There were 3 positive news yesterday for global risk
sentiments. China lifted limits on FII investments into local bonds and stocks
which is a positive step as China become more open to overseas investments. Ease
of investments has been one of the complains US has with Chinese
administration. Yesterday evening Chinese media reported that China might be
now ready to make concessions and import more from US to facilitate a trade
deal. In the US, Trump fired his National security advisor John Bolton who anecdotally
was behind the increased US animosity with Iran, North Korea among other countries.
This would indicate that Trump perhaps wants to soften his stance against Iran
and other foreign countries wherever US was nearing a military standoff.
Trump’s approval ratings have gradually fallen from 46% (in
April 2019) to 39% currently (source news.Gallup,com) primarily on the back of
recession and trade war concerns. Perhaps this gradual fall in approval rating
has resulted in Trump trying to make a trade deal with China and now firing the
hawkish NSA. On the other hand this is the first time China seems to giving
ground to the US on the trade war. If this is the case then the market
assumption that a US-China trade deal could be a possibility in October looks
more palatable (today). Till this landscape changes, risk sentiments should
remain supported in the short term.
Since 1st August, USDINR has moved higher by 4%
as compared to a 2% on USDCNH. India 10Y yield at 6.6% shows that markets are
now worried about local growth and therefore fiscal slippages. Tomorrow the
India CPI print will be critical to read from a growth perspective. Most of the
market participants now expect more than 25 bps rate cut in October RBI policy.
Broad range for USDINR remains 71.35-72.25 and currently with improving risk
sentiments the pair looks like a sell for a move to 71.50 levels by tomorrow.
For the day, CMP 71.74, Range 71.80-71.55.
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