Aug 18 2018

The Rupee plunges to all time lows, breaks below the 70 mark

Weekly Market Overview

13th Aug. To 18 Aug. 2018

Rupee:-

  • The rupee’s plunge to a record low has worried a wide cross-section of India’s society: companies, importers, those going on vacation and students planning to study overseas. But if the weakness persists, Prime Minister Narendra Modi’s job could become a lot harder just before big state and national elections. India is a big buyer of everything from crude oil and electronics to gold and edible oil, and its import bill was expected to cross $600 billion in the fiscal year ending in March 2019, from about $565 billion in the previous year.
  • The 9.3 percent fall in the rupee this year has already led to a surge in local prices of goods with an imported component. July was the ninth straight month in which India’s inflation was higher than the central bank’s medium-term target of 4 percent. The currency fell to a fresh low of 70.40 to the dollar on Thursday.
  • India’s foreign exchange reserves fell to $404.19 billion as of July 27, compared with $405.14 billion a week earlier, the Reserve Bank of India said on Friday. India reported on Tuesday a fiscal deficit of 4.29 trillion rupees ($62.57 billion) for April-June, or 68.7 percent of the budgeted target for the current fiscal year compared with 80.8 percent a year ago.

Local Markets:-

  • Indian companies which have raised funds overseas are worried about the rise in servicing costs. The country’s external debt rose to $530 billion at the end of March, out of which nearly 42 percent constituted debt maturing by March 31. India’s NSE index marked its highest ever close on Friday, helped mainly by financial and consumer staple stocks and as Asian peers recovered on hopes of Sino-U.S. trade talks next week.
  • NSE index ended 0.75 percent higher at 11,470.75. It rose 0.4 percent over the week. The benchmark BSE index ended 0.75 percent higher at 37,947.88. It gained 0.2 percent over the week.
  • Despite our stock markets notching record highs, the broader market (most of the midcap and smallcaps) has failed to participate in this bull run. The recent underperformance of broader markets can be attributed to many reasons such as higher valuations, many of the fundamentally strong midcap companies included in the ASM framework and auditors pull out etc. Both BSE Midcap and Small-cap indices are currently trading at 13-17 percent below their recent highs and in some cases, stocks have corrected by more than 50-60 percent respectively. One-year forward price-to-earnings (PE) ratio of BSE Midcap is currently at 23.3 times, a premium of 14.8 percent over the Sensex which trades at 20.30 times.

Global Markets:-

  • The dollar index a measure of the greenback’s strength against a basket of six major peers, inched 0.1 percent lower to 96.543. The safe-haven dollar pulled back from 13-1/2- month highs after the world’s two biggest economies agreed on Thursday to hold a new round of trade talks next week.
  • U.S. consumer sentiment fell to an 11-month low in early August, with households expressing concerns about the rising cost of living, potentially signaling a slowdown in consumer spending. The University of Michigan on Friday said its consumer sentiment index fell to a reading of 95.3 early this month, the weakest since September 2017, from 97.9 in July. The survey’s current conditions sub-index of consumer expectations dropped to 107.8 from July’s reading of 114.4.
  • The number of Americans filing for unemployment benefits fell for a second straight week last week, suggesting no impact yet on the labor market from ongoing trade tensions between the United States and its trading partners. Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 212,000 for the week ended Aug. 11, the Labor Department said on Thursday. Data for the prior week was revised to show 1,000 more applications received than previously reported.
  • Annual inflation in the 19 countries sharing the euro increased to 2.1 percent in July, European statistics office Eurostat said on Friday, confirming the rate was above the European Central Bank’s (ECB) target. The confirmation of increasing inflation is good news for the ECB, which aims to end a bond purchasing program by the end of the year and has signaled a possible interest rate hike next year. Headline consumer inflation accelerated to 2.1 percent year-on-year in July from 2.0 percent in June, pushed up by higher energy costs. Excluding energy and unprocessed food, an indicator the ECB looks at to measure core inflation, prices rose by 1.3 percent year on year.
  • Most Asian currencies firmed on Friday as the Turkish lira recovered and investors scanned the horizon for cues from Sino-U.S. negotiations. News of proposed negotiations between Beijing and Washington lifted spirits in what has been a grim week for regional currencies after Turkey’s currency crisis spilled over into other emerging markets, compounded by weak macro-economic data from China. The U.S.-China trade dispute is set to intensify next week with both sides planning to hike tariffs on more of each other’s goods, threatening to pile more pressure on China’s already slowing economy.
  • The Turkish lira was little changed at 5.8 per dollar after plunging to record lows on Monday, triggering a huge sell-off in emerging market currencies. But thanks to efforts by Turkey’s central bank to support the lira and Qatar’s pledge to invest $15 billion in Turkey, the lira recovered from the depths of its slump.
  • China’s yuan was 0.03 percent weaker and on track for its 10th straight weekly loss, extending its longest weekly losing streak since 1994. Prior to market opening on Friday, the People’s Bank of China (PBOC) set the yuan’s midpoint higher for the first time in seven days to 6.8894 per dollar, 52 pips firmer than the previous fix of 6.8946.Traders and analysts said Friday’s fixing came in stronger than their models had suggested, showing the PBOC’s discomfort with recent volatility in the yuan.
  • The S&P 500 and the Dow Jones Industrial average extended gains and the Nasdaq turned positive on Friday on reports of progress in talks between the United States and China and other trading partners. The Dow Jones Industrial Average rose 110.59 points, or 0.43 percent, to 25,669.32, the S&P 500 gained 9.44 points, or 0.33 percent, to 2,850.13 and the Nasdaq Composite added 9.81 points, or 0.13 percent, to 7,816.33 and Mexico were “advancing well.
  • European markets finished mixed on friday the most recent closing prices was. The FTSE 100 gained 0.03%, while the DAX led the CAC 40 lower. They fell 0.22% and 0.08% respectively.