WEEKLY SYNOPSIS: 04/10/2019
|Currency Pairs||WEEKLY CLOSE||PRIOR WEEK CLOSE||% change|
Brent Crude closed at USD 58.50 VS prior week close of USD 61.88.
Nifty closed at 11174 vs prior week close of 11512.
10 Year G-SEC Yield closed at 6.69.
Major developments: USDINR rallied from 70.35 to 71.35 and then dipped back to 70.78. The pair traded in the 70.35-71.35 range and closed at 70.89, registering 0.48% gain for USD.
USDINR was impacted by RBI rate decision and Global developments. EURO and Pound gained 0.93% and 0.81% respectively against Rupee. Since Chinese markets were closed last week, the full impact of Global developments and its impact on CNY remains to be seen. If CNY opens on the weaker side next week, Rupee could be negatively impacted. Rupee is overvalued and any negative news could easily trigger a bigger decline in INR.
Indian Equity indices declined 3%, negating Govt’s recent steps to boost economic growth and make investments competitive. Banking stocks led the decline due to failure of a major cooperative bank in Maharashtra. RBI’S downgrade of GDP growth and shrinking margins of banks due to transmission of rate cuts are cited as reasons for steep decline in Equity indices.
RBI cut repo rates by 25 bps to 5.15%. GDP growth rate for this fiscal was downgraded to 6.1% and inflation is expected to be between 3.5-3.7% zone. RBI statement also affirmed accommodative monetary stance. RBI has cut rates by 135 bps in this calendar year. Banks have transmitted only 30 bps on weighted average basis. RBI Governor has said that the focus will be on transmission of rate cuts and maintenance of adequate liquidity.
Indian CAD shrunk to 2% of GDP in June quarter. CAD stood at USD 14.3 bn as against USD 15.8 bn in June 2018. Higher services exports totalling USD 31.9 bn helped CAD to shrink.
Core sector output contracted 0.5% in Aug 2019. The eight core sector industries — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity – had expanded by 4.7 per cent in August last year. During April-August, growth in the eight core industries grew by 2.4 per cent from 5.7 per cent in the year-ago period. Auto sales in Sept declined around 20-25%. Rate cuts and bank’s outreach programme could help sales pickup in festive season.
FII’S have nett sold Rs 4456 Cr of Indian Equities in Sep . FII’S have nett bought Rs 44917 Cr of Indian Equities in this calendar Year till date. FII’S have nett sold Rs 454 Cr of Indian debt securities in Sep. FII’S have nett bought Rs 29149 Cr of Indian debt in this calendar year till date.
-USD ended the week lower against Euro and Pound amidst recession fears due to weak manufacturing data. Market players expect another USD rate cut in Oct.
US NFP(nonfarm payrolls) grew 136k in September. Unemployment rate dropped to 3.5%, lowest since December 1969. US ISM(mfrg) dipped into contractionary mode while ISM(non mfrg) was weaker than expected. US retail sales and jobs data continued to maintain decent strength, offering hopes of rebound.
US Yields dived lower in anticipation of further Fed rate cuts. In the meanwhile, US imposed tariffs on USD 7.5 bn worth of EU imports. New tariffs on China is set to take place on Oct 15 th. EU and Chinese retaliation and counter retaliation could hurt the Global growth further.
Important developments in coming week: Indian IIP, CPI and US CPI
Currency range forecast for coming week:
USDINR: 70.50-71.50, EURINR: 76.50-78, GBPINR: 86.50-88, JPYINR: 65.50-67.50.
Suggestion: Cover 1-2 month USD import payables on dips to 70.70. EURINR payables can be hedged at 77/76.50. EURINR receivables can be hedged closer to 78.50. GBPINR receivables can be hedged at 88+.