India Rupee Posts Weekly Fall On Weak Local Shares; US Data Eyed

India Rupee Posts Weekly Fall On Weak Local Shares; US Data Eyed

07 Sep 2019 03:50 PM

Weekly Synopsis


Indian Rupee

Indian rupee lost ground against the dollar this week, on the back of a sell-off in local equites as domestic growth worries dented investor appetite. The unit depreciated 0.5% this week. The pair USDINR closes at 71.40 against the previous weekly close of 71.41 on August 30th, 2019 to a greenback. It trades in a weekly range between 72.2650 to 71.3825 against the dollar.

India's foreign exchange reserves fell for the third consecutive week to $428.60 billion as of the week ended Aug. 30, down from $429.05 billion at the end of the prior week, according to central bank data released today. This fall was mainly due to decrease in foreign currency assets, which reduced to $396.01 billion from $397.13 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 $20.43 billion in January-June this year.

Activity in India's dominant services industry expanded at a slower pace in August as demand softened, although business optimism hit a one-year high. The IHS Markit Services Purchasing Managers' Index declined to 52.4 in August from July's year high of 53.8, still comfortably above the 50-mark separating growth from contraction and higher than the 51.9.

Global Market

The dollar was essentially flat against a basket of major world currencies after the jobs report reinforced the likelihood of further rate cuts from the Fed. The dollar index rose 0.01%, with the euro down 0.05% to $1.1027. The Japanese yen strengthened 0.02% versus the greenback at 106.94 per dollar, while sterling was last trading at $1.2294, down 0.28% on the day.

The U.S. economy created fewer jobs than expected last month, while wage inflation rose. Nonfarm payrolls came in at 130,000 in August, the Labour Department reported, which was much less than the 160,000 expected. Still, the participation rate ticked up slightly, while average hourly earnings rose 0.4%, beating forecasts. The unemployment rate remained steady at 3.7%.

Euro zone growth halved in the second quarter of this year as Germany's economy shrank and trade slowed, European Union's data showed on Friday. The EU statistics agency Eurostat said the euro zone's gross domestic product expanded by 0.2% in the second quarter, after a 0.4% expansion in the first three months of the year.

British house prices increased in August at the fastest annual pace in four months, mortgage lender Halifax said on Friday. House prices rose 1.8% year-on-year after a 1.5% rise in July, Halifax said, citing figures based on new methodology introduced as of this month. On the month, house prices rose 0.3%, after a 0.4% rise in July.

U.S. services sector activity accelerated in August. The Institute for Supply Management said its non-manufacturing activity index increased to a reading of 56.4 in August from 53.7 in July. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity.

U.S. private employers' payrolls grew at the fastest pace in four months in August led by big gains in service-sector jobs, a report by a payrolls processor said on Wednesday. The ADP National Employment Report showed 195,000 private-sector jobs were added last month, topping the 149,000 forecast in a poll and the largest gain since April. Private payroll gains in July were revised down to 142,000 from an originally reported 156,000 increase.

The number of Americans filing applications for unemployment benefits rose modestly last week. Initial claims for state unemployment benefits increased 1,000 to a seasonally adjusted 217,000 for the week ended Aug. 31, the Labour Department said on Thursday. Data for the prior week was revised to show 1,000 more applications received than previously reported.

The number of Americans filing applications for unemployment benefits rose moderately. Initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 215,000 for the week ended Aug. 24, the Labour Department said on Thursday. Data for the prior week was revised to show 2,000 more applications received than previously reported.

U.S. worker productivity slowed in the second quarter, the government confirmed on Thursday. The Labour Department said nonfarm productivity, which measures hourly output per worker, increased at an unrevised 2.3% annualized rate in the last quarter. Productivity also rose at an unrevised 3.5% rate in the first quarter.

The U.S. trade deficit narrowed slightly in July, but the gap with China, a focus of the Trump administration's "America First" agenda, surged to a six-month high. The Commerce Department said the trade deficit dropped 2.7% to $54.0 billion as exports rebounded and imports fell. Data for June was revised down to show the trade gap shrinking to $55.5 billion instead of the previously reported $55.2 billion.

Euro zone retail trade fell in line with expectations in July. Retail sales in the 19-country euro zone declined by 0.6% in July, the EU's statistics agency Eurostat said on Wednesday, in line with the average forecast of economists poll and following a 1.2% increase in June.

Euro zone business growth was a touch faster than expected last month but remained in the doldrums as the bloc's dominant service industry only partially offset a slowdown in manufacturing, a survey showed on Wednesday. IHS Markit's Euro Zone Composite Final Purchasing Managers' Index (PMI), considered a good gauge of overall economic health, nudged up 51.9 in August from July's 51.5.

U.S. manufacturing data showed the first contraction since 2016 on worries about a weakening global economy and U.S.-China trade tensions. The Institute for Supply Management (ISM) said its index of national factory activity decreased in August to 49.1, the lowest since January 2016. A reading below 50 indicates contraction in manufacturing. Last month marked the first time since August 2016 that the index broke below the 50 threshold.

Euro zone producer prices rose slightly during July after four months of decline, but only because of an increase for energy, official estimates showed on Tuesday in a sign of very limited future inflation in the bloc. The European Union's statistics office Eurostat said prices at factory gates in the 19 countries sharing the euro rose 0.2% in July, in line with market expectations.

British manufacturing contracted last month at the fastest rate in seven years, a survey showed on Monday. The IHS Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI) fell to 47.4 from 48.0 in July, a full point lower than the median forecast in a poll of economists and well below the 50 dividing line for growth and contraction.

Euro zone manufacturing activity contracted for a seventh month in August as a continued decline in demand sapped optimism, a survey showed. IHS Markit's August final manufacturing Purchasing Managers' Index (PMI) was 47.0, matching an earlier flash reading but well below the 50 level separating growth from contraction.

Oil prices rose above $61 a barrel on Friday after the head of the U.S. Federal Reserve said the central bank will act "as appropriate" to sustain an economic expansion in the world's biggest economy that has been pressured by uncertainty over global trade. Global benchmark Brent crude settled at $61.54 a barrel, up 59 cents, or 1%, while U.S. West Texas Intermediate (WTI) crude ended 22 cents, or 0.4%, higher at $56.52.

U.S. stocks were mixed after the close on Friday, as gains in the Telecoms, Consumer Goods and Oil & Gas sectors led shares higher while losses in the Utilities, Technology and Industrials sectors led shares lower. At the close in NYSE, the Dow Jones Industrial Average gained 0.26% to hit a new 1-month high, while the S&P 500 index added 0.09%, and the NASDAQ Composite index declined 0.17%.

Local Market

Bulls failed to push the index in the green in the holiday-shortened week despite some strong measure introduced by the government to boost consumer demand and lift investor sentiment. But, weak GDP data for June quarter proved dampener. The S&P BSE Sensex which failed to hold on to 37,000 closed 0.94 percent lower while the Nifty50 was down 0.70 percent for the week ended September 6. The S&P BSE Smallcap index rose 0.48 percent while the S&P BSE Midcap index was down 0.76 percent in the same period.

The Nifty50 reclaimed 10,900 levels on a closing basis on September 6 and climbed above the 5-days exponential moving average and 13-EMA. The index has formed a probable inverse Head & Shoulder pattern and has its neckline at 11,150 levels. The index formed a Head & Shoulder pattern, and the support is placed around the 10,850-10,800 levels which is likely to act as a cushion on the lower side in case of a decline. The Niffy50 made a weekly low of 10,746 which most experts feel that it will act as crucial support for the index in September series.