Japan inflation gains for the first time since March 2020
|Global developments
There has been a follow-up move in the Dollar post the FOMC as short USD positions continue to get unwound on fears that the Fed may taper and hike rates sooner than was earlier expected. However, the same follow-through has not been seen in US yields. US 10y yield has come off 5bps to 1.52% and 30y yield too has retreated from 2.20% to 2.10%. US yield curve has flattened and inflation expectations have come off across maturities, which is usually negative for risk assets. However, equities have not reacted too negatively. Given that the typical risk-off correlations are not playing out, it would be premature to call this move in the Dollar a reversal. US jobless claims came in higher than expected and rose for the first time after falling for six consecutive weeks.
Equities
Nifty shed 0.5% in trade yesterday to end at 15691. Breadth was negative with 16 stocks advancing and 34 declining. Tech and cement stocks gained while Autos and Pharma traded weakly. Dow fell 0.6% overnight, while Nasdaq gained 0.8%.
Bonds
The RBI bought the 2030 security aggressively in GSAP. Out of the Rs 30000crs that RBI could have bought across six securities, the RBI bought Rs 27000crs of 2030 security itself. While the market yield on 2030 security was close to 6.07%, the RBI accepted offers all the way to 5.99%. The yield on the 2030 security finally ended at 6.01%. The RBI, therefore, continues to seek to influence the curve by controlling the benchmark. OIS got paid further with 3y and 5y ending at 4.72% and 5.31%.
USD/INR
The Rupee had opened weak and weakened further through the session. Stops got triggered above 73.85, resulting in a brisk move to 74.10. Even post OTC close, USD/INR got bid up as offshore positioned for further Dollar strength. Considering that recent such moves have been short-lived, we expect volatility dampening to happen quickly. We, therefore, do not see a trending move higher in USD/INR at this point. The trading range may shift to 73.40-74.90 for the medium term.
Strategy: Exporters are advised to cover a part of their near-term exposure between 73.80-74.30. Importers are advised to cover through forwards on dips towards 73.30. The 3M range for USDINR is 72.50 – 75.50 and the 6M range is 73.00 – 76.50.
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