WEEKLY SYNOPSIS: 14/01/2022
|Currency Pairs||WEEKLY CLOSE||PRIOR WEEK CLOSE||% change|
Brent Crude closed at USD 86.35 VS prior week close of USD 81.94. Gold closed at USD 1817.Nifty closed at 18255 vs prior week close of 17812. 10 Year G-SEC Yield closed at 6.58%.
Major developments: USDINR traded in the 73.78-74.22 range and closed at 74.15 as against prior week close of 74.31. Rupee gained 0.21% w/w. EUR climbed 1.3% and GBP climbed 1.16% w/w against Rupee. Indian benchmark Equity index climbed 2.48 w/w. 10 Year G-SEC Yield closed at 6.58%. 1 year fwd premia is at 4.75% p.a.
USDINR pair was supported by RBI intervention at lower levels. Rupee gained to 73.78 and RBI bought USD to stem further Rupee gains. Rupee gained despite steep climb in Oil prices and expanding trade deficit. However, ECB inflows and positioning ahead of key IPO’S contributed to Rupee’s strength. Weakening US employment and retail sales data may have also weighed on USDINR pair. Fwd premia tightened to 4.75% and 10 Year yield climbed to 6.58%. RBI is expected to shift from accommodative stance and even hike rates in the second half of this year, in line with Global action and to tame domestic inflation.
Indian CPI rose to 5.59% as Food inflation doubled to 4% and waning of low base effect. IIP decreased in November to 1.4% as supply shortages continued to haunt factory production. Industrial output grew 3.2% in October, and had contracted 1.9% in November 2020. Mfrg grew by 0.9% in Nov. During April-November this fiscal, the IIP grew 17.4% against a 15.3% contraction in the same period last year.
In Jan, FII’S have net bought Rs 2593 cr in Equity segment and have net bought Rs 255 cr of debt. In this financial year, FII’S have net sold Rs 245 Cr worth of Indian Equities and have bought Rs 3148 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.
USDINR pair could climb back if 74.30 is broken on the upside. Importers may hedge till March end.
Global developments: Focus is now on US and Global inflation as commodity prices and goods prices rise due to after effect of pandemic lockdowns and constraint of production schedules. Even if goods prices is to cool off, services prices will rise, as and when pandemic subsides.
U.S. consumer price index rose 7% in the 12 months through December, the biggest annual increase in nearly 40 years.
US retail sales dropped -1.9% mom to USD 626.8B in December, much worse than expectation of 0.0%. Ex-auto sales dropped -2.3% mom, below expectation of 0.2% mom. Total sales for the 12 months of 2021 were up 19.3% from 2020.
The impact of inflation could be felt in retail sales as it eroded purchasing power.
US Treasury yields surged and stocks declined as Fed Chairman signalled end of QE and a new phase of rate hikes. However, he did not mention selling off bonds to suck out liquidity. This message corrected USD against majors. Crude Oil surged further as economic impact due to Omicron seems to be contained.
UK GDP rose strongly by 0.9% mom in November, well above expectation 0.4% mom.
ECB President Christine Lagarde said the “rapid reopening” of the economy has led to steep rises in fuel prices, gas and electricity and price hikes in durable goods and some services. These factors are “weighing on growth in the near term”. She noted that “at the same time, monetary accommodation is still needed for inflation to settle at 2% over the medium term.”
Currency range for next week: USDINR: 73.80( support), 74.35/74.60 (resistance), EURINR: 83.75 (support)/ 85.50 (Resistance), GBP/INR: 100-102.50, JPY/INR:63.50-65.50.
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