China COVID-19 situation and property sector woes continue to remain in focus

Global developments

ECB is said to be considering a 50bps hike instead of 25bps in its policy due tomorrow to tame inflation. It is also likely to give further details on a tool to insulate more indebted countries from the effects of its rate hike cycle. The tool is likely to be called "Transmission Protection Mechanism"

Price action across assets

Overall risk sentiment has improved. US yields are higher by 7-8bps across the curve. The curve however continues to remain inverted with 2s10s at 21bps. The Dollar has weakened against majors.

Crude is steady with Brent at USD 107 per barrel. Gold too continues to hover around the USD 1710 per ounce mark. The S&P500 ended 2.75% higher as stronger than expected corporate earnings buoyed market sentiment. 

Domestic development

USD/INR

USD/INR crossed the psychological 80 mark in trade yesterday for the first time in onshore trading. Rupee has now weakened 7% year to date.  The RBI intervened above the 80 mark.

We have been seeing tremendous bids, particularly from oil companies. RBI Fixing has been consistently trading at a premium on NDF related expiries. Rupee has been underperforming amid broad Dollar weakness.

USD/INR is likely to trade a 79.70-80.00 range with sideways price action.

1y forward yield ended 6bps higher at 3.19% while 3m ATMF implied  vols ended flat at 5.70%

Bonds and rates

Yield on the benchmark 10y ended flat at 7.43%. 10y SDL cutoffs came in the 7.80-7.85% band. 1y and 5y OIS ended a tad lower at 6.37% and 6.56% respectively. Bonds are likely to trade weak on higher US yields. 

Equities

Domestic equities managed to overcome initial weakness and reversed intraday with Nifty ending 0.4% higher at 16340. Bank and metal stocks outperformed. SGX is indicating an open above 16500 for Nifty on strong overnight global cues. 

Major currencies

EUR/USD

The Euro rose to its highest level in 2 weeks as ECB is considered to be mulling a bigger rate hike. 1.03-1.0350 would be a critical resistance zone for the Euro. The pair is expected to trade with a bearish bias in an intraday range of 1.0190-1.0280 levels.

GBP/USD

The Pound too reclaimed the 1.20 mark amid broad Dollar weakness. 1.2050-1.21 is proving to be a resistance for the Sterling. Rishi Sunak continued to consolidate his position as frontrunner in race to become next UK PM. Yesterday was the hottest day in UK as heatwave continues to engulf the continent of Europe. The pair is expected to trade sideways in an intraday range of 1.1990-1.2070 levels. 

USD/JPY

The Yen had strengthened to below 137.50 on broad Dollar weakness but has lost ground on uptick in US yields. The pair is expected to trade sideways in an intraday range of 137.70-138.40 levels.