USD index (CMP 88.7) is close to crucial support of 88.5 and a weekly close below that can open flood gates. US 10 Y yields at 2.79 is technically headed to 3% now. Higher US yields is accompanied by relatively lesser rising yields in other DMs and is not resulting in USD strength, therefore this is more of a concern on US borrowing than the yield differential theme. Equity prices globally lost the upward melt up momentum this week and a 1% loss on Dow today can cause another 4% kind of correction. I guess a weaker NFP print will be more consequential for further dollar weakness while most likely stronger numbers would be ignored by the markets.
The budget was taken as a bit of a disappointment by the bond markets as 3.3% deficit for FY19 was towards the higher end of expectations. On the other hand the markets have the usual doubts about the assumptions for tax collection and expenses and specially so as this is the pre election budget. The 10% LTCG will not result in immediate outflows but will reduce India’s comparative advantage in attracting further inflows. The markets would soon forget about the 10% LTCG in my view and start tracking global equity queues.
USDINR 1m NDF started trading significantly right post the budget as India 10 Y yields jumped. Yields have now increased by 25bps since yesterday pre budget trade. Such a selloff in bonds is bound to impact currency and equity markets, therefore any reversal in INR or Nifty has to be preceded by a drop in bond yields. Overall the budget is not a game changer and the medium term view of INR appreciation should not be forgotten. USDINR above 64.40 looks difficult for now although we might see those levels next week. At some point of time markets would start tracking the broad dollar weakness. CMP 64.1, Range 64.00-64.25.
No comments:
Post a Comment