Global developments

Most US data came in better than expected yesterday. Jobless claims came in below 200k, even below pre-pandemic levels. Personal income and Personal spending data for October too were better than expected. Durable goods ex transportation was in line. All of this suggests that the US economy has recovered quite well and there would be pressure on the Federal Reserve to quicken the pace of withdrawal of accommodation. Labor markets have tightened and inflation is threatening to overshoot for the foreseeable future. FOMC minutes released yesterday indicate several Fed members too are of the same view. US short-term treasury yields (2-5y) have moved higher on expectations of faster tightening. The longer end of the yield curve has come off by around 3-4bps. The Dollar continues to exhibit strength overall. Brent is steady around USD 82 per barrel. Gold is holding just below the USD 1800 mark. Today is a US holiday on account of Thanksgiving.

Domestic developments

Equities

The Nifty got resisted around 17600 which was earlier good support. It gave up gains intraday to end 0.5% lower at 17415. US equities ended the session flat. Asia is trading with a slight negative bias. 

Bonds and Rates

Bond yields were up 1-2bps across the curve with 10y benchmark yield closing at 6.37%. 5y OIS is hovering around the 5.50% mark. We are likely to see another sideways session for bonds today. T-Bill cutoffs were similar to the last auction with 3m at 3.53% and 1y at 4.13%.

USD/INR

The Rupee continues to trade the 74.30-74.60 range onshore. In offshore it had spiked to 74.70 implied spot yesterday but cooled off post the FOMC minutes. 1y forward yield ended at 4.89%. It is elevated due to dislocated points at the turn of the financial year. 3m ATMF vols are steady at around 4.70%.

Strategy: Exporters are advised to cover on upticks towards 74.70 levels. Importers are advised to cover on dips towards 73.80 level. The 3M range for USDINR is 73.80 – 76.00 and the 6M range is 73.50 – 76.50.

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