Powell, Lagarde renew assurances on inflation surge as temporary

Abhishek Goenka IFA Global

Global developments

US yields were up 2-3bps across the curve yesterday but have retreated overnight. Inflationary concerns continue to haunt the bond markets across the globe. Shortage of truck drivers, seafarers, port congestion is compounding global supply chain problems.

The Dollar has strengthened across the board. The Yen had weakened past 112 and Euro had broken through 1.16 against the Dollar. The Dollar though has given up some gains overnight.

The energy crisis is particularly acute in UK where lack of tanker drivers has caused gas stations to run dry. There is also a possibility of UK triggering Article 16 that would suspend the Northern Ireland Protocol unilaterally. Gold prices continue to drop on higher US real yields. Crude and natural gas prices have retreated from recent highs.

Domestic developments

FTSE Russell, which had placed Indian Government bonds on watchlist for inclusion in its bond index will announce the outcome of its review. Any progress on index inclusion would be a positive for domestic bonds and the Rupee.

Equities

US indices ended flat overnight. Hang Seng is trading 1% lower while other Asian indices are trading with modest gains. Today is the September F&O expiry.

Bonds

Yield on the domestic 10y benchmark ended 2bps lower at 6.20%. 3y and 5y OIS too cooled off about 4bps to 4.80% and 5.31% respectively. 3m T-bill cutoff came in 10bps higher while 12m cutoff came in 20bps higher compared to last time, reflecting the impact of RBI's signaling to higher VRRR (Variable Rate Reverse Repo) cutoffs.

USD/INR

The Rupee traded a 74.08-74.26 range intraday yesterday. 1y forward yield is at 4.42% while 3m ATMF vols are at 4.76%.

Strategy: Exporters are advised to cover a part of their near-term exposure on upticks toward 74.10 - 74.40. Importers are advised to cover on dips towards 73.50. The 3M range for USDINR is 72.80 – 75.50 and the 6M range is 72.50 – 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.

EUR/USD remains bid, focus stays on 1.1900

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GBP/USD picks up pace, hits 1.3640

GBP/USD trades with modest gains around 1.3640 so far on Thursday. Indeed, Cable looks to leave behind the weakness seen in the first half of the week in a context of an equally erratic performance in the Greenback and disappoting UK data releases.

Gold stays offered below $5,100

Gold keeps the choppy trade well in place on Thursday, navigating the area below the $5,100 mark per troy ounce amid the lack of clear direction in the Greenback, declining US Treasury yields across the curve and caution ahead of Friday’s publication of US CPI.