WEEKLY SYNOPSIS: 20/03/2020

Currency Map:

Brent Crude closed at USD 27.40 VS prior week close of USD 34.72.

Nifty closed at 8745 vs prior week close of 9955.

10 Year G-SEC Yield closed at 6.26%.

Major developments: Volatility ruled all asset classes. USD rallied 1.73% against Rupee. GBP declined 5% and Euro declined 2.74% against Rupee, directly attributable to USD surge against majors. Equity markets crashed, Oil plummeted and Gold fell steeply in tandem with Currency pairs fall against USD. RBI’S intervention slowed Rupee decline at 75.40. Despite the benefit of falling crude prices on India’s trade deficit, Rupee declined. This could be attributed to heavy FII pull out and USD liquidity shortage. FII’S nett sold  Rs 46165 Cr of Indian Equities in March till date . FII’S have nett sold Rs 46962 Cr of Indian debt securities in March till date. RBI has announced USD buy/sell swaps to provide USD liquidity.

Markets are in mood to accept monetary and fiscal pledges and stimulus measures. Fear overwhelmed assurances and relief measures. Various state Govts have announced partial lockdown of offices and commercial establishments.PM has announced economic task force team headed by FM.

Indian Equity indices slumped 12% w/w. Intra week losses exceeded 20%. SEBI has announced measures to curb speculative short selling in stocks.

Long term technical view indicates possibility of Rupee heading to 77-78/80 levels with support at 74.40.

Global developments: Global markets plummeted last week as there were no signs of abatement of virus effect. Italy death toll has crossed China. US Cities NY and Los Angeles have announced lock down. Various central banks eased rates and boosted liquidity in an unprecedented manner. Global central banks are fighting to prevent a health crisis ripping apart financial system and credit markets. In the words of Mr Summers, a former US Treasury secy: “Economic time has stopped, but not the financial time”, implying liabilities of corporates and individuals.

Fed cut the target range of the federal funds rate by a full percentage point to 0% to 0.25%. In addition, it pledged to buy $700 billion in treasuries and mortgage-backed securities. The slew of policy measures also included lowering pricing by 25 basis points on U.S. dollar swap lines with foreign central banks. Fed has also opened commercial paper funding facility (CPFF), primary dealer credit facility (PDCF), money market mutual fund liquidity facility (MMLF) and swap lines with foreign central banks to improve dollar liquidity. This is in addition to massive overnight repo operations, a minimum of $700 billion of Treasury and MBS purchases, a fed funds rate back at the zero lower bound, the elimination of reserve requirements and the encouragement of banks to use the discount window to “support the smooth flow of credit to household and businesses.” Fed Chairman said that all economic projections are off the table now and the situation is evolving on a daily basis.

European Central Bank kicked off a 750 billion euro ($820 billion) emergency bond purchase scheme after an unscheduled meeting on Wednesday. Australian Central bank cut rates. BoJ announced further monetary easing to counter the economic impact of coronavirus pandemic. In particular, annual pace of ETF purchase is doubled from JPY 6T to JPY 12T. J-REIT purchases are also doubled to JPY 180B per year.

With major central banks having done their part, it is for the Govt’s to come out with fiscal measures. US is considering USD 1 trn fiscal package.

German Ifo institute said in its spring forecast that the global economy is “collapsing” as a result of coronavirus pandemic. Global GDP would grow only 0.1% this year, compared with 2.6% last year. World trade would see a decline of -1.7%.

Important developments in coming week:  News on corona virus.

Currency range forecast for coming week:

USDINR: 74.40(support), EURINR: 79.70-81.50, GBPINR: 86-90, JPYINR: 66.50-71.

Suggestion: Cover USD import payables. USD receivables can be hedged later. 1 M EURINR payables can be hedged at 80.30/79.70. EURINR receivables can be hedged closer to 82.50. GBPINR receivables hedging can be done on any rally to 90..