The US economy contracts at an annualized rate of 1.4% in the first quarter

 Key highlights

Bank of Japan decided to maintain rates at minus 0.10% unanimously, as expected to spur economic growth. The bank will continue to buy nearly unlimited amounts of government bonds at each meeting according to necessities.

German annual inflation rose slightly more than expected in April due to rising energy prices and delivery bottlenecks caused by supply chain interruptions, preliminary data showed. The national consumer price index rose 7.4% year on year after an inflation rate of 7.3% in March.

The U.S. economy contracted at an annualized rate of 1.4% in the first quarter, badly affected by the wave of Omicron-variant Covid-19 that deterred travel and put much of the country under mobility restrictions. Consensus forecasts had been for annualized GDP growth of 1.1%, down from 6.9% in the fourth quarter of last year.

USD/INR movement

The USDINR pair opened at 76.61 levels. The pair traded within the range of 76.43-76.70 and closed the day at 76.48 levels. Initially, the USDINR pair opened higher due to broad dollar strengthening. However, IPO-related inflows and inflows into domestic stocks capped any major gains. The dollar was nearing heights not seen in two decades as the energy crisis in Europe hamstrung the euro, while the yen was undercut by expectations the Bank of Japan would stick to its super-easy policies.

Global currency updates

The pound traded down against the US dollar tracking the strong dollar index and global risk-off sentiment globally. The risk appetite of the market participants is diminishing strongly amid uncertainty over the interest rate decision by the Fed next week which is weighing on the British pound. Also, the BoE will announce its monetary policy next week but investors are hoping for a standard rate hike of 25 bps.

Euro is traded down against the US dollar on energy crisis fears in Eurozone and elevated dollar index. Tensions surrounding the EU-Russia energy crisis have had a significant downside impact on the euro. The European Union energy producers in Germany, Austria, Hungary, and Slovakia are preparing to comply with a new payment system for Russian gas sought by the Kremlin as reported by international media.

Bond market

Treasury yields climbed, as investors digested economic data that showed an unexpected contraction in gross domestic product. The yield on the benchmark 10-year Treasury note was up 6 basis points at 2.88%. The yield on the 30-year Treasury bond was 3 basis points higher at 2.95%. India 10 year yield has also seen a 1% rise in its yield compared to yesterday. The Indian debt environment is affected because of the rising US yields, elevated crude prices, and market volatility due to global cues. The 10-year benchmark closed the day 8 basis points higher at 7.155%.

Equity market

Indian equity benchmarks Sensex and Nifty 50 rose sharply amid broad-based buying, tracking a rebound across global markets. Financial, IT, and consumer durable stocks were the biggest contributors to nifty. Broader markets also strengthened, with the Nifty midcap 100 and Nifty smallcap 100 indices rising around half a percent each. The Sensex ended 1.23% higher at 57,521 while the Nifty 50 settled 1.21% higher at 17,245.

Evening sunshine

"Focus to be on the KC Fed Manufacturing Index data."

European stocks advanced as investors reacted to a slew of earnings and continued to monitor developments in Ukraine, and Russia’s next move on its gas supplies to Europe. U.S. equity futures pared a rally sparked by strong corporate earnings after data showed the American economy unexpectedly shrank last quarter. The focus would be on the KC Fed Manufacturing Index data due later today.