US Producer prices rose less than expected in December which indicates that inflation could likely be cooling off. US weekly jobless claims continue to remain suppressed at 230k. US yields have cooled off by 2-3bps across the curve with 10y now at 1.72%. The Dollar has strengthened a bit against high Beta currencies overnight such as the Australian and Canadian dollars. Euro, Sterling, and Yen however continue to hold on to gains. Euro is trading just shy of the 1.15 mark. The December US Retail sales data due today will be closely followed. If the Retail sales disappoint, it would imply that underlying consumption demand is weak and this could make it difficult for the Fed to tighten too quickly.
The Nifty gained 0.25% yesterday to end at 18257. S&P500 ended 1.4% lower yesterday. Asian equities are trading with a negative bias with HangSeng down close to 1% and Kospi down 1.5%.
Bonds and rates
Domestic bond yields ended 2-3 bps lower yesterday on a late rally. The new 10y benchmark is to be auctioned today. 3y and 5y OIS too ended a couple of basis points lower at 5.23% and 5.58% respectively.
It was another day of range-bound trading for the Rupee (73.85-73.97). 1y forward yield ended 2bps lower at 4.75% and 3m ATMF vols ended flat at 4.55%.
Strategy: Exporters are advised to cover on upticks towards 74.80 levels. Importers are advised to cover on dips towards 73.70 level. The 3M range for USDINR is 73.80 – 76.00 and the 6M range is 73.50 – 76.50.
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