Multi-Asset Weekly Newsletter

Global Developments & Global Equities 

Walmart's negative outlook spooks sentiment on Wallstreet; Nifty ends week below crucial 22800 support

It was a steady week in terms of price action in the absence of major data/events/comments. US S&P Global Feb Services PMI missed expectations and slipped into contraction territory for the first time since Jan'23. University of Michigan Long-term inflation expectations rose to 3.5% from 3.3%. FOMC minutes were hawkish. Fed members prefer seeing further progress on the inflation front before cutting rates.  The outcome of the German elections will be in focus next week. US Jan PCE print is also due next week. The market is pricing in 1.8 cuts by the Fed till the end of 2025,  3.1 cuts by the ECB, 2 cuts by the BoE, and 1.4 hikes by the BoJ

NIFTY V/S GLOBAL MARKETS

US equities corrected this week. S&P500 ended 1.7% lower while Nasdaq ended 2.1% lower. Poor outlook by Walmart dampened sentiment on Wall Street.  CAC, DAX, and FTSE were down 0.3%, 1%, and 0.8% respectively . Asian equities overall did well. Benchmark indices in Korea, Indonesia, and  Taiwan were up 2.5%. Hang Seng continued to outperform, gaining 3.8%. 

FIXED INCOME: 

Yield on US 10y dropped 5bps to 4.43% and that on 2y dropped 6bps to 4.20%

10y Yields across the Eurozone were down 1-5bps this week. 

The yield on the India benchmark 10y had dipped to 6.68% intraweek but ended the week flat at 6.706%

1y and 5y OIS ended 1bps lower at 6.2950% and 6.08% respectively 

The RBI came out with directions for bond forwards which would be effective from 2nd May onwards. 

The USD 10bn Buy-Sell swap announced by the RBI would inject Rs 86000crs of durable liquidity into the banking system. This should reduce the banking system's liquidity deficit significantly and bring it close to neutral.  

FX and Commodities

FOREIGN EXCHANGE: 

This week, Japanese Yen (+2%) was the best-performing G10 currency. Japan's inflation is elevated; therefore, the BoJ could stay on its tightening course. 

Euro fell 0.3% and was the worst performer. The focus will be on the outcome of the German elections. If the AfD party does well and is in a position to influence the next government, it would be negative for the Euro, considering it is a right-wing nationalist party and is against Germany being part of the Eurozone and using the Euro.  UK inflation was higher than expected and Retail sales print better than expected. The pound ended the week 0.4% higher. 

Among Asian currencies KRW (+0.5%) and MYR (+0.4%) were the best performers while PHP (-0.2%) and IDR (-0.3%) were the worst performers. 

The Rupee strengthened 0.1% this week to 86.71. It traded an 86.48-86.98 range this week. 

The RBI announced a USD 10bn Buy-Sell swap for 3y. The same would be conducted on 28th Feb. We are likely to see the forward premiums collapse on Monday on this announcement.

FX Reserves fell USD 2.5bn to USD 635.7bn in the week ended 14th Feb. 

Commodities 

Among base metals iron ore was the big mover this week, gaining 6.4% as China vowed more support for its economy. LME Copper and Aluminum were up 0.9% and 1.9% respectively 

Brent dropped USD 2 per barrel despite Israel vowing revenge against Hamas and despite OPEC+ being seen deferring production hike to April despite Trump's call. Brent ended 0.4% lower for the week. 

Precious metals extended the rally with Gold and Silver up 1.9% and 1.1% for the week.