WEEKLY SYNOPSIS: 09/8/2019
Currency Map:
| Currency Pairs | WEEKLY CLOSE | PRIOR WEEK CLOSE | % change |
| USD/INR | 70.79 | 69.62 | 1.68 |
| EUR/INR | 79.30 | 77.43 | 2.41 |
| GBP/INR | 85.41 | 84.72 | 0.81 |
| JPY/INR | 66.97 | 65.31 | 2.54 |
Brent Crude closed at USD 54.22 VS prior week close of USD 55.56.
Nifty closed at 11109 vs prior week close of 11025.
10 Year G-SEC Yield closed at 6.40.
Major developments: USDINR traded between 70.06 and 70.99. EURINR spiked higher and GBP closed with moderate gains against Rupee. Yen gained 2.5% against Rupee.
Rupee declined tracking losses in Yuan and EM Currencies. It was a volatile week for Currency and Equity markets. Indian developments and US-China trade issues triggered either big wins or losses and big intra day swings every day.
RBI cut repo rates by 35 bps and reverse repo by 25 bps. GDP for 2019-20 has been revised lower to 6.9% and inflation is expected to be 3.1%. MPC maintained accommodative stance and added that the slowdown is cyclical and not structural. RBI also allowed banks to classify loans to NBFCs for key areas such as agriculture, housing and small and medium businesses – up to certain limits – as priority sector lending. RBI has also allowed banks to increase their exposure to a single non-banking finance company (NBFC). The move was aimed at boosting credit to cash-strapped NBFC’s.
Indian IIP growth declined to 2% in June vis a vis 3.1% in May and 7% in June 2018. Mfrg output grew only by 1.2% in June as against 6.9% in June 2018. Core sector output growth slowed to 0.2% in June. SBI and major banks cut rates by 10-30 bps after RBI repo rate cut.
Govt indicated that it is willing to consider rolling back cess on tax affecting FPI’S. Govt also met industry leaders and indicated that a package to address economic slowdown is in the offing. GST rates for auto sector may be reduced for a period of 6 to 12 months.
FII’s continued to pull money from Indian Equities. FII’S have nett sold Rs 9668 Cr of Indian Equities in Aug . FII’S have nett bought Rs 55832 Cr of Indian Equities in this calendar Year till date. FII’S have pulled out Rs 22000 Cr of Indian Equities since budget day. FII’S have nett bought Rs 1086 Cr of Indian debt securities in Aug. FII’S have nett bought Rs 19869 Cr of Indian debt in this calendar year till date.
Indian CPI and trade data will be in focus this week.
Global developments:
-Global markets were rocked by US President’s latest stand on China trade talks. He said that talks could be suspended.
-US has named China as a currency manipulator, which could give leverage to increase tariffs beyond 25% on Chinese imports.
-Chinese Yuan dropped sharply partly in response to trade war escalation with US. USD/CNY is now trading at 7.04, fall of 2.6% in Yuan value. China has pledged to stabilize Yuan fall. US decision to impose additional tariffs on Chines imports has outweighed Fed’s rate cut.
-US President lambasted Fed again for increasing rates last year and called them incompetent.
-Gold rallied and stocks slumped as trade issues and US President’s attack on Fed weighed down on investor sentiment and boosted safe haven flows.
-ECB’S monthly bulletin noted that the recent data and survey results suggest “somewhat weaker growth” in Q2 and Q3. The softening of growth can be” primarily attributed to weak global trade and the prolonged presence of uncertainties.
– UK GDP contracted by -0.2% qoq in Q2, worse than expectation of 0.0% qoq. That’s also the first quarterly contraction since 2012. GDP grew 1.2% yoy.
-Sterling slumped against USD on GDP contraction and increasing chance of no deal Brexit.
Important developments in coming week: US retails sales and CPI.
Currency range forecast for coming week:
USDINR: 70.25-71.45, EURINR: 78-80.80, GBPINR: 83.50-86.50, JPYINR: 66-67.80
Suggestion: Cover 1 month USD import payables on dips to 70.35. USD exports may be hedged on rally to 71.50-71.80. EURINR receivables can be hedged on spike to 80+ levels. Payables can be covered closer to 78. GBPINR receivables can be covered.
