Currency Map:

USD/INR77.5477.44 0.12

Brent Crude closed at USD 113 VS prior week close of USD 111. Gold closed at USD 1845.Nifty closed at 16266 vs prior week close of 15782. 10 Year G-SEC Yield closed at 7.35%.

Major developments: USDINR traded in the 77.48-77.79 range last week and closed at 77.54 as against prior week close of 77.44. Rupee declined 0.10% w/w. EUR climbed 2.21% w/w and GBP climbed 2.52% w/w against Rupee. Indian benchmark Equity index climbed 3.06% w/w. 10 Year G-SEC Yield closed at 7.35%. 1-year fwd premia is at 3.75% p.a.

Rupee decline was met with RBI selling. Climbing trade deficit, continued selling of equity and debt by FII’S and overall USD strength against majors continued to contribute to Rupee weakness. LIC was listed last week and opened below IPO price. Market sentiments was lifted by Chinese rate cut. China has cut 5-year lending rate by 15 bps.

Govt reduced central excise duty on Petrol by Rs 8 and Rs 6 on diesel. Govt to give subsidy of Rs 200 per Gas cylinder (up to 12 cylinders), which will benefit 9 Cr users. FM also said that import duty on certain raw materials of steel will also be reduced.

RBI minutes noted high inflation and called for front loaded rate hikes. This confirms next rate hike in July. RBI may raise rates by 1.5% to pull repo back above 6% by the end of the year. Indian WPI inflation climbed to 15.08% y/y. Food inflation component climbed 8.35% and manufacturing inflation climbed 10.85% y/y.

USDINR fwd premia was trading at around 3.75% per annum for 1 year.

In 2022-23, FII’S have sold 40537 Cr of Equities till date and have sold Rs 7327 Cr of debt till date. In 2021-22, FII’S net sold Rs 128897 cr in Equity segment and have net bought Rs 4805 cr of debt. In 2020-21 financial Year, FII’S nett bought Rs 2,74,203 Cr of Equities and have sold Rs  42820 Cr in debt.

USDINR has supports at 77.48/77.27/77.15. If USDINR manages to break below 77.48, expect the pair to stabilise. Considering the rate hike talks by ECB, Rupee should stabilise by June/July.

Global developments: US S&P 500 slumped 20% from its peak and again recovered to close above the magical rate of 3850 to ward off deeper selling. Decline below 20% from peak in US broad based index could signal recession in US. US 10 Year yields has pulled lower from 3% to 2.78%, which is another indication that recession worries are getting entrenched.

Sentiment soured early in the week as U.S. brick-and-mortar retailers drastically cut future earnings expectations. The common theme was that they are struggling with higher inflation, wages pressures and rising freight costs, all of which are cutting into profits. 

ECB officials are now indicating July rate hike as members are becoming wary of persistent inflation. ECB Governing Council member said that, “in the coming quarters, further (rate) increases could be made to reach levels in line with the natural rate of interest if the medium-term inflation outlook remains around our target.” ECB minutes of last meeting showed that members were divided on steps to achieve price stability, though there was consensus that normalization of monetary policy is needed.

UK CPI accelerated sharply from 7.0% yoy to 9.0% yoy in April, but missed expectation of 9.1% yoy. BOE official said that risk is tilted towards persistent inflation and more actions are needed to counter inflation.

Japanese GDP contracted -0.2% qoq in Q1, better than expectation of -0.4% qoq. In annualized term, GDP contracted -1.0%, first negative growth in two quarters, but better than expectation of -1.8%. 

FOMC Minutes and US Spending data are key events for the week.

Currency range: USDINR: 77.48/77.27/77.15(support), 77.80 (resistance), EURINR:80.40/78.75 (support)/ 82.40 (Resistance), GBP/INR: 94.60-97.50, JPY/INR:.56-61

Suggestions: USD exports can be covered partially at 77.70+ .EURINR payables can be covered at 80.40/78.60. Receivables can be hedged at 82.40. GBPINR exports can be covered at 97.50+.

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