26/05/18

RUPEE RECOVERS AS CRUDE DECLINES

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 climbs on Friday to end the week on an optimistic note.

-Indian Equities recover, Crude declines.

-USD climbs higher against Euro and Pound.

Important developments during last week: Rupee recovered 23 ps w/w to close at 67.77 as against 68 last week. Rupee hit 68.42 on Thursday amidst panic over Crude, fiscal worries and expanding trade deficit. However, on reports that Crude supply will increase in coming months, Rupee recovered smartly. RBI sold USD at higher levels sporadically even as Govt signalled that Rupee decline is being watched. On the flip side, FPI outflows from Equity and debt markets continued. US Yields have become attractive for investors and hence the pull out is taking place. Crude rally is another factor contributing to Rupee decline. Rupee is now one of the worst performing EM currencies this year and is already down over 7.5% from 63.25 levels seen in January this year.

Indian Equity indices recovered since Thursday as results continued to be mixed. Focus is on Q 4 GDP data to be released on May 31 st. Expect 7.1 to 7.5% GDP growth rate in Q 4.

Expect USDINR to trade in the 67.40-68.40 range in coming weeks.

FII’S sold Rs 4739 Cr of Indian Equities in May till date . FII’S also sold 16046 Cr of Indian debt securities in May . On a cumulative basis, FII’S have bought Rupees 3675 Cr of Indian Equities till date for this calendar year and have sold  Rupees 29816 Cr of Indian debt in this calendar year till date.

Global developments: Oil declined on Friday and provided a great relief to consuming countries. Pound fell as UK missed inflation expectations, Yen climbed on risk aversion and Euro fall continued below 1.17. Global yields fell on safe haven buying.

The week was dominated by US President’s contradictory announcements on Chinese trade talks, auto import tariffs and cancellation of meeting with North Korean leader.

Early in the week, US Treasury secy said that trade war with China is on hold. This was immediately contradicted by US President as he said that there is no satisfactory progress in talks. Further, he directed probe into auto imports for a possible imposition of 25% tariff.  On the political front, developments were fast paced. US cancelled its scheduled meeting on June 12 th with North Korean leader. However, on reconciliatory statement from North Korea, US President said that there is still hope for the June 12 th meeting.

Federal Reserve officials said the economic outlook warranted another interest-rate hike “soon” and signaled they would welcome a modest overshoot of their 2 percent inflation target, indicating they’re in no rush to tighten more aggressively.

“Most participants judged that if incoming information broadly confirmed their current economic outlook, it would likely soon be appropriate for the committee to take another step in removing policy accommodation,” minutes released Wednesday of the Federal Open Market Committee’s May 1-2 meeting said.

ECB minutes noted that data remained consistent with “solid and broad-based expansion”. And underlying economic strength added to the Governing Council’s “confidence” that inflation will “gradually” move back to 2% target over medium term. But since underlying inflation remain subdued, without signs of sustained upward trend, “patience, persistence and prudence with regard to monetary policy remained warranted”

Focus is on US non farm payrolls and spending data. EU inflation, Global PMI(mfrg) data will also be watched.

Important developments for next week: Indian GDP and US nonfarm payrolls.

Important levels to watch for are: 1) EUR/USD: 1.1550 on the downside and 1.1820/1.1960 on the upside. 2) USD/INR Supports: 67.40/67.25 on the downside and 68.15/68.40 on the upside.

Market developments:

-Indian Nifty closed at 10605.

-Gold closed at 1301 and WTI Crude closed the week at USD 67.48.

-Indian 10 Year G-SEC closed the week at 7.79%. US 10 Year Yield closed at 2.93%.   

Data Highlights of last week:

– US new home sales declined to 662k.

-US Weekly jobless claims climbed to 234k and existing home sales

-EU PMI(flash-mfrg) declined to 55.5, PMI(services-flash) declined to 53.9.

-UK CPI declined to 2.4% y/y, PPI(output) was flat at 0.3% m/m and RPI climbed 3.4% y/y.

-UK retail sales climbed 1.6% m/m.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 67.40. 50 day moving average is at 66.11. 200 day moving average is at 64.66. Daily MACD is in sell zone, implying top at 68.42 . Important support zone is at 67.40/67.30 and later at 66.50. Important resistance is  at 68.42.

EURO/USD: The pair is below all major moving averages. Next Major resistance is at 1.1820 and later at 1.1960. Major support is at 1.1550. Daily MACD is in sell zone, implying an important top at 1.2415. Weekly MACD is in sell zone, implying important top at 1.2560.

GBP/USD: Trend is bearish in daily chart. Daily MACD  is in sell zone, implying important top at 1.3618 and weekly MACD is  in sell zone, implying important top at 1.4375. The pair is trading below all major moving average. Important resistance is at 1.3450 and later at 1.3550. Important support is at 1.3040.                                                                                 

USD/YEN: The pair is below 200 day major moving average, but above 50 and 100 day moving averages. Daily MACD is in sell zone, implying important top at 111.40. Important support is at 108.60. Important resistance is  111.40 and later at 113.75.                                 

Strategy for USD/INR: USDINR payables can be covered from cost angle and exports can be covered on rally due to extended rally.

Suggested Portfolio: 1) Sell USDINR on rally with stop loss at 68.42.                      

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: S&P house price index, consumer confidence, ADP employment report, Trade balance, beige book, weekly jobless claims, personal income, spending, pending home sales, Nonfarm payrolls, ISM (mfrg) and construction spending EU data: German retail sales, CPI, unemployment rate, PMI(mfrg) UK: House price index, PMI(mfrg) Japan: Unemployment rate