Today Yellen speaks as markets await Trump’s test of support
in the US congress. Delay in healthcare bill passing would mean that Trump’s
fellow republicans are hesitant to support their president, which the market
will construe as an indication of problems with tax cuts and fiscal stimulus
going through in the future. Given this backdrop I would expect Yellen to
comfort risk assets by being less hawkish and driving yields and dollar index
lower to support equity markets. Overall markets are at a crucial juncture
wherein depending on the outcome today, all asset classes can turn either way. Risk
off trades are better from a risk-reward perspective even though there is no
way to predict what the outcome could be.
FPI inflows into India have picked up drastically this week
with almost 1bio USD coming in day before yesterday and 300 mio yesterday. Anecdotally
we hear a pickup in FDI related selling as well. Nationalized banks bought aggressively
yesterday to protect 65.40 levels while they sold as well. USDINR 1m NDF is
trading 11p left as EM currencies trade stable today. CNH appreciated mildly
over the last two days on account of fall in US yields. With no view on
overnight events, I would sell for the day around 65.50 or buy near 65.30. CMP
65.41, Range 65.52-65.30.
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