Multi-Asset Weekly Newsletter

Global Developments & Global Equities

MARKETS UNNERVED AS TRUMP REAFFIRMS TOUGH TARIFF STANCE

Risk sentiment was dented as President Trump said the tariffs on Canada and Mexico would be hiked as scheduled on 4th March. The tariffs on China would also increase by 10% on the same day. He also added that reciprocal tariffs would go into effect on 2nd April. Trump said that Europe would face 25% tariffs as part of his reciprocal tariffs. The US Treasury secretary said that Mexico has proposed matching the US' tariffs on China. He urged Canada to do the same as well. Trump's talks with the Ukrainian president ended on a sour note. This has raised concerns in the Eurozone about the risk of the US cutting Ukraine loose and striking a deal with Russia that is unfavorable for Ukraine.

After disappointing Michigan consumer sentiment and Services PMI last week, this week we saw some more evidence of the US economy slowing down. Pending home sales were the lowest ever in January due to high mortgage rates and high home prices. Jobless claims rose to the highest in 3 months, and personal spending was down 0.2% every month in January. There is chatter of a stagflation-like situation developing in the US. The market is pricing in 2.7 cuts by the end of 2025 compared to 1.8 cuts last week. The market is pricing in a 70% chance of a cut in the June Fed meeting.

India Q3 GDP and GVA prints came in line with expectations at 6.2% yoy. Q2 print was revised higher to 5.6% from 5.4% yoy. India's April- Jan fiscal deficit at Rs 11.7 lakh crs reached 74.5% of the full-year revised target compared to 63.6% in the corresponding period of the previous year. 

NIFTY V/S GLOBAL MARKETS

The S&P 500 ended the week 1% lower on account of a strong recovery on Friday. The weak gross operating margin outlook of Nvidia dampened sentiment on Wall Street. This was after tepid guidance from Wall Street a week ago. DAX and FTSE were up 1.2% and %.,7% respectively. CAC ended the week 0.5% lower. 

Equities across Asia sold off this week. Below is how major indices performed:

Nikkei -4%
HangSeng -2.3%
CSI300 -2.2%
Kospi -4.6%
Jakarta -7.8%
Singapore Straits -0.9%
Malaysia KLCI -1%

FIXED INCOME:

Yield on the US 2y and 10y came off 19bps each to 4.18% and 4.21% respectively. 10y Yields across the Eurozone and the UK were down 6-11bps. Yield on the benchmark 10y rose 2bps to 6.73%. 1y OIS ended 5bps lower at 6.24%. 5y OIS ended 9bps lower at 5.99%. While FPIs have invested a net USD 1.66bn through the FAR route in Feb, they have pulled out USD 450mn via the general and VRR routes.

FOREIGN EXCHANGE:

All G10 currencies weakened against the Dollar this week. Commodity currencies were the worst performers. Aussie weakened by 2.3%. The EUR and GBP weakened by 0.8% and 0.4%, respectively. All Asian currencies too weakened against the Dollar. THB (-1.6%), IDR (-1.7%), and KRW (-1.8%) were among the worst performers. Offshore Yuan weakened by 0.5%. The rupee weakened 0.9% to 87.51, the lowest weekly close for the Rupee. 1y forward yield ended the week 5bps lower at 2.08%. The Buy-Sell swap saw decent participation (Bids of USD 16bn against notified USD 10bn. Many of the bids, however, seemed to be at the tail, i.e., too conservative. The cut-off for 3y points was 655p, which translates into an annualized yield of 2.5%. It would have been attractive for corporations with Dollar liabilities to hedge their FX risk at these levels. RBI FX Reserves rose about USD 5bn in the week ending 21st Feb to USD 640.5bn 3m ATMF implied volatility shot up 37bps to 3.82%. 

COMMODITIES:

Brent was down 2.2% for the week at USD 72.8 per barrel. US and European natural gas prices were down 9.5% and 6%, respectively. Base metals saw a sell-off this week on risk aversion. LME Aluminum and Copper were down 3.1% and 2.1%, respectively. Precious metals sold off on Dollar strength. Gold was down 2.7%, and Silver was down 4% for the week.