Nov 23 2018

Rupee logs best week in 33 months as oil extends slump

Weekly Synopsis

Markets from 19th Nov 2018 to 22nd Nov 2018

Indian Rupee

The Indian rupee posted its best weekly rise in nearly 33 months and gained for a second week against the dollar, as crude oil prices extended their decline to a near-one-year low earlier this week, easing worries over widening current account deficit at home. The rupee settled at 70.67 to a dollar this week, its highest since Aug. 29. It traded in a 70.67-72.0850 to dollar band this week. For the week, the local unit gained 1.74%, the biggest weekly rise since Mar. 04, 2016. The market is closed today for a local holiday.

 

The Indian rupee was also boosted amid signs of a truce between the RBI and the government following a closely watched board meeting of the nation’s central bank. The board meeting ended with RBI and the govt. reaching a compromise on contentious issues such as the provision of liquidity support by the central bank. The board decided that the issue of the health of banks under prompt corrective action framework will be looked into by the RBI’s board for financial supervision and decided on a restructuring scheme for MSMEs.

 

The benchmark Brent crude oil prices recorded an over 6% drop on Nov. 20 to $61.71 per barrel, its lowest in nearly a year amid concerns over increased supply and weak demand. More than 16% decline in Brent prices in November has helped rupee gain over 4% this month till date, making it the second-best performing currency in the region for the month followed by the Indonesian rupiah.

 

The dollar index dropped to a two-week low to 96.03 on Nov. 20 and was last trading at 96.52 tracking a bounce in euro as hopes of Brexit deal increased amid reports of Britain and the European Union agreeing in principle on a trading relationship between U.K. and rest of the region. The decline in the dollar index further boosted the rupee along with other Asian currencies.

 

Local Market

Indian shares ended lower this week due to broad-based losses across the sectors. The broader NSE index closed lower at 10,526.75, while the benchmark BSE index was down at 34,981.02. Both the indexes posted their first weekly loss in four, with the NSE index finishing about 1.5% lower, while the BSE index closing down 1.3%.

 

The 10-year benchmark bond ended at 96.50 rupees, its highest since May 8, yielding 7.71%, versus 95.98 rupees and a yield of 7.79% at previous close as fall in crude oil prices and a sharp rise in rupee aided sentiment. Bonds also gained after aggressive demand at the bond auction yesterday. The benchmark bond yield fell by 11 basis points this week, its largest weekly fall since week ended Apr. 5.

 

India’s federal government has sought a discussion on the governance of the central bank and the matter is likely to come up at the monetary authority’s board meeting next month. The board will not discuss the prompt corrective action norms in the next meeting but the government seeks that the criteria of non-performing assets and return on assets should be kept out of the framework.

 

Foreign flows into Asian bonds turned positive in October, in stark contrast to the sharp outflows faced by equity markets due to slowing earnings and concerns over trade. Data from central banks and bond market associations showed overseas investors bought a net $2.24 billion in Malaysian, Thai, Indonesian, South Korean and Indian bonds in the last month. That compared with net outflows of $2.46 billion in September.

 

Global Markets

The dollar edged lower this week as greater risk appetite encouraged investors to sell the greenback after a recent rally. The Fed vice chairman said the U.S. monetary authority was close to being neutral on interest rates and remarked that there were signs that the global economy was slowing. The latest bout of dollar weakness comes as investors start to question how many times the Federal Reserve can raise interest rates in 2019 without risking a slowdown in the U.S. economy, which has held up so far as borrowing costs have risen.

 

The euro and sterling steadied versus the dollar after Britain and the European Union agreed in principle to a text setting out their future relationship before a summit on Sunday. The Japanese currency has traded in an extremely narrow range over the last four trading sessions, although with a weak bias. While the Fed is on a monetary tightening path, the Bank of Japan maintains its ultra-loose monetary policy due to low growth and inflation. This interest rate differential between U.S. and Japanese bonds, makes the dollar a more attractive bet than the yen.

 

The number of people who filed for unemployment assistance in the U.S. rose unexpectedly last week, hitting their highest level since the end of June. The U.S. Department of Labor said that the number of individuals applying for initial jobless benefits in the seven days ending Nov. 17 increased by 3,000 to a seasonally adjusted 224,000 from the previous week’s upwardly revised total of 221,000.

 

Britain recorded a much larger budget deficit than expected in October, according to the first borrowing figures since finance minister Philip Hammond promised an end to austerity was within sight. The deficit in October rose to 8.820 billion pounds from 7.235 billion pounds a year earlier marking the biggest October shortfall for three years.

 

Japan’s annual core consumer inflation was unchanged in October from the previous month as soft household spending kept firms from hiking prices, a sign the economy lacks the momentum needed to achieve the central bank’s 2% target. The nationwide core CPI, which strips away the effect of volatile food costs, rose 1% in October from a year earlier, government data showed on Thursday, matching a median market forecast.