RUPEE AND EQUITY INDICES CLIMB ON NDA VICTORY

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:

-Rupee gains on NDA victory.

-US escalates trade tensions with China.

Important developments during last week:           Rupee closed at 69.52 as against prior week close of 70.22. Rupee gained last week as election outcome boosted positive sentiment. NDA’S return to power with comfortable majority has removed one major uncertainity over future policies. RBI bought USD to stem Rupee gains. Rupee traded in the 69.35-70.05 range last week. Indian Equity indices gained 4% w/w basis. Focus now shifts to RBI policy, due in first week of June.

FII’S have nett sold  Rs 1135 Cr of Indian Equities in May till date. FII’S have nett bought Rs 66925 Cr of Indian Equities in this calendar Year till date. FII’S have sold Rs 1552 Cr of Indian debt securities in May. FII’S have nett sold Rs 2662 Cr of Indian debt in this calendar year till date.

Rupee could gain further to 68.30, if 69.35 is broken on the downside.         

Global developments: Risk aversion stabilised, though chances of US-China trade deal has receded significantly. US- China trade war could escalate with US eventually imposing further tariff on full Chinese imports. US tech companies have started to cut off tech support to Chinese electronic manufacturers. Chinese President called on his countrymen to prepare for a long and difficult march. US Treasury yields declined with 10 Year yield dropping to 2.29%. Yuan declined to 6.91.

IMF noted that US-China trade tensions have “negatively affected consumers as well as many producers in both countries.” It pointed out while tariffs have reduced trade between the two countries, “bilateral trade deficit remains broadly unchanged”. It also warned that “latest escalation could significantly dent business and financial market sentiment, disrupt global supply chains, and jeopardize the projected recovery in global growth in 2019.” In the global level, recently announced measures and envisaged new US-China tariffs will “subtract about 0.3 percent of global GDP in the short term, with half stemming from business and market confidence effects.”  In addition, “higher trade barriers would disrupt global supply chains and slow the spread of new technologies, ultimately lowering global productivity and welfare. 

FOMC Minutes revealed that a patient approach to determining future adjustments to the target range for the federal funds rate would likely remain appropriate for some time.

Japanese Q1 GDP grew 0.5% qoq versus expectations -0.1% qoq. Annualized, GDP grew 2.1%.         

Crude prices declined on US inventory build up.

Important developments for next week: US spending data and US- China trade issues.

Important levels to watch for are: 1) EUR/USD: 1.1110/1.0970 on the downside and 1.1265 on the upside. 2) USD/INR Supports: 69.35 on the downside and 70.50/70.80 on the upside.

Market developments:

-Indian Nifty closed at 11844.

-Gold closed at 1284 and WTI Crude closed the week at USD 58.88.

-Indian 10 Year G-SEC closed the week at 7.32%. US 10 Year Yield closed at 2.32%.   

Data Highlights of last week:

-US existing home sales dipped to 5.19 m.

– US new home sales dipped mildly to 673k and weekly jobless claims was reported at 211k.

-EU PMI(mfrg) declined to 47.7, PMI(services) was reported at 52.1 and German Ifo survey declined to 97.9.

-EU Consumer confidence improved to -7.

-UK CPI climbed 2.1% y/y, RPI climbed 3% y/y and PPI(output) climbed 0.3% m/m.

Technicals:

USD/INR : Spot closed between major moving averages. 20 day moving average is at 69.84. 50 day moving average is at 69.50.200 day moving average is at 70.80. Daily MACD is in sell zone, implying top at 70.54. Important support zone is at 69.35.Important resistance is at 70.50 and later at 70.80 .

EURO/USD: The pair is below all major moving averages. Next Major resistance is at 1.1265. Major support is at 1.1110 and later at 1.0970. Daily MACD is in sell zone, implying an important top at 1.1265. Weekly MACD is in sell zone, implying important top at 1.1570.

GBP/USD: The pair has turned bearish and is trading below major moving averages.Daily MACD  is in sell zone, implying important top at 1.3175 and weekly MACD is  in sell zone, implying important top at 1.3385. Important resistance is at 1.2775 and later at 1.2865. Important support is at 1.2480.                                                                        

USD/YEN: The pair is below  major moving averages. Daily MACD is in sell zone, implying important top at 112.40. Next important resistance is at 110.70 and later at 112.40. Important support is at 108.50 and later at 107.75.

Suggested Portfolio: 1) Sell USDINR on rally to 70+ with stop loss at 70.50.     

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: Pending home sales, Consumer confidence, House price index. Personal income, spending, Core PCE index, Chicago PMI and weekly jobless claims EU data: German retail sales UK:  Japan: CPI, industrial production, unemployment rate.