NFP is a lagging indicator while ISM (or PMI) is a confidence indicator which should reflect more of the future. Therefore between the strong US NFP and the weak ISM print last week I would give more importance to the ISM number. Today’s services ISM therefore becomes very important to understand where the US economy is heading over the next 2-3 months. The slowdown in the US is not a surprise as the same was built into the FED forecasts, but the financial market and political reaction to the same, has led the FED to back off significantly which has resulted in lower US rates, than one would have imagined one month back. US is likely to grow in the range of 2-2.5% this year with a likely less hawkish FED which should be positive or neutral for equities. US-China trade talks will create volatility in risk assets but the ultimate result should be pro risk only (given Trump’s history of always striking a beautiful deal). Given this backdrop it looks like USD weakness and positive/neutral risk is the most logical view to have for the visible future.
Oil at 53 or 57 is the same and therefore the extract is that oil is in favor of India’s BOP. Given the above view of weak USD and positive/neutral risk, USDINR looks headed lower. India’s fiscal overshoot and political concerns should slow the pace of rupee appreciation but are unlikely to stop the gains. A break below 68.80 would be difficult but when it happens 67.50 can be expected. A daily close above 69.56 should again bring 70 on the other hand. CMP 69.32, Range 69.45-69.15.
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