28/07/18

RUPEE STABILISES, INDIAN INDICES HIT NEW HIGHS

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 stabilizes.

-Indian Equity indices climb to new highs.

-US –EU agree on trade truce.

Important developments during last week: Indian Rupee stabilised further as Cross Currencies stabilised against USD and WT I Crude stabilised at below USD 70 . Indian Equities soared as Q2  results were in line with estimates.USDINR pair closed at 68.65, gain of 19 ps for Rupee as compared to prior week close of 68.84. Domestic economic calendar was thin last week.

It was a historic week for Equity markets as indices hot new life time highs. Laggards like PSU and metal stocks rallied. Nifty rallied 2.58% w/w. Reliance, L&T, Bharti, ITC and HDFC bank results were in line with estimates. Yes bank beat consensus, while Maruti missed estimates.

FII’S have sold Rs 81 Cr of Indian Equities in July till date . FII’S have sold Rs 1242 Cr of Indian debt securities in June till date . On a cumulative basis, FII’S have bought Rupees 1457 Cr of Indian Equities till date for this calendar year and have sold  Rupees 42560 Cr of Indian debt in this calendar year till date.                                                                               

Global developments: It was a week dominated by strong US GDP and temporary trade truce between US and EU. Crude was volatile within a modest range, Gold declined and metals showed mixed gains. Major crosses continued to stabilise against USD.

U.S. economy grew at an annualized rate of 4.1%, almost double the 2.2% growth rate seen to start the year. This is the fastest pace of growth for the U.S. economy in any quarter since the third quarter of 2014. Personal consumption in the second quarter grew at an annualized rate of 4%, a major jump from the 0.5% pace of consumption growth seen to start the year.Meanwhile core PCE prices, a measure of inflation, grew 2% quarter-on-quarter, less than expected and a slight deceleration from the 2.2% pace of price growth seen to start the year.

US President Donald Trump and European Commission President agreed to suspend new tariffs while negotiating over trade, pulling the U.S. and Europe back from the edge of a transatlantic trade war.

The leaders pledged to expand European imports of U.S. liquefied natural gas and soybeans and both vowed to lower industrial tariffs, excluding autos. The U.S. and European Union will “hold off on other tariffs”’ while negotiations proceed, as well as re-examine U.S. steel and aluminium tariffs and retaliatory duties imposed by the EU “in due course,” EU President was quoted.       

ECB left interest rates unchanged as widely expected. Main refinancing rate is held at 0.00%, marginal lending facility rate at 0.25%, deposit facility rate at -0.40%. In the introductory statement to the press conference, ECB President Mario Draghi reiterated that the asset purchase target will be lowered to EUR 10B per month after September, subject to data confirmation to economic forecasts. The program will end after December. Interest rates are expected state at present levels through the summer of 2019. Draghi also said latest stabilization in economic data is in line with forecasts and points to ongoing growth.

Risk to growth outlook remains broadly balanced despite prominent threat of protectionism. Meanwhile, underlying inflation remains muted for now but is expected to rise gradually in medium term. And, ample degree of monetary policy stimulus is still needed at present.

Chinese President told BRICS leaders that it is imperative to safeguard the rule-based multilateral trading regime; promote trade and investment, globalization and facilitation; and reject protectionism outright.”

The International Monetary Fund said on Tuesday that the U.S. dollar is over-valued, China’s yuan is in line with fundamentals and nearly half of global current account balances are now excessive, adding to growth risks and trade tensions.

Economic calendar is very heavy this week. Focus will be on FOMC, BOE and BOJ meetings.

Important developments for next week: FOMC meeting, BOE and BOJ policy meetings.

Important levels to watch for are: 1) EUR/USD: 1.15 on the downside and 1.1850/1.1960 on the upside. 2) USD/INR Supports: 68.30 on the downside and 69.10 on the upside.

Market developments:

-Indian Nifty closed at 11278.

-Gold closed at 1222 and WTI Crude closed the week at USD 69.02.

-Indian 10 Year G-SEC closed the week at 7.78%. US 10 Year Yield closed at 2.96%.   

Data Highlights of last week:

-US existing home sales declined to 5.38 mn and EU consumer confidence was reported at -1.

-US house price index climbed 0.2% m/m.

-US new home sales declined to 631k.

-US weekly jobless claims rose modestly to 217k and durables order climbed 1%, below consensus of 2.5%.                                                                                                              

 -German Ifo was in line with expectation at 101.6.                      

-EU PMI(mfrg) climbed to 55.1 and PMI(services) dipped to 54.4.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 68.75. 50 day moving average is at 68.18. 200 day moving average is at 65.72. Daily MACD is in sell zone, implying top at 69.10 . Important support zone is at 68.30 and later at 67.70. Important resistance is at 69.10.

EURO/USD: The pair is below 100 and 200 day major moving averages. Next Major resistance is at 1.1850 and later at 1.1960. Major support is at 1.1508. Daily MACD is in sell zone, implying an important top at 1.1850. 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 1.2957 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 1.3365 and later at 1.3475/1.3650. Important support is at 1.2957 and later at 1.2770.

USD/YEN: The pair is above major moving averages. Daily MACD is in sell zone, implying important top at 113. Next important support is at 110.20 and later at 109.20. Important resistance is  113.      

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

Suggested Portfolio: 1) Sell USDINR on rally with stop loss at 69.12.                

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: FOMC rate decision, Pending home sales, personal income, spending, Core PCE index, Chicago PMI, S&P house price index, ADP employment data,  weekly jobless claims, ISM(mfrg and non mfrg), construction spending, factory orders, nonfarm payrolls  EU data: PPI, industrial production, retail sales, unemployment rate, PMI(mfrg and services) and CPI UK: BOE inflation report, retail sales, PMI(mfrg, services and construction) and BOE meeting Japan: BOJ policy, housing starts.