Wave of risk aversion gripped global markets primarily on account of stricter measures being enforced by governments in Europe to tame the second wave of surge in Corona cases.
US initial jobless claims which had been falling at a lower rate actually rose 53k to 898k, underscoring the importance of fiscal stimulus to keep the economic recovery going. President Trump blamed the Democrats for not accepting the USD 1.8tn proposed stimulus package.
Top EU leaders are willing to continue negotiations with the UK on a trade agreement but have said it is the UK that would have accept EU's conditions. PM Johnson is likely to respond and outline the way forward today. Expect the Sterling to continue to remain volatile. Break of 1.2750 could open room for a bigger move lower.
The government said it would borrow Rs 1.1 lakh crs and extend it as loans to state governments in lieu of GST shortfall. The borrowing would not increase the central government fiscal deficit and would also not result in an increase in combined centre and state government issuance for this fiscal.
Nifty snapped it's 10 day winning streak, falling 2.4% on account of a sell off in IT stocks and bank stocks. USD/INR yet again got supported around 73.25 on account of buying by nationalized banks. The Rupee continues to trade a tight 73.20-73.50 range.
India Sept trade deficit came in at USD 2.72bn against USD 6.77bn in Aug and USD 11.67bn in Sep 2019. The trade deficit narrowed on account of a 5.99% yoy pick up in exports to USD 27.58bn
Forwards have been under pressure off late. The 1y forward yield has dropped to 4.10% from recent highs around 4.35%. The Central bank has been conspicuously absent from the paying side. Abundant Rupee liquidity and lower money market rates could continue to weigh on forwards.
FPIs have invested close to USD 1.1bn in equities so far in October. And have pulled out about USD 100mn from debt in October so far.
Strategy: Exporters have been advised to cover confirmed order on upticks. Importers are advised to cover through options. The 3M range for USDINR is 72.50 – 74.50 and the 6M range is 72.50 – 75.40.
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