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Brent Crude closed at USD 100.47 VS prior week close of USD 96.40. Gold closed at USD 1680. Nifty closed at 18117 vs prior week close of 17786. 10 Year G-SEC Yield closed at 7.48%.

Major developments: USDINR traded in the 82.32-82.92 range last week and closed at 82.44 almost unchanged as against prior week close of 82.46. EUR declined 1.72% w/w and GBP declined 2.64% w/w against Rupee. Indian benchmark Equity index climbed 1.86% w/w. 10 Year G-SEC Yield closed at 7.48%. 1-year fwd premia is at 2.25% p.a. FX reserves stands at USD 531 bn as on Oct 28 th.  FX reserves jumped by USD 6.5 bn as compared to previous fortnight.

Rupee wobbled and finally gained on Friday due to strong FPI inflows. FII’S have been investing since August. August recorded the second largest inflows in recent period. FII’S have invested more than Rs 30000 Cr since August. Rupee sentiment was also lifted by reports that China is likely to roll back its zero covid policy and open its economy fully. Gains in asset markets was broad based. USD index also declined. Crude prices climbed and Brent crude hit USD 100 again and this is worrisome for Rupee. It should also be noted that US employment data was strong and US Yields remained at its high levels. With Fed Chairman focused on combating inflation aggressively, it is still early to call for USD’S weakness. However, it is expected that Fed may announce slowing down of rate hikes in Jan and not necessarily hint at terminal rate.

On data front, Core sector comprising of 8 sectors grew by 7.9% in Sept. Coal production grew by 12%, Crude production declined 2.3%, Fertilizer production climbed 11.8%, Steel production climbed 6.7%, Cement production grew by 12.1%. Power generation grew by 11%.

Indian GST Collection was reported at 1.52 lac Cr, second highest collection since GST launch.

S&P Global India Manufacturing PMI increased to 55.3 in October 2022 from 55.1 in September, exceeding expectations for a slowdown to 54.9 and remaining above its long-run average of 53.7.

RBI MPC met to draft reply to Govt on inflation management. Focus will be on CPI and IIP data to be released this week.

USDINR’s resistance is at 82.90/83.35. Support is at 82.12/81.95. The pair could move higher with strong support above 81.95.

Global developments: The rumor of earlier reopening in China seemed to have overwhelmed other heavy weight events in the markets last week, including Fed’s hawkish rate hike and non-farm payroll report. No official announcement was made by the Chinese government on changing its zero-COVID policy yet. Crude and industrial commodity prices climbed steeply.

Market sentiment sank after Fed chair Jerome Powell indicated that the terminal interest rate of current cycle could be higher than originally thought, even though the pace of tightening could start to slow as soon as at next meeting. Strong US non farm payrolls data has dashed hopes of rate moderation in Dec. Fed Chairman pointed out that the labor market is very tight, and that consumers still have a mountain of excess savings to keep demand healthy. Therefore, further tightening is likely going to be required to rein in inflation.

US non-farm payroll employment grew 261k in October, well above expectation of 200k. Prior month’s figure was also revised sharply higher from 263k to 315k. Monthly job growth has averaged 407k thus far in 2022.Unemployment rate rose from 3.5% to 3.7%. Labor force participation rate, dropped -0.1% to 62.2%. Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom.

ISM data indicated that there is slow down in manufacturing, though not much in services. However, prices paid component climbed higher, implying that price pressures remain broad based and elevated.

BoE raised Bank Rate by 75bps to 3.00%. The decision was made by 7-2 votes. Tightening bias is maintained as “should the economy evolve broadly in line with the latest Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets. ”But there are “considerable uncertainties” around the outlook. If outlook suggests more persistent inflation pressures, the Committee will “respond forcefully”. warned of a “very challenging” outlook for the economy. The central bank forecasts inflation will hit a 40-year high of around 11% during the current quarter, but that Britain has already entered a recession that could potentially last two years – longer than during the 2008-09 financial crisis.

ECB President Christine Lagarde said the central bank cannot just mirror Fed’s policy moves. “We have to be attentive to potential spillovers,” said. “We are not alike and we cannot progress either at the same pace (or) under the same diagnosis of our economies.”

Focus is on US CPI data.

Currency technical levels: USDINR: 82.10/81.95 (Supports), 82.90/83.30 (resistance), EURINR: 83(Resistance), 80.50/80 (Support), GBPINR:  93.60/95.80(Resistance). JPYINR: 57.50 (resistance) /54.50 (support).

Hedging advise: USDINR Imports can be hedged on decline to 82.10/81.95/81.70. EURINR payables be hedged at 80.50/80 and exports be hedged closer to 83.  GBP Exports be hedged on rally to 95.

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