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Global developments

Nervousness continues in markets. The current known scale of the Evergrande issue seems to have been priced in. However, investors remain unsure of the extent of contagion they are looking at.

US yield curve has flattened with the difference between 30y and 5y yield at the lowest level since August 2020. Real yields have risen 3-4bps across the curve. The Dollar has given up some gains against commodity currencies overnight. Euro too has bounced back to 1.1735 from close to 1.17 yesterday. 1.1760 would now be a critical resistance.

Domestic developments

Equities

The Nifty cracked 1% yesterday to end below 17400. US equity indices ended with cuts of anywhere between 1.7-2.2%. It was the worst drop for the S&P 500 since 12th May. However, Hang Seng is flat today. China is shut for a holiday today as well.

Bonds

Bonds rallied yesterday. Yields were lower by around 3bps across the curve yesterday. Yield in the 10y benchmark ended at 6.14%. The RBI announced a Rs 15000crs GSAP twist to be conducted on Thursday. This should support sentiment further and help the rally continue. The fact that RBI announced a twist instead of a purchase shows it is concerned about surplus liquidity in the system. It would now be absorbing Rs 5,50,000 crs of liquidity through the VRRR route in 3d, 7d and 14d tenors put together.

USD/INR

The Rupee opened weak at 73.82 but ended the session at 73.74. 73.85 continues to act as a resistance for USD/INR. Asian currencies have strengthened a bit against the Dollar.1y forward yield ended at 4.41% while 3m ATMF vols climbed 10bps to 4.65%.

Strategy: Exporters are advised to cover a part of their near-term exposure on upticks toward 73.80 - 74.10. Importers are advised to cover on dips towards 73.10. The 3M range for USDINR is 72.80 – 75.50 and the 6M range is 72.50 – 76.50.

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