Trump’s tax plans have been criticised saying that it might actually raise taxes for the middle class plus the fact that it reduces inheritance tax is also been sighted as a sop to the wealthy. This along with Trump’s spat with a fellow senior Republican has taken the steam out of UST yields reducing expectations of the tax cuts going through effectively. On the other hand markets assumed Warsh to be the front runner for the FED chair given Trump’s friendly relations with his family but a hawkish FED chair might be counterproductive to Trump’s growth plans. Mnuchin apparently wants Powell to lead the FED and this news has also helped to ensure that the dollar index does not go up further. Catalonia separation has provided a breather to the mild Euro concerns.
EM currencies have mildly appreciated since yesterday along with broad dollar weakness. IPO inflow (or expectations) is keeping USDINR offered. The fact that USDINR 1m NDF is continuously trading right by 1-2p prevents me from making a lower USDINR view as seldom have I seen INR appreciation with offshore buying (only happens on days of sudden large inflows). Today we have the CPI at 5-30 PM where a higher print would reduce chances of monetary stimulus and make the economy tend towards higher inflation with lower growth. Therefore a higher print should be INR and equity negative. For Oct I would continue to see a range of 65 to 65.70. For the day, CMP 65.12, Range 65.05-65.20.
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