Fed meeting, potential Ukraine conflict loom large as Wall Street slides

Abhishek Goenka IFA Global

Global developments

US equities staged a phenomenal recovery in the final few minutes of trade. The Dow and the S&P were down more than 3% at one point but both eventually ended in the green (up 0.3% at close). The risk sentiment had been soured by news that US and UK were withdrawing some non-essential staff and families from their embassies in Ukraine fearing military invasion by Russia. NATO is also keeping troops on standby and strengthening its presence in Eastern Europe. In line with the recovery in equities, the US yields bounced back and the Dollar gave up gains. The yield on 10y US treasuries had dropped to 1.71% but is now back to 1.76%. Commodity currencies had got hammered on deterioration in risk sentiment but have now recovered. The Australian Dollar is 40 pips off lows. Crude has come off highs with Brent trading close to USD 87 per barrel. Gold continues to remain elevated amid geopolitical tensions.

Domestic developments

Equities

The Nifty fell for the fifth straight session yesterday and is down 6.5% from its recent highs. The Nifty lost 2.7% yesterday to end at 17149. The Midcap index fell 3.9%. We are seeing some risk being pared ahead of major risk events in FOMC and the Budget. The volatility index spiked to the highest level since May'21.

Bonds

Yields on domestic bonds rose 2-3bps across the curve. The yield on the benchmark 10y ended at 6.65%. 3y and 5y OIS ended 3bps lower at 5.30% and 5.61% respectively. Interbank Liquidity conditions are likely to normalize as VRRRs mature.

USD/INR

The Rupee weakened yesterday on continuing weakness in domestic equities. The Rupee printed a low of 74.69 but recovered to end the session at 74.57. 1y forward yield dropped to 4.66% while 3m ATMF implied vols rose to 4.62% yesterday.

Strategy: Exporters are advised to cover on upticks towards 74.80 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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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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