US GDP grew at a 6.9% pace to close out 2021, stronger than expected despite Omicron spread
|Global developments
Risk is attempting a recovery post the hawkish Fed jolt. After rising post FOMC, US yields were steady yesterday. In fact, the longer end of the curve has come off by 2-3bps with the yield on the 10y at 1.82%. 2s10s is now the flattest since Nov'2020. US 2y real rate is at -2.05%. Gold has retraced to levels below USD 1800 on higher short-term US real rates. Crude prices too are steady with Brent hovering around 7-year highs at USD 90 per barrel. The Dollar has strengthened, particularly against the low-yielding funding currencies such as JPY, EUR, and CHF as the policy divergence between the Fed and BoJ, ECB and the SNB is most stark. While the Down ended flat, the S&P500 ended 0.5% lower. US December personal spending data is due today.
Domestic developments
Equities
Twice in two sessions, the Nifty has got supported around 16800. Just like Monday, the Nifty saw a tremendous intraday recovery to end 1% lower at 17110. It has dropped to 16866 at one point. Asian equities are trading with a positive bias.
Bonds and rates
Domestic bonds and Rates sold off yesterday following the sell-off in US treasuries. Yields across the curve rose 7-10bps. 3y and 5y OIS too ended 7bps higher at 5.36% and 5.68% respectively. Focus Will be on the Gsec auction today. The participation in the auction is likely to be lukewarm ahead of the union budget on Tuesday.
USD/INR
The Rupee weakened yesterday to 75.30 but recovered in the last hour of trading to end at 75.07. We expect USD/INR to trade a 75.00-75.30 range intraday with sideways price action. Asian currencies are trading a bit weak against the Dollar. Forwards came off yesterday as yield differentials compressed after the move higher in US short-term rates. 1y forward yield dropped 8bos to 4.52%. 3m ATMF implied vols spiked 20bps to 4.83%.
Strategy: Exporters are advised to cover on spots levels. Importers are advised to cover on dips towards 73.80 - 73.90 level. The 3M range for USDINR is 73.80 – 76.00 and the 6M range is 73.50 – 76.50.
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