22/09/18

RUPEE WOOBLY, INDIAN EQUITY INDICES DECLINE STEEPLY

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 unmoved by Govt measures.

-Indian Equity indices decline steeply as a major NBFC defaults.

-FOMC meeting is the focus of this week.

Important developments during last week:           Indian Rupee declined to 72.97 as participants were not impressed with Govt measures to check Rupee fall. However, RBI selling and general weakness in USD against majors led Rupee to retrace back to 71.76. Rupee still ended lower at 72.19 as against prior week close of 71.84. The week was dominated by developments in Equity markets. IL&FS announced its defaults in payment. This triggered fears and a mututal fund sold DHFL bonds at higher yields (roughly 300 Cr). Housing finance companies hold commercial papers of NBFC’s. Hence there was all round pressure on NBFC and housing finance stocks. NBFC’S may find difficulty in raising funds and the borrowing costs could be higher.

On the macro front, rating agencies have upgraded Indian GDP growth to 7.8% due to Q1 performance.   . In a surprise move, Govt announced merger of Bank of Baroda, Dena bank and Vijaya Bank.

FII’S have sold Rs 1745 Cr of Indian Equities in Sept till 18/9 . FII’S have sold Rs 6140 Cr of Indian debt securities in Sept till 18/9 . On a cumulative basis, FII’S have sold Rupees 1745 Cr of Indian Equities till date for this calendar year and have sold  Rupees 44914 Cr of Indian debt in this calendar year till date.

What to watch: FOMC meeting’s impact on Rupee and issues centered around NBFC default.

Global developments: Trade tensions between US and China continued to take the centerstage though major Equity markets have by far ignored these developments. US Trade Representative finally announced the tariffs on USD 200B of Chinese imports, effective September 24, 2018. The initial tariff rate is 10%. Staring January 1, 2019, the tariff rate will be increased to 25%. China has retaliated on US imports worth USD 60 bn. US President warned that new round of tariffs on around USD 267B of additional imports will be pursued if China retaliates. China has cancelled its trade talks with US.

Escalating trade wars, devastating hurricanes, rising interest rates, and tumultuous emerging markets have not prevented the S&P500 from attaining new heights this week. Strong corporate earnings growth is playing a key role, as is a 50% increase in share buybacks over the first half of 2018. Fiscal stimulus has played a key role and is expected to keep the US growth rate close to 3% for the full year. If US goes through with further tariff hikes and covers almost the entire Chinese imports, growth rate could be affected by 0.8% and tapering off of fiscal stimulus would also contribute to drag growth lower in 2019. However, Fed is on track for Sept rate hike and its economic forcecast will be closely watched. Fed is likely to hike rates to 3.5% by 2018 end.

Important developments for next week: FOMC meet

Important levels to watch for are: 1) EUR/USD: 1.1525/1.13 on the downside and 1.1790 on the upside. 2) USD/INR Supports: 71.50/70.70 on the downside and 72.95 on the upside.

Market developments:

-Indian Nifty closed at 11143.

-Gold closed at 1203 and WTI Crude closed the week at USD 70.72.

-Indian 10 Year G-SEC closed the week at 8.08%. US 10 Year Yield closed at 3.07%.   

Data Highlights of last week:

– US Ny mfrg index dipped to 19 .

-US housing starts climbed to 1.28 mn and building permits declined to 1.23mn. Existing home sales was reported at 5.34mn.

-US Weekly jobless claims declined to 201k and Phily fed mfrg index climbed to 22.9.

-EU conusmer confidence dipped to -3. PMI(mfrg) dipped marginally to 53.3 and PMI(services) climbed marginally to 54.7.

– EU CPI grew less than expected by 2% y/y.

-UK CPI climbed 2.7% y/y, PPI(output)climbed 0.2% m/m  and RPI climbed 3.5% y/y, Inflation data was above expectations. Retail sales climbed 0.3% m/m.

-Japanese CPI climbed 0.9% y/y.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 71.50. 50 day moving average is at 69.94. 200 day moving average is at 66.68. Daily MACD is in buy zone, implying bottom at 68.30 . Important support zone is at 71.50/70.70 and later at 70.30. Important resistance is at 72.95.                             

EURO/USD: The pair is below 200 day major moving average, but above 50 day moving average. Next Major resistance is at 1.1790 and later at 1.1960. Major support is at 1.1525 and later at 1.13. Daily MACD is in buy zone, implying an important bottom at 1.1525. 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 200 day moving average. Important resistance is at 1.3364 and later at 1.3560. Important support is at 1.3045 and later at 1.2990.

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 with stop loss at 71.50.                

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: FOMC meet, House price index, consumer confidence, Pending and new home sales, durables order, personal income, spending, Core PCE index and weekly jobless claims EU data: CPI estimate, German Ifo UK:  Japan: Unemployment rate, retail sales