WEEKLY SYNOPSIS

Currency Map:

Brent Crude closed at USD 64.93 VS prior week close of USD 64.37.

Nifty closed at 12086 vs prior week close of 11921.

10 Year G-SEC Yield closed at 6.78%.

Major developments: It was a volatile trading week for USDINR. The pair traded in the 70.52-71.29 range. It closed at 70.81, registering a loss of 40 ps for USD. GBPINR climbed 1.40% and EURINR closed with marginal gains.

The week was dominated by overseas developments. US- China phase 1 deal and end to Brexit uncertainty cheered Indian Equity markets. Rupee gained on heavy corporate inflows. Rupee gains was stemmed by RBI, which bought USD on Thursday and Friday, FX reserves has swelled to USD 451.5 bn USD.

Indian IIP and CPI data continued to remain major worries. Indian IIP declined -3.8% in Oct m/m as against -4.3% in Sep. Mfrg declined -2.1%, consumer durables declined -18% and electricity sector declined 12.2%. Nov CPI climbed to 5.54% from 4.62% in Oct. Food price inflation soared to 10.1% in Nov.

FM and Chief economic advisor outlined the various steps taken for economic revival. High frequency indicators are pointing to nascent recovery in Q 3.

FII’S nett sold  Rs 517 Cr of Indian Equities in Dec . FII’S have nett bought Rs 82973 Cr of Indian Equities in this calendar Year till date. FII’S have nett sold Rs 1500 Cr of Indian debt securities in Dec. FII’S have nett bought Rs 38244 Cr of Indian debt in this calendar year till date.

Global developments: It was a great week for Pound as victory and margin of victory for UK PM has literally ensured that UK will be out of EU by Jan 31 st. This will end uncertainty. However, trade deal between EU and UK is expected to be messier and be the second chapter of Brexit.

US-China has agreed on phase 1 deal, though text and date of signing are still not known. China’s Commerce Ministry said it has agreed with the U.S. on a text for a phase-1 trade deal that would see U.S. import tariffs on Chinese goods reduced in stages. This was reported after US President tweeted that WSJ report on reduction of tariffs is a fake news.

The end game on Brexit and the China-U.S. trade war remains uncertain and will continue to dominate Global developments in 2020.

Fed left rates unchanged and hinted at steady rates in coming months. Fed Chairman said that inflation has to be significant and persistent for rates to move up.

ECB decided to leave the deposit rate unchanged at -0.5%. Meanwhile, the main refi rate and marginal lending rate also stay unchanged at 0% and 0.25%, respectively. The pace of the asset purchase program, effective on November 1, also stays at 20B euro per month. On GDP, ECB has revised growth to +1.2% for this year, from September’s projection of +1.1%. GDP growth for 2020 is revised lower to +1.1%, from +1.2% estimated in September.  On inflation, headline CPI forecast is upgraded slightly to +1.2% (September: +1.1%) for this year, but the downgraded back to +1.1% (September: +1.2%) for 2020. 

UK GDP grew 0.0% mom in October, below expectation of 0.1% mom. Rolling three-month GDP also showed no growth.  

China’s exports contracted -1.1% y/y in November, worse than consensus of +1% growth. Imports expanded slightly, by +0.3% y/y, following the -6.4% contraction in October.  Trade surplus narrowed to US$ 38.7B in November, from US$ 42.8B in the month ago. 

Market is heading to holiday season with some clarity, but also with many unanswered questions.

Important developments in coming week: BOE MPC meeting

Currency range forecast for coming week:

USDINR: 70.50-71.30, EURINR: 78.50-79.50, GBPINR: 92.50-95, JPYINR: 63.50-66.50.

Suggestion: Cover 1 month USD import payables. USD receivables can be hedged at 71.30/71.60. 1 M EURINR payables can be hedged at 78.50. EURINR receivables can be hedged closer to 79.50. GBPINR receivables hedging can be done closer to 95.