Markets are giving more than 55% chance to Powell as the next FED chair with the second likely candidate having around 15% chances. This tells us two things that market consensus is Powell and since surprises cannot be predicted, therefore it is likely to be Powell only. Powell’s stance is mostly similar to Yellen except the fact that Powell being a Republican is likely to be less strict with Banking regulations. Therefore Powell announcement could lead to moderate dollar weakness and should be equity market positive.
The other major event would be the Trump tax cut bill which could be tabled as early as next week. The move in US 10 Y from 2.2% to 2.37% shows that markets are pricing in some chances of the bill going through. Overall the USD strength has failed to sustain and Powell’s likely announcement might take USD lower. On the other hand markets eagerly await ECB announcement on Thursday wherein Draghi is expected to infuse confidence in Euro area economic outlook as he tapers. Draghi has not been worried about an appreciating Euro and in the recent past post Draghi’s speech Euro has exhibited strength.
Given the expectations of Powell coming in plus failure of USD strength in spite of higher US yields one is tempted to think that USDINR might break lower. On the other hand US tax bill can create dollar strength giving upticks in USDINR. Locally more commentary suggests that India would meet its fiscal deficit target this year which should help continue the India positive environment. USDINR 1m NDF is flat while EM currencies have appreciated slightly since yesterday. The Chinese congress ends today post which Yuan might be made to demonstrate the strength of a new global power. CMP 64.94, Range 65.00 - 64.85.
No comments:
Post a Comment