WEEKLY SYNOPSIS: 17/04/2020

Currency Map: 

Brent Crude closed at USD 26.62 VS prior week close of USD 28.80.

Nifty closed at 9266 vs prior week close of 9111.

10 Year G-SEC Yield closed at 6.35%. 

Major developments: It was a relatively quiet week for Currency pairs. USDINR traded in the 75.93-76.85 range and closed at 76.40. EUR and GBP declined marginally against Rupee. Indian Equity markets climbed 1.7% w/w basis.

PM announced extension of lockdown till May 3rd, but with gradual reopening of select sectors from April 20 th. The week was dominated by CPI, trade deficit data and RBI announcement.

RBI announced new liquidity measures and to incentivise banks to lend. Reverse repo was cut to 3.75% to deter banks from parking funds wth RBI. New TRLTO of Rs 50000 Cr for lending to NBFC’S and Rs 50000 Cr refinancing facilities to NABARD, SIDBI and NHAI were also announced. Banks have been barred from dividend payouts in this year to preserve capital. Liquidity coverage ratio has been reduced. Assets under moratorium will not be classified as NPA.

Indian CPI eased to 5.91% from Feb data of 6.58%. Food inflation eased to 8.76%. Indian trade deficit narrowed to USD 9.6 bn in March. Exports plunged 34.6% to USD 21.4 bn, imports declined 28.7% to USD 31.2 bn. Oil imports declined 15% to USD 10 bn. For the fiscal year 2019-20, Exports totalled USD 314.3 bn, down 4.78%. Imports stood at 467.2 bn, down 4.78%. Trade deficit stood at USD 153 bn.

FII’S have nett sold Rs 7 Cr of Indian Equities in April . FII’S have nett sold Rs 7109 Cr of Indian debt securities in April. In FY 19-20, FII’s have sold Rs 10200 Cr of Equities and 47393 cr of debt.

Govt is expected to announce new stimulus measures targeting SME’S and individuals.

Global USD funding has improved as evident from drop in EURUSD fwd premia. USD liquidity will stem bigger decline in Rupee. RBI has sold USD 16.8 bn and they may intervene again if Rupee breaches 77. Long term technical view indicates possibility of Rupee heading to 77-78/80 levels with support at 74.40. Expect a sharp reversal from around 77+ levels, targeting 74.40 again.

Global developments: COVID-19 dominated economic and market mood. Global markets ended the week on a high note as there was optimism on treatment for Covid-19. It is reported that Gilead’s remdesivir could be a remedy. Also, talks of graded reopening of economy spurred markets.

Economic data is down beat. US jobless claims have crossed 22 mn in last four weeks. US industrial production decline was the steepest since 1946. Retail sales plunged 8.4%. 

Chinese GDP plunged -6.8% y/y in 1Q20, weaker than consensus of -6.5%. From a quarter ago, the economy slumped -9.8%, compared with expectations of a -9.9% decline. This is China’s worst single quarter since it started publishing comparable data in 1992, and the first contraction since 1976.

ECB Chief said “in the euro area, incoming economic data, particularly recent survey results, have started to show unprecedented falls, pointing to a large contraction in output in the euro area, as well as to rapidly deteriorating labour markets.”

Govts and Central banks have announced measures to revive sentiment and spending. US has announced fiscal pacakge of 9% of GDP with Fed easing rates by 150 bps and unlimited QE. ECB has announced EUR 870 bn QE. Japan has announced 1 trn economic package. UK has cut rates by 65 bps and extra 200 bn Pound asset purchase and fiscal measures to the extent of 3% of GDP. These factors have contributed to stabilisation of markets. It remains to be seen as to how these steps will help in economic recovery.

Important developments in coming week:  News on corona virus.

Currency range forecast for coming week:

USDINR: 75.85(support), EURINR: 82.25(support), GBPINR: 91.75/90(support), JPYINR: 66.50-71.

Suggestion: Cover USD import payables. USD receivables can be hedged at 77+. 1 M EURINR payables can be hedged at 82.25/81.50. EURINR receivables can be hedged closer to 83.50/84. GBPINR receivables hedging can be done on any rally to 95.