WEEKLY SYNOPSIS: 05/06/2020
|Currency Pairs||WEEKLY CLOSE||PRIOR WEEK CLOSE||% change|
Brent Crude closed at USD 41.17VS prior week close of USD 36.81.
Nifty closed at 10168 vs prior week close of 9580.
10 Year G-SEC Yield closed at 5.82%.
Major developments:USDINR traded in the 75.02-75.62 range and closed at 75.58, loss of 0.04% for USD w/w. EUR and GBP climbedimpressively against Rupee. Indian Equity markets rallied 6.10% w/w basis. 10 Year G-SEC Yield declined to 5.82%.
The week started with Moody’s rating downgrade.Moody’s downgraded Indian sovereign rating to Baa3, one notch above junk grade and the outlook was maintained as negative. Slow down in growth and increase in debt/GDP were cited as reasons for the downgrade. It was ignored by FX and Equity markets. Rupee gained to 75.02 after rating downgrade. RBI seems to have bought USD to stem gains. Indian G-SEC yields also fell to 5.82% after a mild rally to 6.07%. Nifty rallied as FII’S and DII’S poured funds into market. The rally is also in line with Global cues. US index Nasdaq is near its Feb historic highs. Most European and Asian markets have also recorded impressive gains. This has been fuelled by lifting of lock down in most parts of the economy. US data also suggests that the worst may be over. However, WHO continues to warn of rising infections. Indian infection curve has only steppend as the country is preparing to exit lock down. Focus will be on Indian IIP data.
FII’S have nett bought Rs 16875 Cr ofIndian Equities in June . FII’S have nett sold Rs 681 Cr of Indian debt securities in June. In FY 19-20, FII’s have sold Rs 10200 Cr of Equities and 47393 cr of debt.
USDINR is range bound and is expected to trade in the 75-76 range in coming weeks.
Global developments:Global asset markets climbed along with Oil. US Treasury yields also jumped higher. The week was dominated by European news and US employment data. Germanyannounced a €130 billion stimulus plan.ECB announced an increase of €600 billion to its Pandemic Emergency Purchase Program (PEPP), and it now reaches €1.35 trillion. That has exceeded most economists’ expectations. In addition, the bank said it will reinvest proceeds from this program – maintaining a large balance sheet and similar to previous schemes. Euro climbed on these postive developmants.
The week ended on a positive note as US economy added 2.5 mn jobs in May as againt expectation of 8 mn job loss. Unemployment rate declined to 13.3%.BLS said the improvements in the labor market reflected a “limited resumption of economic activity” curtailed in March and April due to coronavirus pandemic.
Despite market optimism, projections continue to be very negative. EUGDP is expected to fall by -8.7% in 2020 (revised down by -9.5% from March projections), then rebound by 5.2% in 2021 (revised up by 3.9%) and 3.3% in 2022. Balance of risks are to the downside.
HICP inflation is projected to be at 0.3% in 2020 (revised down by -0.8%), 0.8% in 2021 (revised down by -0.6%) and 1.3% 2022 (revised down by -0.3%).
US ISM(non mfrg) was better than expected, impling only a possible economic growth contraction of -1.1% annualised.
Focus shifts to US FOMC meeting.
Important developments in coming week:Indian IIP, US FOMC
Currency range forecast for coming week:USDINR: 75(support)-76(Resistance),EURINR:83.50(support)-86(Resistance), GBPINR: 93.50(support)-96.50(Resistance), JPYINR: 66.50-71.
Suggestion: Cover USD import payables on decline to 75.30.USD receivables can be hedged at 76+.1 M EURINR payables can be hedged at 83.50. EURINR receivables can be hedged closer to 86. GBPINR receivables hedging can be done on any rally to 96.50.