WEEKLY SYNOPSIS: 07/01/2022

Currency Map:

Brent Crude closed at USD 81.94 VS prior week close of USD 78.09. Gold closed at USD 1795.Nifty closed at 17812 vs prior week close of 17354. 10 Year G-SEC Yield closed at 6.54%.

Major developments: USDINR traded in the 74.25-74.61 range and closed at 74.31 as against prior week close of 74.30. Rupee closed flat w/w. EUR also closed flat and GBP climbed 0.31% w/w against Rupee. Indian benchmark Equity index climbed 2.63 w/w. 10 Year G-SEC Yield closed at 6.54%. 1 year fwd premia is at 4.60% p.a.

USDINR pair consolidated at around 74.40 and gains were stemmed by RBI’s intervention at around 74.15 levels last week. ECB inflows was helping Rupee last week and stemmed losses. Indian Q2 Current account deficit expanded to 1.3% of GDP to USD 9.6 bn, due to outpacing of imports, which grew by 65% y/y. Exports climbed 38.71%. Q2 Trade deficit stood at USD 44.4 bn. Invisible receipts rose to USD 34.8 bn. CAD was at a surplus of 0.9% of GDP in Q1. Q2 FDI flows was around USD 9.5 bn, FPI flows tapered to USD 3.9 bn. Overall capital receipts stood at USD 40.1 bn, the balance being contributed by loans. BOP surplus stood at USD 31.2 bn in Q2. LIC is likely to file draft with SEBI for public listing before this fiscal year. In this calendar Year, major IPO’S are expected and is likely to mobilise Rs 2 lac Cr. Rupee has outperformed most of its Asian peers in 2021. USDINR’S movement is likely to be controlled by RBI’S action against the back drop of expected FDI and FPI flows. Fed’s rate hike and strength of USD against other EM Currencies could force RBI to stem Rupee gains. USDINR is expected to trade in the 73.50-76 range for most part of 2022. 10 Year yield has climbed past 6.5% and is expected to inch higher to 6.75% as RBI may hike rates in second half of this year.

Omicron’s spread has forced week end curfews in major cities. This could affect mobility and retail sales. GDP is expected to be lowered by 0.3% for Q 4 from prior estimate.

Indian PMI(mfrg) eased to 55.5 from Nov high of 57.6. PMI(services)  also eased to 55.5 from Nov data of 58.1.

IIP and CPI are key data releases for coming week. 

Global developments: Omicron fears continued to dominate headlines. Surge in infections, despite low hospitalization rate has dimmed earlier estimate of robust growth in first Quarter of new year. US , EU mfrg and services data showed loss of momentum. The surge in cases has prompted airlines to cancel flights and companies to cut services and reduce hours as infected workers self-isolate (though for fewer days than past waves). With worker shortages already a pressing issue, the current wave is likely to weigh on near-term business performance and slow the recovery in high-contact services.

US ISM Manufacturing dropped from 61.1 to 58.7 in December, below expectation of 60.2. Looking at some details, new orders dropped -1.1 to 60.4. Production dropped -2.3 to 59.2. Employment rose 0.9 to 54.2. Prices dropped sharply by -14.2 to 68.2. US non-farm payroll employment rose only 199k in December, much worse than expectation of 400k. Overall job growth averaged 537k per month in 2021. Non-farm employment remained -3.6m, or -2.3%, from its pre-pandemic level in February 2020.Unemployment rate dropped to 3.9%, down from 4.2%, better than expectation of 4.1%. Average hourly earnings rose strongly by 0.6% mom, above expectation of 0.4%.

Minutes from the most recent FOMC meeting showed that more members are inclined to accelerate the pace of policy normalization. This culminated in the Fed’s decision to speed up the taper of their Quantitative Easing program and possibly faster rate increases.

EU retail sales rose, but inflation surprised on the upside.

Focus will be on US Fed Chief’s testimony, US retail sales and CPI.

Currency range for next week: USDINR: 74.10( support), 74.60/74.85 (resistance), EURINR: 83.75 (support)/ 84.45/84.70 (Resistance), GBP/INR: 100-102.50, JPY/INR:63.50-65.50.

Suggestions: USD Imports can be covered. EURINR imports can be covered below 84. GBPINR exports can be covered at 101..