09/07/18

RUPEE DECLINES 41 PS W/W, MSP FOR PADDY HIKED @13%

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 declines 0.60% w/w.

-US-China trade tariffs comes into effect.

-Cross Currencies climb higher.

Important developments during last week: Rupee declined to 69.03 and recovered as RBI intervened again. USDINR closed the week at 68.87, loss of 41 ps for Rupee as compared to prior week close of 68.46. Trade issues, Oil price rally, climbing US Yields and high CAD are contributing to INR decline. Rupee is still overvalued despite a decline of over 8.7% from its levels of 63.25. Rupee’s movement will closely track Chinese developments as Yuan weakness spills its impact on EM currencies and Rupee.

Govt hiked MSP for paddy crop by 13% (Rs 200/quintal). This move spurred rural oriented stocks like two wheeler auto stocks and FMCG companies. Its inflationary impact and RBI’S measures to tackle will be watched. Focus is on IIP and CPI data to be released later this week.

FII’S have bought Rs 496 Cr of Indian Equities in July till date . FII’S have bought Rs 854 Cr of Indian debt securities in June till date . On a cumulative basis, FII’S have bought Rupees 2034 Cr of Indian Equities till date for this calendar year and have sold  Rupees 40436 Cr of Indian debt in this calendar year till date.

Technically, Rupee has posibility of gaining to 67.70 and a downside break of 67.70 could help Rupee gain further to 66.85. Since there has been a parabolic fall, correction can also be swift and large. This phase can be followed by a consolidation.     

Indain Equity indices climbed marginally higher on w/w close.

Global developments: US trade tariffs against China and Chinese retaliatory measures came into effect on July 6^th. Amidst the fear of intensification of trade wars, Global economic data continued to support markets from entering into panic mode. Euro was lifted on hopes of earlier than expected rate hike in 2019. US data was strong and Fed minutes echoed robust data with expectation of sustained inflation in coming Years. Spotlight continued to be on Crude price and its politics. Even as US pressured nations from importing Iranian Crude, big consuming countries like China and India are grappling with its pros and cons. Even as US President threatened EURO with tariff on autos, EU warned the United States that imposing import tariffs on cars and car parts would harm its own automotive industry and likely lead to counter-measures by its trading partners on $294 billion of U.S. exports. US faced strong objections from over 40 countries over its possible auto tariffs at the WTO Council on Trade in Goods. Japan and Russia initiated the discussions and warned such measures could lead to collapse of the rules-based multilateral trading system.

Chinese Yuan recovered as Pboc stepped in to control its fall and its cascading impact on stock market. USDCNY’s rally of more than +4% over the past two weeks has raised speculations about China’s retaliation against the US-induced trade tensions. However exceesive Yuan weakness could trigger large capital outflows as evidenced in 2015.  

FOMC minutes reaffirmed commitment to increase rates as economy is robust and inflation is expected to be above 2% on a sustained basis over the medium term.“Most participants noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending,” the minutes said. 

US nonfarm payrolls reported 213k jobs addition as against consensus of 200k jobs addition. This data will reinforce Fed’s position to hike rates. Month-on month, average hourly earnings eased to a 0.2% increase, from the prior 0.3% gain. On an annualized basis, wage inflation grew 2.7% in June, matching the prior reading and missing expectations for an increase to 2.8%.

Important developments for next week: Indian CPI and IIP

Important levels to watch for are: 1) EUR/USD: 1.15 on the downside and 1.1850/1.1960 on the upside. 2) USD/INR Supports: 68.35/67.70 on the downside and 69.10 on the upside.

Market developments:

-Indian Nifty closed at 10772.

-Gold closed at 1255 and WTI Crude closed the week at USD 73.91.

-Indian 10 Year G-SEC closed the week at 7.87%. US 10 Year Yield closed at 2.83%.   

Data Highlights of last week:

-US ISM(mfrg) climbed to 60.2, prices paid component climbed to 76.8 and construction spending climbed 0.4% m/m.

-US factory orders climbed 0.4% m/m.

-US Weekly jobless claims climbed to 231k, ISM (non mfrg) climbed higher to 59.1.

-US ADP employment report showed that private sector added 177k jobs in June.

-US unemployment rate climbed to 4% from 3.8%.

-German factory orders climbed 2.6% m/m.                                                      

-EU retail sales was flat m/m.

-EU unemployment rate dipped to 8.4%.

– EU PMI(services) climbed to 55.2 .

-UK PMI(services) climbed to 55.1.

-UK PMI(mfrg) climbed marginally higher to 54.4.

-UK PMI(construction) climbed to 53.1.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 68.15. 50 day moving average is at 67.70. 200 day moving average is at 65.40. Daily MACD is in buy zone, implying bottom at 66.85 . Important support zone is at 67.70 and later at 66.85. Important resistance is at 69.10.

EURO/USD: The pair is below all major moving averages. Next Major resistance is at 1.1850 and later at 1.1960. Major support is at 1.1508. Daily MACD is in buy zone, implying an important bottom at 1.1508. Weekly MACD is in sell zone, implying important top at 1.2560.

GBP/USD: Trend is bearish in daily chart. Daily MACD  is in buy zone, implying important bottom at 1.3050 and weekly MACD is  in sell zone, implying important top at 1.4375. The pair is trading below all major moving averages. Important resistance is at 1.3475 and later at 1.3550. Important support is at 1.3050.                             

USD/YEN: The pair is above major moving averages. Daily MACD is in buy zone, implying important bottom at 109.35. Next important support is at 108.10. Important resistance is  110.92 and later at 111.40.      

Strategy for USD/INR: USDINR payables can be covered from cost angle and exports can be covered.                                

Suggested Portfolio: 1) Sell USDINR on rally with stop loss at 69.10.                

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: ISM(mfrg and services), construction spending, factory orders, ADP employment report, FOMC minutes, weekly jobless claims, unemployment rate(nonfarm payrolls) EU data: PPI, unemployment rate, retail sales, German factory orders, PMI(mfrg and services) UK: PMI(mfrg, services and construction) Japan: