14/04/18

Indian trade deficit widens, iip and CPI meets expectations.

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:

-Indian IIP, CPI in line with expectations. Trade deficit widens in 2017-18.

-Crude surges, Indian Yields harden last week.

-Chinese President promises to open Chinese economy further, even as US moves ahead to slap tariffs on Chinese products.

Important developments during last week: Rupee hit 65.44 and regained losses partially to close at 65.20 as against prior week close of 64.96. Rupee weakened as SBI bought USD for defense purchases. Rally in Crude prices and higher trade deficit are causes of concern for the economy even as mfrg output continued to recover. Bond yields climbed higher and Indian Equity indices rallied, defying global trend. USDINR fwd premia also declined to 3.75% for 1 year.

Indian IIP and CPI were in line with expectations. However trade deficit in 2017-18 almost doubled from prior year deficit. Trade deficit for 2017-18 was at USD 87.7 bn as against USD 47.7 bn in 2016-17.

Indian CPI inflation climbed 4.28% in March. Food prices rose 2.81%, pulses prices declined 13.4% y/y. Core inflation, excluding food and energy climbed 5.1%.

IIP climbed 7.1% in Feb.Mfrg climbed 8.7%. IIP on cumulative basis climbed 4.3% in Apr-Feb period of 2017-18 fiscal.Consumer durables grew by 7.9% and non durables grew 7.4%. Capital goods sector grew 20%.

Indian exports dipped 0.66% to USD 29.1 bn in March and imports climbed 7.15% to USD 42.8 bn. Crude Oil imports rose 13.92% y/y to USD 11.1 bn in March. Gold imports declined to USD 2.5 bn. March Trade deficit stood at USD 13.7 bn. Exports climbed 9.78% for 2017-18 fiscal to hit USD 302.85 bn. Imports climbed 19..59% in 2017-18 to USD 459.67 bn. Trade deficit for the full year stood at USD 156.82 bn.

FII’S have sold Rs 1084 Cr of Indian Equities in April till date . FII’S have bought Rupees 3935 Cr of Indian debt securities in April . On a cumulative basis, FII’S have bought Rupees 13798 Cr of Indian Equities till date for this calendar year and have bought Rupees 2034 Cr of Indian debt in this calendar year till date.

Expect USDINR to trade in the 64.85-65.60 range in coming weeks.

Global developments: USD continued to struggle despite a near certain June rate hike and disappointing inferences from ECB minutes. Crude prices rallied and riskier markets whipsawed even as trade war fears took a back seat on assuring speech by Chinese President. Even as this issue looked like settling, US and its western allies launched an aerial strike against Syrian centers and provoked Russia.

Chinese President reiterated China’s commitment to multilateral framework like G20, and APEC. Xi also pledged on reforms, including lowering restrictions for foreign investment, strengthening adherence to international economic and trade rules, strengthen protection of intellectual property rights and expand imports and promote current account balances.

Chinese central bank Governor said that the Chinese government will remove foreign ownership caps on Chinese banks by the end of June. Secondly, foreign securities and life insurance companies will be allowed to hold majority stakes in their Chinese counterparts. That is, ownership could be raised from 49% to 51%. And such restriction will also be abolished in three years. Thirdly, by the end of June, the permitted business scope for foreign insurance agents will be expanded. Fourthly, the daily quota for foreign investors to buy Chinese stocks and for Chinese investors to buy Hong Kong traded stocks will be quadrupled.

IMF Managing Director expressed her optimism on the global economy. She said the “economic picture is “mostly bright” and “the sun is still shining”. Global momentum is driven by “stronger investment”, “rebound in trade” and “favorable financial conditions”. She said the forecast to be release next week will “continue to be optimistic”.

She said that Eurozone’s upswing is “now more widely spread across the region”. US growth will “likely accelerate further due to expansionary fiscal policy”.

In Asian emerging markets, China and India lead by “rising exports and higher domestic consumption. But she also warned of “darker clouds looming”. Momentum in 2018 and 2019 will eventually slow because of “fading fiscal stimulus” in the US China, rising interest rates and tighter financial conditions.

Important developments for next week: Political and trade developments

Important levels to watch for are: 1) EUR/USD: 1.2150/1.2050 on the downside and 1.2475/1.2550 on the upside. 2) USD/INR Supports: 64.85/64.60 on the downside and 65.60 on the upside.

Market developments:

-Indian Nifty closed at 10480.

-Gold closed at 1347 and WTI Crude closed the week at USD 67.30.

-Indian 10 Year G-SEC closed the week at 7.43%. US 10 Year Yield closed at 2.83%.   

Data Highlights of last week:

– US CPI declined -0.1% m/m.

-US weekly jobless claims was reported at 233k.

-EU sentix investor confidence declined steeply to 19.6.

-EU PPI climbed 0.3% m/m.

-UK industrial production climbed 0.1% m/m and manufacturing declined -0.2% m/m.

-Japanese core machinery orders climbed 2.1% m/m.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 65.06. 50 day moving average is at 64.72. 200 day moving average is at 64.45. Daily MACD is in sell zone, implying top at 65.44 . Important support zone is at 64.85. Important resistance is  at 65.60.   

EURO/USD: The pair is above 100 and 200 day major moving averages, but below 20 and 50 day moving averages. Next Major resistance is at 1.2475 and later at 1.2555. Major support is at 1.2150. Daily MACD is in buy zone, implying an important bottom at 1.2215. Weekly MACD is in sell zone, implying important top at 1.2560.

GBP/USD: Trend is bullish in daily chart. Daily MACD  is in buy zone, implying important bottom at 1.3965 and weekly MACD is  in buy zone, implying important bottom at 1.3715. The pair is trading above 200 day major moving average. Important resistance is at 1.4345. Important support is at 1.3710.    

USD/YEN: The pair is below major moving averages. Daily MACD is in buy zone, implying important bottom at 104.56. Important support is at 104.56. Important resistance is  at 108 and later at 110.40.                                 

Strategy for USD/INR: USDINR payables can be covered on dips to 65/64.85 for one month and exports can be covered on rally to 65.50 levels.

Suggested Portfolio: 1) Buy USDINR on decline with stop loss at 64.80 and sell on rally with stop at 65.30.                            

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: Retail sales, Ny and Phily Fed mfrg indices, beige book, Industrial production, housing starts, building permits, TIC purchases and weekly jobless claims EU data: German Zew survey, CPI, Consumer confidence UK: CPI, RPI, PPI, unemployment rate and retail sales Japan: CPI