WEEKLY SYNOPSIS: 18/11/2022

Currency Map:

Brent Crude closed at USD 87.75 VS prior week close of USD 95.78. Gold closed at USD 1752. Nifty closed at 18307 vs prior week close of 18349. 10 Year G-SEC Yield closed at 7.30%.

Major developments: USDINR traded in the 80.51-81.79 range last week and closed at 81.68 gain of 1.07% for USD as against prior week close of 80.81. EUR climbed 2.71% w/w and GBP climbed 2.88% w/w against Rupee. Indian benchmark Equity index declined 0.2% w/w. 10 Year G-SEC Yield closed at 7.30%. 1-year fwd premia is at 2.15% p.a.

Rupee declined after strong opening at 80.51. RBI may have bought USD at lower levels to shore up reserves. FX reserves stands at USD 544 bn as on Nov 11th.  FX reserves rose by USD 14 bn as compared to previous week. Softer-than-expected U.S. inflation data helped  a rapid gain to 80.51. FII inflows also remained robust in Nov till date. In Nov, FII’S have bought Rs 23468 Cr of Equities till date and have bought Rs 1605 Cr of debt till date. In this Calendar Year, FII’S have sold close to Rs 1.14 lac Cr worth of Equities. In 2021-22,

Considering last week hawkish comments by Fed members, Rupee may still decline above 82. However, with Fed also likely to moderate rate hikes, Rupee may have seen the bottom at 83.30 for the present.

On data front, Indian exports declined 16.65% in Oct to USD 29.78 bn. Imports climbed 5.7% to USD 56.7 bn. Trade deficit was at 26.92 bn in Oct. This is the first month of export contraction since Feb 2021.Commerce Secretary said the October trade data was impacted by the Diwali and Dussehra festive season as factory workers tend to go on leave. WTO has reduced global trade growth forecasts and the IMF has downgraded GDP growth projections.

IIP climbed 3.1% in Sept. Manufacturing climbed 1.8% in Sept. Power generation climbed 11.6% and Mining grew by 4.6%.

WPI in Oct eased to 19 month low of 8.39%, down from 10.7% in Sept. Consumer price inflation slowed in October to 6.77% on weaker food price rises and a strong base one year ago but remained stubbornly well above the 6% upper limit of the Reserve Bank of India’s tolerance band. The retail inflation for the month of September was 7.41%. Food inflation eased to 7.01% from previous month reading of 8.6%.

USDINR’s resistance is at 81.95/82.25/82.65. Support is at 80.50.

Global developments: Euro climbed past 1.0430, but cooled off as Fed members remained hawkish and defiant on rates. Many Fed members expressed their voice on inflation management and felt that more work needs to be done on rates.

US retail sales remained resilient. US retail sales rose 1.3% mom to USD 694.5B in October, above expectation of 0.9% mom. Ex-auto sales rose 1.3% mom, above expectation of 0.4% mom to USD 565.1B. Monetary policy impact was evident in fall in New home and existing home resale. New home sales has declined 4.2% m/m and 19% since Jan 2022. Home resale declined 5.9% m/m.

US retail sales data implies US GDP growth at 2.2% in this quarter as consumer spending is expected to climb 3%. However, the lag effect of monetary policy will be seen in 2023 and demand adjustment will begin in 2023.

Fed members maintained hawkish stance on monetary policy.

St. Louis Fed President James Bullard said, “even under these generous assumptions, the policy rate is not yet in a zone that may be considered sufficiently restrictive”. And, “to attain a sufficiently restrictive level, the policy rate will need to be increased further. “Thus far, the change in the monetary-policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” Bullard said.

Boston Fed President said that “restoring price stability remains the current imperative and it is clear that there is more work to do.”“I expect this will require additional increases in the federal funds rate, followed by a period of holding rates at a sufficiently restrictive level for some time,” she said.“The latest data have not reduced my sense of what sufficiently restrictive may mean, nor my resolve,” she added.

Another US Fed member said that “consumers are preparing for slower economy, that’s a good start.” She added that Fed wants to see “economy slow” to “get inflation down”, and “slower inflation, labor market are encouraging “.She also said “pausing” the tightening cycle is “not part of the discussion” right now. The focus is on “level of rates”. She added, “I still think 5% is reasonable” as an “ending place for rates”. Also, “a range of 4.75% – 5.25% is reasonable for policy rate end-point.”

Japanese GDP contracted -0.3% qoq in Q3, much worse than expectation of 0.3% qoq. In annualized term, GDP contracted -1.2%, versus expectation of 1.1%. GDP deflator dropped -0.5% yoy, versus expectation of -0.2% yoy.

ECB Chief said that “We have acted decisively, raising rates by 200 basis points, and we expect to raise rates further to the levels needed to ensure that inflation returns to our 2% medium-term target in a timely manner,”.Eurozone CPI was finalized at 10.6% yoy in October, up from September’s 9.9% yoy.

Brent crude declined, weighed down by demand concerns and slow down in US manufacturing activity.

Focus is on Fed minutes.

Currency technical levels: USDINR: 80.50 (Supports), 81.95/82.20/82.50 (resistance), EURINR: 85(Resistance), 83/81.50 (Support), GBPINR:  95/92.20(Support)/ 98.20 (Resistance). JPYINR: 59.50 (resistance) /57.50/56.70 (support).

Hedging advise: USDINR Imports can be hedged on decline to 80.75, Exports can be hedged on rally to 81.95/82.15. EURINR payables be hedged at 83/81.50 and exports be hedged closer to 85.  GBP Exports be hedged on rally to 98.

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