employment cost index rose 0.8%, above expectation of 0.7%.

Sterling declined as UK Q1 GDP grew merely 0.1% qoq much worse than expectation of 0.3% qoq and prior quarter’s 0.4% qoq. Also, that’s the weakest quarterly growth figure in five years. 

BoJ maintained status quo on rates and asset purchases, but revised up fiscal 2018 real GDP growth forecast to 1.6%, up from 1.4%. Fiscal 2019 GDP growth was also raised to 0.8%, up from 0.7%. On the other hand, Fiscal 2018 core CPI forecast was lowered to 1.3%, down from 1.4%. Fiscal 2019 core CPI, ex-sales tax hike, was kept unchanged at 1.8%.

ECB left rates and asset purchases unchanged. ECB Chief was moderately upbeat as he noted that data since March “points towards some moderation” in growth. However, they are still “consistent with a solid and broad-based expansion of the euro area economy”. Also, ECB Chief added that “the underlying strength of the euro area economy continues to support our confidence that inflation will converge towards our inflation aim of below, but close to, 2% over the medium term.”

US Weekly jobless claims declined to 5 decades low and trade deficit narrowed to USD 68 bn in March as against -75 bn consensus.

Important developments for next week: US spending and employment data.

Important levels to watch for are: 1) EUR/USD: 1.2050/1.1950 on the downside and 1.2150/1.2210 on the upside. 2) USD/INR Supports: 66.25/66 on the downside and 67.40 on the upside.

Market developments:

-Indian Nifty closed at 10690.

-Gold closed at 1324 and WTI Crude closed the week at USD 68.02.

-Indian 10 Year G-SEC closed the week at 7.77%. US 10 Year Yield closed at 2.96%.   

Data Highlights of last week:

-US existing home sales climbed to 5.6 mn.

-US new home sales climbed to 694k, house price index climbed 0.6% m/m and consumer confidence climbed to 128.7.

-US weekly jobless claims declined to 209k and durables order climbed 2.6% m/m.

-German Ifo survey dipped to 102.1.

-EU PMI(mfrg-flash) dipped to 56  and PMI(services- flash) climbed to 55.

-Japanese unemployment rate was unchanged at 2.5% y/y, industrial production rose 1.2% m/m, retail sales climbed 1% y/y and housing starts.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 65.64. 50 day moving average is at 65.17. 200 day moving average is at 64.58. Daily MACD is in buy zone, implying bottom at 64.85 . Important support zone is at 66.25 and later at 66.05/65.90. Important resistance is  at 67.40.

EURO/USD: The pair is above 200 day major moving average, but below 20 and 50 day moving averages. Next Major resistance is at 1.2150 and later at 1.2210. Major support is at 1.20/1.1950. Daily MACD is in sell zone, implying an important top at 1.2415. Weekly MACD is in sell zone, implying important top at 1.2560.

GBP/USD: Trend is sideways in daily chart. Daily MACD  is in sell zone, implying important top at 1.4375 and weekly MACD is  in sell zone, implying important top at 1.4375. The pair is trading above 200 day major moving average. Important resistance is at 1.3965. Important support is at 1.3710 and later at 1.3550.      

USD/YEN: The pair is below 200 day major moving average, but above 50 and 100 day moving averages. Daily MACD is in buy zone, implying important bottom at 104.56. Important support is at 108. Important resistance is  110.40.                                                 

Strategy for USD/INR: USDINR payables can be covered on dips to 66 for one/three months and exports can be covered on rally to 67.30 levels.

Suggested Portfolio: 1) Buy USDINR on decline with stop loss at 65.50.                        

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: US Personal income, spending, Chicago PMI, pending home sales, ADP employment report, ISM (mfrg and non mfrg), construction spending, non farm payrolls and weekly jobless claims EU data: German retail sales, PMI, unemployment rate, CPI,PPI and retail sales UK: PMI( construction) Japan: