India Rupee Falls For 3rd Week Amid Weak Yuan; Inflows Limit Fall

India Rupee Falls For 3rd Week Amid Weak Yuan; Inflows Limit Fall

19 Oct 2019 02:21 PM

Weekly Synopsis


Indian Rupee

The Indian rupee fell for a third week against the dollar following weakness in the Chinese yuan, while foreign fund inflows into local equities kept the rupee’s fall in check. The rupee settled little changed today at 71.14 to a dollar, against 71.16 at previous close. The local unit opened at 71.19 and fell to 71.30, before erasing all of its losses and rising to the day's high of 71.07. The local unit declined 0.2% this week, adding to the aggregate depreciation of 0.6% in the last two weeks. It trades in a weekly range between 71.7175 to 70.75 against the US Dollar.

India's foreign exchange reserves rose for a third straight week to a record high of $439.71 billion as of the week ended Oct. 11, from $437.83 billion at the end of the prior week. The gain was mainly due to increase in foreign currency assets that climbed to $407.88 billion from $405.61 billion in the previous week, the data showed. The Reserve Bank of India has been intervening in the foreign exchange market to curb the rupee’s volatility. The central bank has net bought $16.26 billion in January-August this year, as against a net sale of $8.61 billion in the corresponding period year ago.

India's core consumer inflation was seen between 4% and 4.02% in September, compared with a range of 4.20%-4.25% in August.  India's retail inflation rate rose to 3.99% in September, driven by higher food prices, the government said, close to the central bank's 4% medium-term inflation target. Annual retail inflation in September was much-higher compared with 3.21% in the previous month.

The World Bank on Sunday slashed its growth forecast for India's current fiscal year to 6%, down from 7.5%, warning that the "severe" slowdown could further weaken the country's stuttering financial sector. In its last forecast in April, the bank had said that India's economic outlook was strong and expected growth of 7.5% during the current fiscal year that began in April.

Global Market

The U.S. dollar was lower against other currencies on Friday, The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was down 0.2% to 97.172. U.K. Prime Minister Boris Johnson made a deal with the EU on Thursday, which hinges on Northern Ireland applying a limited set of EU rules on some goods, with the U.K. only charging EU tariffs on goods passing through to EU markets. However, Northern Ireland's Democratic Unionist Party said it is opposed to the proposed agreement, making it uncertain if the deal will be approved.

U.S. homebuilding tumbled from more than a 12-year high in September, but single-family home construction rose for a fourth straight month, The moderation in economic growth was underscored by other data on Thursday showing manufacturing output falling last month and factory activity in the mid-Atlantic region decelerating in October. The economy is being constrained by a 15-month trade war between the United States and China.

U.S. manufacturing output fell more than expected in September, hampered by a strike at General Motors, and the outlook for factories remained weak amid slowing global growth and unresolved trade tensions. The Federal Reserve said on Thursday that manufacturing production fell 0.5% last month after an upwardly revised 0.6% rise in August. Excluding motor vehicles and parts, overall industrial production and manufacturing output still fell 0.2%.

The number of Americans filing applications for unemployment benefits rose marginally last week, suggesting the labor market continues to tighten despite slowing hiring and economic growth. Initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 214,000 for the week ended Oct. 12, the Labor Department said on Thursday. Data for the prior week was unrevised. Forecast claims rising to 215,000 in the latest week. The Labor Department said claims for Maryland, New York.

British shoppers grew more cautious about their spending in the three months to September despite enjoying real growth in their wages. Consumer spending has been the biggest driver of British economic growth since June 2016's referendum to leave the European Union. Monthly retail sales volumes were flat in September and annual sales growth picked up to 3.1% from a weak 2.6% in August. Looking at the third quarter as a whole, which strips out monthly volatility, quarterly sales growth held steady at 0.6% while the annual pace of expansion dropped to 3.1% from 3.6%.

Euro zone inflation dropped to its slowest pace in nearly three years in September, more than previously estimated. The drop is likely to raise new concerns on the state of the euro zone economy and may reignite a debate within the European Central Bank on how to pursue its goal of keeping inflation close to but below 2% over the medium term. Eurostat said prices in the 19-country euro zone rose 0.8% on the year, down from its earlier estimate of 0.9% and lower than the market consensus of 0.9%.

The inflation outlook among U.S. consumers remained muted in September, rising slightly over the near term but falling to the lowest level on record over a three-year a boost in confidence about the state of the job market, and in expectations for wage growth and access to credit - a sign of household resilience alongside weak September job growth. At the median, consumers expected earnings growth over the next year would be 2.5%, up from 2.3% in the August survey of 1,300 households. The perceived risk of losing a job over the next year fell to 13.4%, from 14.2%. The expected probability that the unemployment rate would increase over the next year remained flat, at 38.4%.

Britain's jobs boom has weakened in the approach to Brexit with the number of people in work unexpectedly falling by the most in over four years and unemployment rising, official data showed on Tuesday. Employment fell by 56,000 to 32.69 million in the three months to August. The number of people out of work rose by 22,000 to just over 1.31 million. Britain's strong labor market has been the silver lining for the economy since the Brexit referendum in 2016.

China’s economic growth slowed in the third quarter amid weak demand at home and as the trade war with the U.S. drags on exports. Gross domestic product rose 6% in the July-September period from a year ago, the slowest pace since the early 1990s and weaker than the consensus forecast of 6.1%. Factory output rose 5.8% in September, retail sales expanded 7.8%, while investment gained 5.4% in the first nine months of the year.

A surge in U.S. mortgage applications has left Bank of America Corp. Wells Fargo & Co and other large banks scrambling to meet demand, leading to longer closing times and unhappy customers. The industry has faced an unexpected swell of demand since the U.S. Federal Reserve began cutting interest rates in July. Bank of America, one of the largest U.S. mortgage originators.

German business groups have expressed relief at this week's Brexit deal, believing that if it is approved by British lawmakers it would minimize the economic damage to both sides, which they fear would be worse with a disorderly divorce. The long running saga over how and when Britain leaves the EU has cast a cloud over the German economy. Germany is teetering on the brink of recession as its exporters suffer from Brexit uncertainty and the fallout from the trade dispute between the United States and China. British Prime Minister Boris Johnson clinched a withdrawal deal with the EU on Thursday.

A month-long strike at General Motors could cut U.S. job growth by as much as 75,000 in October, JPMorgan economist Daniel Silver said on Friday, an unwelcome development amid financial market fears of a recession. Silver said in a research note that the estimated hit to nonfarm payrolls would be the result of both direct and indirect effects of the strike by about 48,000 workers at the automaker. The estimate draws comparisons with the 1998 strike at GM, which JPMorgan estimated depressed payrolls in July of that year by about 150,000 jobs.

Prime Minister Boris Johnson puts his last-minute Brexit deal to a vote in an extraordinary sitting of the British parliament on Saturday, a day of reckoning that could decide the course of the United Kingdom's departure from the European Union. More than three years since the United Kingdom voted 52-48 to be the first sovereign country to leave the European project, Johnson will try to win parliament's approval for the divorce treaty he struck in Brussels on Thursday.

Local Market

Indian shares closed higher on Friday, led by gains in metal and state-owned banks while India's most valuable company, Reliance Industries Ltd. jumped to a record high during the session ahead of its September-quarter results announcement. The broader NSE index ended 0.65% higher at 11,661.85, while the benchmark BSE index finished up 0.63% at 39,298.38. For the week, the NSE index was up 3.16% and the BSE index was 3.07% firmer. Investors were looking forward to a better-than-expected quarterly result from Reliance for the three months ended September.

India's trade deficit in September narrowed to $10.86 billion from $14.95 billion a year ago, the trade ministry said in a statement on Tuesday, helped by lower oil imports. Oil imports fell 18.33% to $8.98 billion in September from $10.99 billion in the year-ago period. Merchandise exports fell 6.57% to $26.03 billion in September compared with a year earlier, while imports were down 13.85% at $36.89 billion, the data showed.

India's retail inflation rose close to the central bank's medium-term target of 4% in September for the first time in 14 months, but analysts still predict a sharp economic slowdown will prompt a sixth consecutive interest rate cut in December. Annual retail inflation rose to 3.99% last month, driven by higher food prices, up sharply compared with 3.21% in the previous month and higher than the 3.70% forecast. Retail food prices, which make up nearly half of India's inflation basket, increased 5.11% in September from a year earlier, compared with 2.99% in August.

The Indian government had 4.02 billion rupees ($56.51 million) outstanding loans with the central bank under ways and means advances in the week ended Oct. 11. The central government had an outstanding loan of 465.29 billion rupees in the week earlier. State governments had loans worth 51.79 billion rupees from the RBI in the week ended Oct. 11, compared with 78.86 billion rupees in the previous week, the release showed.