China's industrial profit growth tumbles as raw material prices fall

Abhishek Goenka IFA Global

Global developments

Price action is muted in the early Asia sessions as participation is thin given the holidays. Overall risk sentiment is positive despite a surge in Omicron cases globally. Several domestic flights have had to be canceled in the US due to airline staff shortages, on account of Omicron infections. China too has recorded the highest number of daily cases since January. US yields are steady with 10y at 1.48%. 10y real rate is at -1%. The dollar is weaker overall. Brent is close to the USD 77 per barrel mark.

Domestic developments

Equities

The Nifty had ended 0.4% lower on Friday. It however managed to close above the 17000 mark. We continue to see the Nifty trading a 16650-17500 range for the coming few sessions. Asian equities are trading flat. FPIs have sold USD 2.4bn in domestic equities in December so far, making December the third consecutive month of outflows.

Bonds and Rates

After a long time, we saw devolvement on Primary dealers in Friday's Gsec auction. We expect a new 10y benchmark to be introduced soon. An OMO announcement is likely to manage sentiment. 3y and 5y OIS ended at 5.10% and 5.35% respectively. Money market rates saw a rally on Friday, cooling off 4-5bps up to 6 months tenor. FPIs have sold a net USD 1bn in debt in December so far.

USD/INR

USD/INR continued to slide lower on month-end exporter selling and amid thin liquidity on Friday. We expect the trend to continue today as well. We may see nationalized banks step in around 74.80 levels to support USD/INR. 74.50-74.60 zone which was earlier a very strong resistance is likely to offer support this time. Asian currencies are trading sideways against the Dollar. 1y forward yield ended at 4.64% while 3m ATMF vols ended at 4.65% on Friday.

Strategy: Exporters are advised to cover on upticks towards 75.50 levels. Importers are advised to cover on dips towards 74.50 level. The 3M range for USDINR is 73.80 – 76.00 and the 6M range is 73.50 – 76.50.

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Author

Abhishek Goenka

IFA Global

Mr. Abhishek Goenka is the Founder and CEO of IFA Global. He pilots the IFA Global strategic direction with a focus on relentlessly improving the existing offerings while constantly searching for the next generation of business excellence.

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