It seems that the US has to back its words with action
against North Korea now which could possibly result in escalation of tensions
between the US and North Korea. But this anticipation is only marginally
reflected in KRW while the Korean equity markets seem comfortable as of now
therefore the best is to continue ignoring this eventuality unless it happens.
FOMC minutes were mildly dovish as there were more than few
who were against a sooner reduction in balance sheet size. Tomorrow’s NFP wage
growth data would be the key now for markets to determine whether it would want
to price in more of the rate hikes, that the FED already has indicated in its
dot plot. A number of 0.3% or higher could result in an uptick in yields and
drive USDJPY higher and vice versa. Today the ECB minutes and services ISM
would be critical.
Markets are talking about inflows of ~USD 500 mio for 2 PSU
company loan disbursements. USDINR 1m NDF is trading 1.5p left only indicating
offshore buying sentiment in the pair along with other EM currency pairs. Debt
outflows in June has touched a moderate Rs. 3000 crs which perhaps indicate a
short term trend only. RBI continues to strongly protect INR depreciation at
64.85 levels and therefore an opening above 64.90 could be critical. Longer
term view for INR remains constructive even though in the shorter term 65.25
looks a possibility. In the last 1 month other EM currencies on a weighted
basis have depreciated by 0.4% while USDINR is largely flat. CMP 64.74, Range
64.67-64.87. I would want to carry overnight longs in the current conditions of
DM yields going higher.
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