RUPEE RANGE BOUND, US CHINA TRADE TALKS PROGRESSES

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:

-RBI minutes points to future rate cuts. Fed minutes indicate steady rate policy.

-US-China trade talks progresses, risk appetite strong.

Important developments during last week:           Rupee closed at 71.14 as against prior week close of 71.23. Rupee was range bound in the 70.90-71.50 zone. RBI minutes pointed to future rate cuts as members felt that growth impulses have shown weakness and inflation projections are trending down. There was also a feeling that real policy rate is high enough to warrant rate cut.

Govt announced infusion of Rs 48239 Cr in 12 PSU banks. This is expected to help some banks come out of PCA restrictions and lend. This could help ease liquidity issues faced by some companies and NBFC’S.

FII’S have sold Rs 716 Cr of Indian Equities in Feb. FII’S have sold Rs 1221 Cr of Indian Equities in this calendar Year till date. FII’S have sold Rs 1852 Cr of Indian debt securities in Feb. FII’S have sold Rs 4453 Cr of Indian debt in this calendar year till date.                        

Global developments: Risk appetite was strong as US – China trade talks seems to have made real progress. Economic data was lacklusture with German growth at 0% in Q4.

FOMC minutes noted that members felt that stock market volatility leading to sharp sell off during Nov/Dec 2018 was possibly attributed to balance sheet tightening . Members also felt that once uncertainity abates, Fed should use a different language to characterise monetary policy.   Members continued to view sustained expansion ,strong labor market conditions, and inflation near 2% as the most likely path ahead. While Fed has decided to stop rate hikes, it has not indicated the possibility of any rate cut.

 The US Commerce Department submitted the Section 232 national security report on auto imports to the White House on Sunday. US President has 90 days to make a decision on whether to act up the recommendations, which could include tariffs. European Commission President Jean-Claude Juncker believed that US will refrain from imposing auto tariffs on EU cars for now.

ECB minutes noted that downside risks to growth have increased significantly due to BREXIT and trade issues. ECB also acknowledged that “slowdown in euro area growth appeared to be deeper and more broad-based than previously anticipated”. And, “negative developments had become more widespread across the euro area, and risked affecting several components of demand”. 

EU and German economic survey indicators point to stagnant growth in Germany. Indicators are well below the long term averages.

Important developments for next week: US GDP and Fed Chairman’s testimony.

Important levels to watch for are: 1) EUR/USD: 1.1215 on the downside and 1.1520/1.1580 on the upside. 2) USD/INR Supports: 70.85/70.40 on the downside and 71.55/71.80 on the upside.

Market developments:

-Indian Nifty closed at 10791.

-Gold closed at 1330 and WTI Crude closed the week at USD 57.09.

-Indian 10 Year G-SEC closed the week at 7.42%. US 10 Year Yield closed at 2.655%.   

Data Highlights of last week:

-US Weekly jobless claims dipped to 216k, durables order climbed 1.2% m/m.

-US Phily Fed mfrg index improved to -4.1 and existing home sales declined marginally to 4.94 mn.

-EU PMI(mfrg) declined to 49.2 and PMI(services) climbed to 52.3.

-EU and German Zew survey indicators was reported at -16.6 and -13.4  respectively.

-EU CPI was finalized at 1.4% y/y and German Ifo survey dipped to 98.5.

-UK unemployment rate was reported at 4% and claimant count change was reported at 14.2k.

Technicals:

USD/INR : Spot closed below 100 day moving averages but still above 200 day major moving average. 20 day moving average is at 71.25. 50 day moving average is at 70.85. 200 day moving average is at 70.30. Daily MACD is in sell zone, implying top at 71.84. Important support zone is at 70.85 and later at 70.40 .

EURO/USD: The pair is below 200 day moving average. Next Major resistance is at 1.1520 and later at 1.1570. Major support is at 1.1230/1.12. Daily MACD is in buy zone, implying an important bottom at 1.1230. Weekly MACD is in buy zone, implying important bottom at 1.1215.                                                                                                                 

GBP/USD: The pair is bullish and trading above major moving averages.Daily MACD  is in buy zone, implying important bottom at 1.2770 and weekly MACD is  in buy zone, implying important bottom at 1.2440. Important resistance is at 1.3220. Important support is at 1.2770.

USD/YEN: The pair is below major moving averages. Daily MACD is in buy zone, implying important bottom at 105. Next important resistance is at 111.50/112. Important support is at 110.

Suggested Portfolio: 1) Buy USDINR on decline with stop loss at 70.20.        

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: FOMC Chairman testimony, Factory orders, Personal income, spending, Core PCE index, GDP(advance estimate), Chicago PMI, ISM(mfrg), Consumer confidence, building permits, house price index, pending home sales, weekly jobless claims  EU data: PMI(mfrg and services), unemployment rate German Gfk survey, EU CPI(flash estimate) UK: PMI(mfrg) and house price index Japan: CPI and unemployment rate.