Higher US Inflation Unnerved Global Stock, Bond And Commodity Markets

  • Forex Analysis

The local currency market is closed for a holiday today.  The rupee ended at 73.42 on Wednesday we are looking at a lower opening for the rupee at 73.60 plus on Friday.
After reckoning the dire situation on the covid front and the possibility of a federal lockdown still hanging, we strongly recommend the importers hedge their liabilities upto end-June maturities.  The daily case count in the country is more than 350,000 cases in the last four days.  The local currency market has not yet recognised the weakening economic fundamentals with a downward revision in GDP growth in the current financial year.
During the period from the beginning of May till date, the BSE Sensex registered a rise of 0.72 pct and the domestic currency has appreciated by 1.13 pct in the corresponding period.  Rupee's appreciation seems to have been overdone and in disconnect with the economic realities.  The forward dollar purchase position of RBI is about USD 45 billion and the periodical sell and buy swaps to extend the forthcoming maturities with Banks shall keep the forwards to stay well above 5 pct pa across the maturities. This could lead to a stable exchange rate scenario to prevail in the market.  The deferment of hedges by importers shall add to the rupee's stability against the dollar.
US stocks fell again on Wednesday as Treasury yields jumped after data showed consumer prices unexpectedly rose by the most in nearly 12 years in April.  The US CPI jumped 0.8 pct in April outpacing a 0.2 pct forecast.  Excluding the volatile food and energy components, core CPI soared 0.9 pct, the largest gain since April 1982. Core CPI grew at 3 pct YOY shooting above the central bank's average annual 2 pct inflation growth target.
The higher US treasury yields also weighed on the dollar and the dollar index is now trading higher at 90.75 with the dollar posting the biggest gain against JPY.
Following the cues from US stocks, Asian stocks are trading much lower today with a drop of 2.10 pct in Nikkei, 1.15 pct in KOSPI and close to 1.09 pct fall in Hang Seng .  The local stocks can be expected to open sharply lower on Friday with at least one pct drop in both BSE Sensex and Nifty 50 .
Oil prices jumped on Wednesday putting Brent on track for its highest close in almost 2 years on signs of a speedy economic recovery and upbeat forecasts for energy demand.  Brent prices touched s high of USD 69.89 per barrel on Wednesday and now at USD 68.65 per barrel.  Oil prices are experiencing a lift on the positive demand outlook released by OPEC and IEA.  Oil also found support from encouraging the US and British economic data.

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