15/09/18

RUPEE FALL CHECKED BY GOVT MEASURES, FURTHER MEASURES EXPECTED.

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 gains on Govt measures to control trade deficit and increase inflows.

-Indian CPI and WPI moderates, IIP holds. Trade deficit stands high at USD 17.4 bn in Aug.

-ECB and BOE hold rates steady.

Important developments during last week: It was a very eventful week for Rupee.INR fell sharply to 72.92 on Wednesday and reversed to close the week at 71.84 as against 71.73 in prior week. Rupee reversed its losses on reports that PM has called for a economic meeting to discuss Rupee fall. True to that, PM held a 2 hour meeting with RBI Governor and Finance Ministry officials. Following the meeting, FM announced major steps to curb trade deficit and increase inflows. Curb on non essential imports, abolition of withholding tax on Rupee denominated (Masala) bonds, increase in FPI exposure to corporate debt and allowing 1 year average maturity for ECB loans for manufacturing companies (upto USD 50 mn) were part of first stage measures.                                                                                                              

FM said that discussion with PM will continue and more steps are expected to be announced. Economic affairs Secy said that import curbs on items are to be identified and above mentioned steps would increase inflows.  

Indian macro economic data was also comforting. Inflation moderated, IIP held steady at 6.6% and trade deficit fell marginally in Aug.Indian Aug was trade deficit was reported at USD 17.4 bn, lower than July deficit of USD 18 bn. Exports climbed 19.2% to USD 27.8 bn, while imports grew 25.4% to USD 45.2 bn. Retail inflation fell to 10 month low of 3.7%, due to lower food inflation. . WPI inflation eased to 4 month low of 4.5%.   IIP climbed 6.6% in July as compared to prior month data of 6.9%. In Apr-July period, IIP has climbed 5.4% in Apr-July of 2018 vis a vis 1.7% in last fiscal during the same period.Mfrg sector grew 7% in July. Consumer durables registered growth of 14.4%, Capital goods sector climbed 3%. 

FII’S have sold Rs 1417 Cr of Indian Equities in Sept till 12/9 . FII’S have sold Rs 4748 Cr of Indian debt securities in Sept till 12/9 . On a cumulative basis, FII’S have sold Rupees 1416 Cr of Indian Equities till date for this calendar year and have sold  Rupees 43521 Cr of Indian debt in this calendar year till date.

What further to expect: RBI may increase rates immediately by 50 bps. Rupee gains to 71.20 and 70.70 is possible. If Rupee gains, Govt may wait and watch or take further steps like bond schemes to attract USD depsoits.

Global developments: The week was dominated by Central bank actions. ECB and BOE maintained status quo. BOE may wait for rate hike till brexit process is over. ECB sounded cautious on growth. US data was on the softer side, still strong enough for 3% plus growth in Q3. Inflation data was marginally lower, but still high enough for Fed to hike rates in Sept meeting. Pressure on EM currencies eased marginally and US stocks rallied shrugging off trade worries.

ECB maintained status quo on rates and confirmed ending QE by Dec end. ECB lowered 2018 and 2019 growth forecasts but kept 2020 growth forecast unchanged. For 2018, growth is projected to be 2.0%, down from 2.1%. For 2019, growth is projected to be 1.8%, down from prior 1.9%. For 2020, growth is projected to be 1.7%, unchanged. Inflation forecasts were kept unchanged, at 1.7% in 2018, 2019 and 2020.

BOE maintained status quo with tightening bais and said that future action depends on smooth brexit. It added that downside risk to global economy increased “to some degree”. Growth has softened and financial conditions tightened in emerging markets, “in some cases markedly”. Further protectionist measures by the US and China could have a larger negative impact than expected. 

Important developments for next week: RBI and Govt actions to contain Rupee fall.

Important levels to watch for are: 1) EUR/USD: 1.13 on the downside and 1.1735 on the upside. 2) USD/INR Supports: 71.20/70.30 on the downside and 72.90 on the upside.

Market developments:

-Indian Nifty closed at 11515.

-Gold closed at 1198 and WTI Crude closed the week at USD 69.

-Indian 10 Year G-SEC closed the week at 8.13%. US 10 Year Yield closed at 2.99%.   

Data Highlights of last week:

-US PPI declined -0.1% m/m and CPI climbed 2.7% y/y and 0.2% m/m, lower than expected.

-US weekly jobless claims dipped to 204k.

-US Core retail sales climbed less than expected by 0.3% m/m and industrial production climbed 0.4% m/m.

-EU Zew survey improved to -7.9 and German Zew survey declined to -10.6.

-EU sentix investor confidence dipped to 12.

-UK industrial climbed 0.1% m/m and manufacturing production declined -0.2% m/m.

-UK unemployment rate was reported at 4% and claimant count change expanded to 8.7k.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 70.98. 50 day moving average is at 69.64. 200 day moving average is at 66.53. Daily MACD is in buy zone, implying bottom at 68.30 . Important support zone is at 71.20/70.70 and later at 70.30. Important resistance is at 72.90.                             

EURO/USD: The pair is below 100 and 200 day major moving averages. Next Major resistance is at 1.1735 and later at 1.1960. Major support is at 1.13. Daily MACD is in sell zone, implying an important top at 1.1735. Weekly MACD is in sell zone, implying important top at 1.2560.

GBP/USD: Trend is sideways in daily chart. Daily MACD  is in buy zone, implying important bottom at 1.2662 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 1.32. Important support is at 1.2940 and later at 1.2660.

 USD/YEN: The pair is above major moving averages. Daily MACD is in buy zone, implying important bottom at 109.70. Next important support is at 109.70. Important resistance is at  113.10.   

Suggested Portfolio: 1) Buy USDINR on decline to 70.70 with stop loss at 70.20                

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

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: NY and Phily Fed mfrg indices, TIC purchases, existing and new home sales, building permits and weekly jobless claims EU data: CPI, Consumer confidence, PMI data UK: CPI, RPI and PPI(output), retail sales Japan: CPI and BOJ meeting.