RUPEE steady, equities under stress
-GLOBAL and INDIAN MARKET DEVELOPMENTS
-DATA HIGHLIGHTS AND FX MARKET DEVELOPMENTS
-STRATEGY FOR HEDGING AND SUGGESTED PORTFOLIO
-DATA AND EVENTS FOR NEXT WEEK.
Major economic events:
-Rupee steady, Equities decline.
-Crude declines, US Yields correct lower.
-ECB on hold, US Q3 GDP beats expectations.
Important developments during last week: Indian Rupee closed at 73.45 as against prior week close of 73.33. Rupee traded steadily with intra week gains to 73.18. Rupee has steadied after release of Sept trade deficit data which showed moderation in deficit to USD 13.98 bn. Crude prices have also declined in the last few weeks. WT 1 Crude is now at USD 67 as against its recent peak of USD 76. Despite fall in Crude prices and moderation in Rupee, Equity markets continued its steep decline. Nifty fell close to 9% in Oct itself compared to prior month close. Nifty and sensex have turned into negative zone as compared to 2017 year end close price. Global sell off and lacklusture earnings have contributed to correct the extended valuations.
Expect USDINR to trade in the 73-74.50 zone.
Indian FX reserves has declined to USD 394 bn and it will not be a surprise if RBI mops up USD at lower levels and hence stem possible Rupee gains. RBI’S bond purchase has helped Yields to drop. Govt fiscal deficit has already hit 95% of this year’s target.
FII’S have sold Rs 22487 Cr of Indian Equities in Oct till date . FII’S have sold Rs 10737 Cr of Indian debt securities in Oct till date . On a cumulative basis, FII’S have sold Rupees 32109 Cr of Indian Equities till date for this calendar year and have sold Rupees 60038 Cr of Indian debt in this calendar year till date.
Global developments: Financial markets were in deep red last week despite solid US growth as investors are worried about future impact due to trade war, rising interest rates and high crude prices. US Q3 GDP grew 3.5% annualised after a stellar performance of 4.2% in Q 2.
ECB left main refinancing rate unchanged at 0.00% as widely expected. Marginal lending rate and deposit rate were held at 0.25% and -0.40% respectively. ECB Chief also reiterated that interest rates will “remain at their present levels at least through the summer of 2019”. ECB also sticks with the plan to end the EUR 15B per month asset purchase after December. On risks to growth, ECB Chief opined that it can still be assessed as “broadly balanced”. Main prominent downside risks include trade protectionism, emerging markets and financial market volatility. He was confident that inflation would move towards its target rate, even though it is muted now.
BOE and BOJ meetings and US employment and spending data are the key events for this week.
Important developments for next week: BOE and BOJ meetings.
Important levels to watch for are: 1) EUR/USD: 1.13 on the downside and 1.1630 on the upside. 2) USD/INR Supports: 72.90 on the downside.
-Indian Nifty closed at 10030.
-Gold closed at 1235 and WTI Crude closed the week at USD 67.60.
-Indian 10 Year G-SEC closed the week at 7.88%. US 10 Year Yield closed at 3.08%.
Data Highlights of last week:
-US new home sales climbed 5.5% m/m.
-US Weekly jobless claims was at 215k, pending home sales climbed 0.5% in Sept and durable orders climbed 0.8% m/m.
-German Ifo survey declined to 102.8.
-EU PMI(flash-mfrg) declined to 52.1 and PMI(flash-services) declined to 53.3.
-EU Consumer confidence was reported at -3.
USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving is at 73.46. 50 day moving average is at 72.10. 200 day moving average is at 67.30. Daily MACD is in sell zone, implying top at 74.47 . Important support zone is at 72.90.
EURO/USD: The pair is below major moving averages. Next Major resistance is at 1.1620/1.1820 and later at 1.1960. Major support is at 1.13. Daily MACD is in sell zone, implying an important top at 1.1620. Weekly MACD is in sell zone, implying important top at 1.1805.
GBP/USD: The pair is below major moving averages.Trend is bearish in daily chart. Daily MACD is in sell zone, implying important top at 1.3250 and weekly MACD is in buy zone, implying important bottom at 1.2665. Important resistance is at 1.2920 and later at 1.3050. Important support is at 1.2660.
USD/YEN: The pair is between major moving averages. Daily MACD is in sell zone, implying important top at 114.56. Next important support is at 111.30/109.80. Important resistance is at 112.90 and later 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 Pairs||WEEKLY CLOSE||PRIOR WEEK CLOSE||% change|
Data and Events for upcoming week: US Data: Personal income, spending, Core PCE index, Chicago PMI, Consumer confidence, house price index, ADP employment report, factory orders, ISM(mfrg), weekly jobless claims, construction spending, trade balance and nonfarm payrolls EU data: PMI(mfrg), CPI(flash), unemployment rate, German retail sales UK: PMI(mfrg, construction), BOE meeting Japan: BOJ meeting, housing starts