WEEKLY SYNOPSIS: 27/05/2022

Currency Map:

Brent Crude closed at USD 115 VS prior week close of USD 113. Gold closed at USD 1851.Nifty closed at 16352 vs prior week close of 16266. 10 Year G-SEC Yield closed at 7.35%.

Major developments: USDINR traded in the 77.44-77.71 range last week and closed at 77.57 as against prior week close of 77.54. Rupee closed flat w/w. EUR climbed 1.63% w/w and GBP climbed 1.31% w/w against Rupee. Indian benchmark Equity index climbed 0.53% w/w. 10 Year G-SEC Yield closed at 7.35%. 1-year fwd premia is at 3.85% p.a.

USDINR had a subdued trading last week. There were no major developments. RBI Governor said that recent steps taken by RBI and the Govt will have sobering effect on inflation. Indian metal stocks slumped as Govt imposed export duty on steel item exports. Govt has recently restricted Wheat exports and has slashed excise duty on petrol and diesel and announced Gas Cylinder subsidy and fertiliser subsidy.

In 2022-23 fiscal, FII’S have sold 39538 Cr of Equities till date and have sold Rs 6787 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 recovered from its 20% slump from peak. FOMC minutes provided a glimpse of likely rate pause after a series of rate hikes in June, July and Sept.

Federal Reserve’s May meeting minutes showed the central bank was keen to move quickly on rate hikes to allow breathing room to reassess the pace of tightening later this year. Front loading rate hikes would allow the central bank breathing room to consider a policy readjustment later this year. 

US First quarter GDP declined -1.5% q/q. Corporate profits also showed declining trend. Traders pared back Fed funds rate to 2.75% by year end from above 3%.

Focus is now on ECB’S June meeting. ECB President Christine Lagarde said she expects net asset purchases under the APP to “end very early in the third quarter”. “This would allow us a rate lift-off at our meeting in July, in line with our forward guidance,” she said. Euro rallied after ECB Chairperson’s hawkish comments.

Bundesbank President said that, “in our June meeting we must send a clear signal where we’re going. From my current perspective, we must then make the first rates move in July and have others follow in the second half of the year.”

UK PMI survey data signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come. Meanwhile, the inflation picture has worsened as the rate of increase of companies’ costs hit yet another all-time high. The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels.

Focus will be on US ISM and employment data.

Currency range: USDINR: 77.48/77.27/77.15(support), 77.80 (resistance), EURINR:82/81 (support)/ 83.50/84.25 (Resistance), GBP/INR: 96-98.50, JPY/INR:.58-63

Suggestions: USD exports can be covered partially at 77.65+ .EURINR payables can be covered at 82/81. Receivables can be hedged at 83.50/84.25. GBPINR exports can be covered at 97.50+.

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