Equity volatility continued into the second quarter with Dow Jones touching the 200 DMA for the first time since 2016 and S&P closing below the 200 DMA. In spite of the strong economic growth the recent equity volatility has been led by tech stocks and partly by the concerns on trade war. Like the military tensions with North Korea the noise on trade tariff will also slowly fade, and what would remain is the strong US growth reality. The 10-2Y spread for US treasuries dived to its lowest since 2007 at 48 bps. The curve flattening could lead to USD index heading towards 89.59 and then 89.25 this week (CMP 89.97). US non manufacturing ISM and NFP would be the 2 important pieces of information this week.
USDINR 1m NDF is trading 2p left indicating mild offshore selling in the pair. EM currencies have shown moderate appreciation since last week while Indian equities seem to have shrugged off the overnight losses in US equities and are trading flat currently. This week we have the RBI monetary policy announcement on Thursday where the central bank is expected to keep the interest rates unchanged with a neutral stance. RBI is likely to increase the FII limits for debt investments into India which might bring in a temporary INR appreciation towards 64.90-64.70. For the day CMP 65.08, Range 65.15-64.90.
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