Currency Map:

Brent Crude closed at USD 60.15 VS prior week close of USD 61.60.

Nifty closed at 11075 vs prior week close of 10946.

10 Year G-SEC Yield closed at 6.64.

Major developments: USDINR traded between 70.85 and 71.87. EURINR declined, while GBPINR closed flat w/w.

Rupee gained over 1%, due to Yuan’s pullback from 7.20 to 7.07 levels. US and China stepped back from brinkmanship and agreed to hold high level talks in Oct and also made some concessions on each other’s imports. While trade uncertainty still looms large, there is some respite for the present.

Indian CPI, IIP and trade data were released. Indian IIP grew by 4.3% in July as against 6.5% in July 2018. Retail inflation rose marginally to 3.21%.

Indian exports declined 6.01% to 26.13 bn and Imports declined 13.45% in Aug to USD 39.58 bn. Trade deficit narrowed to USD 13.45 bn. In August, oil imports declined by 8.9 per cent to $10.88 billion, and non-oil imports fell by 15 per cent to $28.71 billion.

Cumulatively, during April-August 2019, exports were down 1.53 per cent to $133.54 billion, while imports contracted by 5.68 per cent to $206.39 billion.

Weak IIP and moderate inflation has set the stage for further repo rate cut in Oct.

FM announced new measures for housing and exports sectors.

For housing: 1) Special window funding to be set up as category AIF-II with Rs 10000 Cr investment by GOI and equal amount by outside investors. This will be available for affordable housing projects which are non NPA and non NCLT.

2) Govt employees will get loans linked to 10 Year G-SEC yield.

3) ECB norms to be relaxed for affordable housing projects.

Exports:

1) Scheme for remission of duties or taxes on exports. Govt revenue foregone is Rs 50,000 Cr.

2) Fully automatic electronic refund for input tax credit in GST.

3) Reduce time to exports turnaround.

4) ECGC scheme to be expanded

5) Annual mega shopping festival at four places across India by March 2020.

FM says that GDP will improve by next quarter.

FII’S have nett sold  Rs 2605 Cr of Indian Equities in Sep . FII’S have nett bought Rs 46768 Cr of Indian Equities in this calendar Year till date. FII’S have nett bought Rs 3279 Cr of Indian debt securities in Sep. FII’S have nett bought Rs 31882 Cr of Indian debt in this calendar year till date.

Global developments:

-Global developments were dominated by ECB QE decision and US-China trade truce.

ECB cut deposit rates by -10 bps to -0.5%. It also announced open ended QE of Eur 20 bn every month. QE and rates will remain till inflation converges to 2%. ECB downgraded GDP growth forecasts to +1.1% and +1.2%, from +1.2% and +1.4%, for 2019 and 2020 respectively. Inflation forecasts are revised lower to +1.2%, +1% and +1.5%, from +1.3%, +1.4% and +1.6%, from 2019 through 2021.          

Markets were likely buoyed by the latest news this week of cooling trade tensions. Global data was above expectations. US consumer spending is solid, inflation has firmed up to near Fed target level and unemployment is at a comfortable level of 3.7%. However, Fed is expected to cut rates on Thursday and may opt for two more rate cuts and allow inflation to breach its target.

US 10 Year yield rallied 44 bps last week from its recent low of 1.46%. S&P is near its peak. Recession fears may have faded with cooling off of US-China trade tensions.

Focus is now on US Fed, BOE and BOJ meetings this week.

Gold declined as investors risk appetite resurfaced. However, with US rate cuts lingering, Gold is likely to climb higher after a modest pull back. Crude continued to remain steady.

Important developments in coming week: US Fed, BOE and BOJ meetings.

Currency range forecast for coming week:

USDINR: 70.30-71.45, EURINR: 78.20-79.20, GBPINR: 86.80-89, JPYINR: 65.25-67.25.

Suggestion: Cover 1-2 month USD import payables on dips to 70.35. USD exports may be hedged on rally to 71.45. EURINR payables can be hedged at 78.25. EURINR receivables can be hedged closer to 79.25. GBPINR receivables can be hedged at 88+.