WEEKLY SYNOPSIS: 10/03/2023

Currency Map:

Brent Crude closed at USD 82.90 VS prior prior week close of USD 86.90. Gold closed at USD 1867 . Nifty closed at 17412 IN Feb vs prior week close of 17594. 10 Year G-SEC Yield closed at 7.42%.

Major developments: USDINR traded in the 81.62-82.29 range last week and closed at 82.05 gain of 8 ps for Rupee as against prior week close of 81.97. EUR declined 0.56% w/w and GBP declined 0.74% w/w against Rupee. Indian benchmark Equity index declined 1.03% w/w. 10 Year G-SEC Yield closed at 7.42%. 1-year fwd premia is at 2.18% p.a. FX reserves stands at USD 562.4 bn as on March 10 th.

Rupee performed better than expected despite broad USD gains against majors. Rupee reversed after touching 81.62, There were reports that RBI bought USD. SBI, HDFC bond inflows are expected. Adani related inflows to the extent of USD 1.5 bn triggered recent Rupee gains.

USDINR is expected to remain in the 81-83 zone. Unrelenting strong data from US, could keep pressure on Yields and help USD to either gain or remain stable against majors.

On macro front, IIP climbed 5.2% in Jan, better than expected. In DEC, IIP rose 4.3%. Manufacturing climbed 3.6%, mining sector grew by 8.8%. Power sector output climbed 12.7%. CPI data is set for release.

In March, FII’S  have bought Rs 18635 Cr of Equities and have sold Rs 1798 Cr of debt . In last Calendar Year, FII’S sold close to Rs 1.06 lac Cr worth of Equities.

USDINR’s support is at 81.62.  200 day average is at 80.75. Expect Rupee to trade in the 81-83 range in coming weeks.

Global developments: Fall of Silicon Valley bank, strong US employment data and a hawkish Fed Chairman testimony dominated last week developments. While impact of Silicon Bank failure impact was restricted to Equity markets, Fed Chairman’s testimony and a strong, but mixed employment data impacted FX markets.

EUR and GBP climbed on Friday after being put under pressure soon after Fed Chief’s hawkish message. Fed Chairman said the “ultimate level of interest rates is likely to be higher than previously anticipated,” after the “latest economic data have come in stronger than expected.”

The Fed chairman also said that “if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.” US 2 Year yield jumped to 5%.

U.S. economy continued to create jobs faster than most expected in February, but wage growth eased and the average worker’s working hours fell, suggesting that the labor market is indeed starting to cool.US non-farm payroll employment rose 311k in February, well above expectation of 200k. January’s figure was revised just slightly down from 517k to 504k. That compared with average monthly gain of 343k over the prior 6 months. Unemployment rate rose from 3.4% to 3.6%, above expectation of 3.4%. Participation rate rose from 62.4% to 62.5%. Average hourly earnings rose 0.2% mom, below expectation of 0.3% mom. 

Fed’s recent Beige Book report noted that , “US economy experienced slight growth at the beginning of the year. However, consumers’ purchasing power and discretionary income have been affected by high inflation and higher interest rates. The labor market conditions were solid, with moderate wage increases expected in the coming year. Inflationary pressures persisted throughout various districts, but the rate of price increases has moderated, with many contacts anticipating this trend to continue.

US President proposed hike in corporate tax from 21% to 28% and increase in capital gains tax from 20% to 39.6%. US Equity markets were rattled by steep decline in banking sector.

US Treasury yields cooled off with 10 Year Yield falling back to 3.7% after climbing to 4.09%.

US CPI and retail sales data are key events in coming week.

Currency technical levels: USDINR: 81.62/81.45/81.25 (Supports), 82.30 (resistance), EURINR:88/90.45(Resistance), 86.25 (Support), GBPINR:  96.50(Support)/99.50(Resistance). JPYINR: 62 (resistance) /59.50 (support).

Hedging advise: USDINR imports can be hedged. EUR and GBP exports can be covered on rally to 88/89 and 99.50+ respectively.

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