WEEKLY SYNOPSIS: 24/09/2021

Currency Map:

Brent Crude closed at USD 78 VS prior week close of USD 75.30. Gold closed at USD 1750.Nifty closed at 17853 vs prior week close of 17585. 10 Year G-SEC Yield closed at 6.17%.

Major developments: USDINR traded in the 73.57-73.93 range and closed at 73.70 as against prior week close of 73.48. Rupee declined 0.30% w/w. EUR closed flat and GBP declined 0.25% w/w against Rupee. Indian benchmark Equity index climbed 1.5% w/w. 10 Year G-SEC Yield closed at 6.17%. 1 year fwd premia is at 4.35% p.a. FX reserves stands at USD 640 bn.

USDINR maintained a bullish bias, aided by hawkish Fed. Rupee had two way range movement, buffeted by debt and Equity inflows. Steep increase in Crude prices, surge in US Yield have not deterred Indian Equity indices from extending their rally. Sensex breached 60K mark and this is the steepest rally without a proper correction, probably in the history of Indian stock market performance. USDINR path will be dependent on US economic data, inflation readings, sustainability of Oil prices and IPO related inflows. Increase in Indian exports is a silver line against some of the negatives for Rupee.

In Sept, FII’S have net bought Rs 8773 cr in Equity segment and have net bought Rs 4548 cr of debt. In this financial year, FII’S have net bought Rs 6398 Cr worth of Indian Equities and have bought Rs 12413 Cr worth of Indian debt. In 2020-21 financial Year, FII’S nett bought Rs 2,74,203 Cr of Equities and have sold Rs  42820 Cr in debt.

Global developments: The week was dominated by US Fed announcement, surge in energy prices and default by a major Chinese real estate company.

Fed maintained status quo, but it was categorical that asset purchase tapering is warranted sooner than later. Tapering could start by Nov and end by mid-2022. 7 out of 9 members felt that rate hike is warranted in 2022. Fed Chair Jerome Powell reiterated that he believed the U.S. economy had already surpassed the central bank’s goals for inflation, and said a “reasonably good” September jobs report would indicate that the Fed’s employment goals to begin tapering had been satisfied as well.                                              

BoJ left monetary policy unchanged. Under the yield curve control framework, short term policy interest rate is held at -0.10%.

BOE sounded hawkish. BOE downgraded GDP growth and raised inflation forecast.

Global stocks were under pressure early last week as there were fears over a big default by a leading Chinese real estate company. The default on coupon payment could trigger a cascading effect on financial system. It remains to be be seen whether Chinese authorities will act to prevent a contagion effect.

Natural Gas prices are surging as the colder months draw nearer.  As a result, smaller UK energy operators are going out of business. Electricity prices have skyrocketed across Europe due to shortages of Natural Gas.  As it gets colder, prices may continue to increase over the coming weeks and months. Energy commodities such as WTI, Brent, and Natural Gas may trend higher in coming week.

Focus is on US Personal spending, GDP (final) and ISM (mfrg)

Currency range forecast: USDINR: 73.30(support)-73.95(Resistance), EURINR: 86(support), 

87.25(Resistance), GBPINR: 100.40.(support), 102.25- Resistance, JPYINR: 66-68.50.   

Suggestion: Cover USD import payables on dips to 73.55/73.35. Receivables can be monitored. EURINR receivables can be hedged closer to 87+. GBPINR receivables hedging can be done at around 102. 

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