WEEKLY SYNOPSIS: 18/09/2020

Currency Map:

Brent Crude closed at USD 43.10VS prior week close of USD 39.59.

Nifty closed at 11504 vs prior week close of 11464.

10 Year G-SEC Yield closed at 6.01%.

Major developments: USDINR traded in the 73.16-73.78 range and closed at 73.45 as against prior week close of 73.54, gain of 0.12% for Rupee w/w. EUR climbed 0.12% and GBP climbed 1.54% against Rupee. Indian benchmark Equity indices rallied 0.34% w/w basis. 10 Year G-SEC Yield closed at 6.01%.

Rupee gained on FII funds. However PSU banks checked Rupee gains at 73.15. RBI is expected to keep Rupee range bound in the 73-74 range as it may balance the need for a competitive exchange rate and check imported inflation.

Indian IIP contracted -10.4% in July as compared to July 2019.Revised data showed industrial production contracted 15.7% in June and 34% in May. July IIP was 8.44% compared to June 2020.Manufacturing, mining and electricity contracted 11.1%,13% & 2.5% respectively.

Indian CPI inflation was reported at 6.69%, above RBI target of 6%.Food inflation climbed to 9.05% y/y in Aug.

Indian trade deficit expanded to USD 6.77 bn in Aug. Exports declined 12.66% y/y to USD 22.7 BN. Imports contracted 26.04% to USD 29.47 bn.

FII’S have nett bought Rs 4124 Cr ofIndian Equities in Sept till date . FII’S have nett bought Rs 2285 Cr of Indian debt securities in Sept till date. In this financial year, FII’S have nett bought Rs 91027 Cr of Equities and have sold Rs  38779 Cr in debt. In FY 19-20, FII’s have sold Rs 10200 Cr of Equities and 47393 cr of debt

Global developments:US macro-economic data shows that recovery gains is slowing, but recovery is broadening in sectors. USD rally post FOMC decision faded. US tech stocks are correcting from its high valuation levels. Sterling steadied despite dovish comments from MPC. US Fed meeting and BOE’S dovish comments were the dominant themes last week.

Fed said it would keep interest rates near zero until inflation is on track to “moderately exceed” the central bank’s 2% inflation target “for some time,” with the aim of offsetting years of weak inflation and allowing the economy to add jobs for as long as possible. Fed Chairman said that economic recovery is ongoing at slow pace and requires continued Fed and Govt policy support.

BoE minutes indicated that the central bank is already discussing implementing negative interest rates.BoE kept Bank Rate unchanged at 0.1% as widely expected. The target of asset purchases was also held at GBP 745B. Both decisions were made by unanimous votes. The central bank pledged to continue to “monitor the situation closely and stands ready to adjust monetary policy accordingly to meet its remit”. It “does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”

OECD revised up 2020 global GDP forecast, expecting to contract -4.5%, 1.5% higher than June’s single hit scenario. US economy is expected to contract -3.8% only, up by 3.5% from June. Eurozone (at -7.9%, up by 1.2% from June), Japan (at -5.8%, up by 0.2%), UK at -10.1% (up by 1.4%) are just revised up slightly. India is expected to contract -10.2%.

OECD said: “After collapsing in the first half of the year, economic output recovered swiftly following the easing of measures to contain the COVID-19 pandemic and the initial re-opening of businesses. Policymakers reacted rapidly and massively to buffer the initial blow to incomes and jobs. But the pace of recovery has lost momentum over the summer. Restoring confidence will be crucial to how successfully economies can recover, and for this we need to learn to safely live with the virus.”

FX and Equity market movements will be impacted by vaccine development and Fed Chairman’s testimony to US Congress.

Important developments in coming week:  Fed Charman’s testimony.

Currency range forecast: USDINR: 72.70(support)-73.80/74.40(Resistance), EURINR: 86.50(support)-89.50(Resistance), GBPINR: 92(support)-96.50(Resistance), JPYINR: 68-71.

Suggestion: Cover USD import payables on decline to 72.70. USD receivables can be hedged at 73.80-74.40+.EURINR payables can be hedged at 87/86.50. EURINR receivables hedging can be considered partially at 89+ and again at 91. GBPINR receivables hedging can be done on any rally.

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