18/08/18

RUPEE SLIDES PAST 70, EQUITIES REMAIN BUOYANT

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 breaches 70, jolted by trade deficit data.

-Indian Equity indices climb to new highs.

-Global markets recover on hopes of easing of trade tensions.

Important developments during last week: Rupee loss intensified as it breached 70 effortlessly and closed at 70.15 as against prior week close of 68.82. Rupee’s problems were compounded by steep increase in trade deficit data. Turkish problems, Yuan decline to 6.93 and broad USD strength against majors combined to contribute to Rupee fall. RBI intervention was not effective and economic affairs secy said that RBI intervention will be of little help if Global situation favors USD strength. RBI has sold USD 25 bn since mid April to defend Rupee. Equity markets shrugged off Rupee fall and continued to climb, encouraged by healthy Q1 results.

Indian trade deficit widened in July to USD 18 bn as against USD 11.5 bn in July 2017. Exports climbed 14.3% to USD 25.8 bn. Imports expanded 28.8% to USD 43.8 bn, due to climb in Oil imports.                                                                                                                       

Oil imports grew to USD 12.4 bn and Gold imports climbed to USD 2.9 bn. Imports in Apr-July is up 17.1% to USD 171.2 bn, while exports climbed 14.2% to USD 108.2 bn, during the same period. Services receivables climbed to USD 16.9 bn in June while services imports climbed marginally to USD 10.3bn. RBI releases services data with one month time lag.

July CPI inflation declined to 4.17% from prior month reading of 4.92%, due to decline in food inflation to 1.37%.

FII’S have bought Rs 1504 Cr of Indian Equities in Aug till date . FII’S have bought Rs 4460 Cr of Indian debt securities in Aug till date . On a cumulative basis, FII’S have bought Rupees 3534 Cr of Indian Equities till date for this calendar year and have sold  Rupees 36679 Cr of Indian debt in this calendar year till date.

Global developments: Market movements were dominated by Turkish and trade concerns. Though Turkey’s economic influence is limited due to its limited output compared to Global economy, sentiments sour and impacts markets even though it is for a short time. US and European markets recovered in last 2 days of the week. EM Currencies remain fragile due to strong US growth and rising interest rates in USD. US retail sales was strong enough to indicate strengthening of inflation due to labor shortages and wage growth.

Chinese Yuan declined to 6.94 and pulled back marginally. Chinese stock markets remain on edge. US-China trade talks have resumed at a lower level, rising hopes of turnaround in US attitude. Crude declined further on increase in inventory.

Focus will be on FOMC minutes.

Important developments for next week: FOMC minutes

Important levels to watch for are: 1) EUR/USD: 1.13 on the downside and 1.1510/1.1620 on the upside. 2) USD/INR Supports: 69.70/69.10 on the downside and 70.40 on the upside.

Market developments:

-Indian Nifty closed at 11470.

-Gold closed at 1191 and WTI Crude closed the week at USD 65.91.

-Indian 10 Year G-SEC closed the week at 7.86%. US 10 Year Yield closed at 2.86%.   

Data Highlights of last week:

-US Core retail sales climbed 0.6% m/m, Ny mfrg index was better than expected at 25.6 and industrial production climbed 0.1% m/m.

-US building permits was in line with consensus at 1.31mn, housing starts dipped to 1.17mn, weekly jobless claims was reported at 212k and Phily fed mfrg index dipped to 11.9.

-EU CPI climbed 2.1% y/y.

-EU and German Zew survey were better than expected at -11.1 and -13.7 respectively, industrial production declined -0.7% m/m and GDP climbed 0.5% q/q, better than expected.

-UK claimant count change was at 6.2k  and unemployment rate dipped to 4%.

-UK CPI climbed 2.5% y/y, RPI climbed 3.2% y/y and PPI(output) was flat m/m.

-UK retail sales climbed 0.7% m/m.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 68.92. 50 day moving average is at 68.53. 200 day moving average is at 65.90. Daily MACD is in buy zone, implying bottom at 68.30 . Important support zone is at 69.70 and later at 69.10. Important resistance is at 70.40.

EURO/USD: The pair is below 100 and 200 day major moving averages. Next Major resistance is at 1.1510 and later at 1.1620. Major support is at 1.13. 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 sell zone, implying important top at 1.3215 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 1.2957 and later at 1.3050. Important support is at 1.26.

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.                             

Suggested Portfolio: 1) Buy USDINR on decline to 69.40 with stop loss at 69.10.                

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: Existing and new home sales, durables order, FOMC minutes, house price index and weekly jobless claims EU data: PMI(flash-mfrg and services), Consumer confidence UK: No major data Japan: CPI