05/05/18

RUPEE still on weakening path, crude is worrisome

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 66.86.

-Indian Equities decline marginally w/w.

-Oil buoyant. USD rallies against majors.

Important developments during last week: Rupee weakened 0.3% w/w to close at 66.86 as against prior week close of 66.66 in a truncated trading week. There was some stability in USDINR pair as RBI relaxed overseas FPI investment norms in G-SEC market. RBI removed the cap of investment in 3 year or more tenor for FPI investment. However, with Crude weakening again and USD showing resilience against majors, INR could hit 67.30, before the extended fall is retraced.

Indian Core sector growth slowed to 4.1% in March as against 5.4% in Feb. For the full 2017-18 fiscal, Core sector grew by 4.2% as against 4.8% in previous Year. GST Collections hit 1 lac Cr in April, Last Year collection was 7.4 lac Cr. Auto sales climbed 12% in April.

FII’S sold Rs 6467 Cr of Indian Equities in April . FII’S also sold 11868 Cr of Indian debt securities in April . On a cumulative basis, FII’S have bought Rupees 7979 Cr of Indian Equities till date for this calendar year and have sold  Rupees 15023 Cr of Indian debt in this calendar year till date.

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

Global developments: USD gained against Euro and Pound last week aided by poor mfrg and inflation data from EU. Though US data was also on the softer side, it was still robust enough to keep Fed on track for rate hikes. Oil surged depite increase in stock pile. Global manufacturing data was on the weaker side, due to rising protectionism from US.

Expect USD to strengthen to 1.17/1.15 against Euro and to 1.3450/1.33 against Pound.

Fed policy meeting ended with no change as expected while the central bank expressed confidence that recent rise in inflation to near target would be sustained, leaving it on track to raise borrowing costs in June. Fed also emphasized the inflation target was “symmetric”, suggesting it was not inclined to speed up its tightening plans.

US Non-farm payroll showed 164k growth in April only, below expectation of 194k. Prior month’s figure, though, was revised up from 103k to 135k. Unemployment rate dropped to 3.9%, down from 4.1% and beat expectation of 4.0%. That’s also the lowest level since late 2000. But wage growth is another disappointment. Average hourly earnings rose only 0.1% mom, slowed from prior 0.3% and missed. expectation of 0.2% mom.

ECB member noted that “the latest EU economic data and survey results have generally surprised to the downside, suggesting some loss of momentum in economic activity.” But he pointed out that “temporary factors may also be at work”.

Focus is on US inflation data.

Important developments for next week: US CPI

Important levels to watch for are: 1) EUR/USD: 1.1910/1.1710 on the downside and 1.2150/1.2210 on the upside. 2) USD/INR Supports: 66.50/66.25 on the downside and 67.40 on the upside.

Market developments:

-Indian Nifty closed at 10618.

-Gold closed at 1315 and WTI Crude closed the week at USD 69.78.

-Indian 10 Year G-SEC closed the week at 7.73%. US 10 Year Yield closed at 2.94%.   

Data Highlights of last week:

-US personal income grew 0.3% m/m, spending climbed 0.4% m/m, Core PCE index climbed 0.2% m/m,pending home sales climbed 0.4% m/m and Chicago PMI declined to 57.6.

-US ISM (mfrg) was less than expected at 57.3and construction spending declined -1.7% m/m,  US ADP employment report showed pvt sector added 204 k jobs.

-US Weekly jobless claims declined to 211k and ISM(non mfrg) declined to 56.8. US factory orders climbed 1.6% m/m.

-EU CPI climbed 1.2% y/y and PPI climbed 0.1% m/m.

-EU PMI(mfrg) was reported at 56.2.

-EU retail sales climbed 0.1% m/m. PMI(services) was finalized at 54.7.

-UK PMI(mfrg) declined to 53.9. PMI(construction) climbed to 52.5.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 65.89. 50 day moving average is at 65.31. 200 day moving average is at 64.58. Daily MACD is in buy zone, implying bottom at 64.85 . Important support zone is at 66.50 and later at 66.25/65.90. Important resistance is  at 67.40.

EURO/USD: The pair is below all major moving averages. Next Major resistance is at 1.2150 and later at 1.2210. Major support is at 1.1910 and later at 1.1710. 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 bearish 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 below all major moving average. Important resistance is at 1.3710 and later at 1.3965. Important support is at 1.3460 and later at 1.33.   

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.                                                                              

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: PPI, CPI and weekly jobless claims EU data: German factory orders and sentix investor confidence survey UK: Industrial and manufacturing production Japan: