13/10/18

RUPEE RECOVERS, GLOBAL MARKETS UNDER STRESS, OIL FALLS

Highlights:

-GLOBAL and INDIAN MARKET DEVELOPMENTS

-DATA HIGHLIGHTS AND FX MARKET DEVELOPMENTS

-TECHNICALS

-STRATEGY FOR HEDGING AND SUGGESTED PORTFOLIO

-DATA AND EVENTS FOR NEXT WEEK.

Major economic events:

-Rupee recovers to 73.56, Equities remained volatile.

-Crude declines, US Yields correct lower.

-US President criticizes Fed for US Equity index decline.

Important developments during last week:           Indian Rupee closed at 73.56 as against prior week close of 73.76. It was a dramatic week for Rupee and Equity markets. Rupee finally gained on Friday as Crude prices declined. RBI has already indicated that it would leave exchange rate to market forces. It is reported that Govt is considering further import restriction measures to contain CAD. Finance Ministry officials also did not rule out the possibility of NRI bonds, though it is not considered as inevitable at this juncture. Equity markets were very volatile tracking both internal and Global developments. Equity indices rose on Friday as there was some relief on Oil prices and Rupee weakness.

 On macro front, Indian IIP climbed 4.3% in Aug due to contraction in mining output. Mfrg sector grew 4.6% in Aug. Consumer durables grew by 5.2% and nondurables sector grew by 6.3%. IIP has climbed 5.2% in Apr-Aug period. CPI inflation was subdued as it climbed only 3.77% in Sept as food inflation remained subdued.

Global developments: Global asset markets were under severe pressure last week due to confluence of factors like rising US Yields, trade uncertainity and financial vulnerability in Emerging markets. However, there was some relief rally on Friday as US inflation data was lower than expected. Crude prices also softened by the end of the week as pressure mounted on OPEC to increase Oil supplies.

US Treasury secy said that decline in US markets is not linked to Fed’s rate hike and added that correction from high levels is inevitable. He said that there is no new information on rate or trade matters to warrant the steep fall witnessed last week.

International Monetary Fund’s steering committee said on Saturday that the group’s members pledged to refrain from competitive currency devaluations and not target exchange rates to gain an advantage.

China’s trade surplus surprisingly widened in September, as trade surplus with US jumped to record high at USD 34.1B. In USD terms, China’s trade surplus widened to USD 31.7B in September, well above expectation of USD 19.4B. Exports rose 14.5% yoy to USD 226.7B. Import rose 14.3% yoy to 195.0B. China cut RRR by 100 bps and injected 1.2 trn RMB liquidity. PBOC reinforced that it would maintain the “prudent and neutral” monetary policy, and keep the renminbi (Chinese yuan) movement stable.    

Euro sentiment was affected as Italy stuck to its budget deficit target, in direct confrontation with EU. IMF downgraded German growth forecast to 1.9% from 2.5%.           ECB Chief maintained that monetary stimulus is stll needed in EU, despite positive outlook to growth.

UK GDP was flat in August, grew 0.0% mom, below expectation of 0.1% mom.      

Important developments for next week: FOMC minutes

Important levels to watch for are: 1) EUR/USD: 1.13 on the downside and 1.1820 on the upside. 2) USD/INR Supports: 72.90 on the downside.

Market developments:

-Indian Nifty closed at 10472.

-Gold closed at 1221 and WTI Crude closed the week at USD 71.50.

-Indian 10 Year G-SEC closed the week at 7.98%. US 10 Year Yield closed at 3.14%.   

Data Highlights of last week:

-US PPI climbed 0.2% m/m.

-US Weekly jobless claims rose 7k to 214k and CPI climbed 0.1% m/m, below consensus.

-EU industrial production climbed 1% m/m.

-EU sentix investor confidence was reported at 11.4.

-UK Industrial production climbed 0.2% m/m and manufacturing production declined -0.2% m/m.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 73.05. 50 day moving average is at 71.23. 200 day moving average is at 67.30. Daily MACD is in buy zone, implying bottom at 68.30 . Important support zone is at 73.40/72.90.

EURO/USD: The pair is below major moving averages. Next Major resistance is at 1.1820 and later at 1.1960. Major support is at 1.13. Daily MACD is in sell zone, implying an important top at 1.1820. Weekly MACD is in sell zone, implying important top at 1.2560.

GBP/USD: Trend is sideways in daily chart. Daily MACD  is in buy zone, implying important bottom at 1.2925 and weekly MACD is  in buy zone, implying important bottom at 1.2665. The pair is trading below 200 day moving average. Important resistance is at 1.33 and later at 1.35. Important support is at 1.2925 and later at 1.2785.

USD/YEN: The pair is above major moving averages. Daily MACD is in sell zone, implying important top at 114.56. Next important support is at 111.85/110.55. Important resistance is at  114.60.   

Suggested Portfolio: 1) Buy USDINR on decline with stop loss at 72.90.                 

Strategy for USD/INR:  USDINR payables can be covered from cost angle.              

Hedging suggestion:  Considering the volatility in the markets, suggest hedging of Currency exposures be done from costing/affordability angle.

Currency Map:

Data and Events for upcoming week: US Data: Retails sales, NY and Phily Fed mfrg indices, building permits, housing starts, existing home sales, FOMC minutes and weekly jobless claims, EU data: Zew surveys, CPI UK: Unemployment and inflation data Japan: CPI