Multi-Asset Weekly Newsletter

Global Developments & Global Equities

UNPRECEDENTED GERMAN STIMULUS TAKES MARKETS BY SURPRISE

Germany's unprecedented fiscal stimulus dominated headlines this week. Germany lifted the historic debt brake to increase defense spending and created a fund for infrastructure investment. This is seen as a game changer for the struggling German economy. European leaders got together to discuss increasing defense spending in the wake of the US pulling the plug on aid. This caused the Euro to rally, European bond Yields to surge, and European equities to rise this week.  Weaker than expected US February jobs data that came out on Friday and ADP print earlier in the week also put pressure on the Dollar. China set the 2025 growth target at 5% and laid out further stimulus measures to boost the economy amid looming trade war concerns. The budget deficit would rise to 4% of the GDP in 2025 from 3% last year, the highest since 2010. China would keep the currency 'generally stable at an adaptive, balanced level'.

NIFTY V/S GLOBAL MARKETS 

US equities came off this week. S&P 500 ended 3.1% lower. DAX rose 2% on German stimulus measures. HangSeng and Jakarta composite both rose 5.8%. Nifty50 recovered this week and bounced back 1.9% to 22552 from a strong technical support level on the weeklies around the 22000 mark. 

FIXED INCOME:

Yield on the US 10y treasury rose 15bps to 4.30%. 10y German bond yield rose by the most in a day post-announcement of the unprecedented fiscal stimulus. It ended the week 34bps higher. 10y Yields of other Eurozone countries were also up 33- 36bps as these countries discussed and agreed to step up defence spending, given that the US is backing off. Greece 10y at 3.65% is the highest since Jul'24. On the other hand, Yield on the benchmark 10y ended 4bps lower at 6.69%. The announcement of a Rs 1 lakh crs OMO purchase (to be conducted in 2 tranches of Rs 50000 crs each) supported the market. 1y OIS came off 5bps to 6.19% and 5y OIS came off 3bps to 5.96%. Brent slipping below USD 70 per barrel intraweek and hitting its lowest level since Aug'21 also aided sentiment in the domestic bond and Rates markets. FPIs have invested a net USD 1.7bn in FAR Bonds in March so far.

FOREIGN EXCHANGE: 

All G10 currencies strengthened against the Dollar this week, with SEK (+6.8%) and EUR (+4.4%) being the best performers and commodity currencies AUD (+1.5%) and CAD (+0.6%) being the underperformers. The euro rose as Germany relaxed the debt brake and announced unprecedented fiscal measures to stimulate the struggling economy through defence and infrastructure spending. The ECB cut Rates by 25bps and revised the growth projection lower and the inflation projection higher for 2025. There was a bit of a hawkish tilt as the ECB said the policy is now 'meaningfully less restrictive'. Among Asian currencies, IDR (+1.8%) was the best performer. CNH (+0.7%) and INR (+0.7%) underperformed. Underperformance of the Rupee means that Cross/INR surged. EUR/INR rose to 94.35 and GBP/INR to 112.40, both record highs. RBI announced another Buy-Sell swap for USD 10bn and 3y tenor. 1y forward yield ended the week 5bps higher at 2.13%. It had risen to 2.25% but came off on the B-S swap announcement.