Multi-Asset Weekly Newsletter

Global Developments & Global Equities 

RISK SENTIMENT IMPROVES AS FED DOWNPLAYS TARIFF-RELATED INFLATION CONCERNS

There were 4 central bank rate decisions this week. 3 of them, i.e., Fed, BoE, and BoJ, maintained the status quo, while the SNB cut Rates by 25bps. The Fed expectedly kept rates unchanged and revised the inflation forecast higher to 2.7% from 2.5% and the growth forecast lower to 1.7% from 2.1% for 2025. Fed chair Powell, in his speech, however, downplayed growth concerns and said that any inflationary impact from tariffs would likely prove transitory in his base case. The median dot plot indicated 2 cuts until the end of 2025. The market is pricing in 2.8 cuts in 2025. On tariffs, President Trump said that there would be some flexibility around reciprocal tariffs which are due to come into effect from 2nd April. 

NIFTY V/S GLOBAL MARKETS

Equities globally had a steady week. Nifty50 rallied 4.3% this week. 

FIXED INCOME:

Yield on the US 10y treasury was down 5bps to 4.25%, and that on 2y was down 10bps to 3.95%. 10y Yields across the  Eurozone (except Greece) were down 2- 6bps this week. Yield on the benchmark 10y dropped 8bps this week to 6.62%, the lowest level since Jan'22. There has been no supply in March, and the RBI announced one more OMO of Rs 50000crs. This has supported sentiment in the bond market. 1y OIS fell 3bps to 6.09% and 5y OIS fell 10bps to 5.87%, the lowest level on 5y since Mar'22. Spread between 5y Gsec and 5y OIS is around 63bps and that between 5y Mod MIFOR and 5y OIS is at 40bps, the lower end of the 40- 74bps range it has been in since Dec'22. Spread between 1y CD and 1y T-bill narrowed 15bps this week to 97bps. 

FOREIGN EXCHANGE:

The dollar was steady this week against the G10. GBP was down 0.1% for the week. The BoE this week kept the rates unchanged through an 8-1 vote, with 1 MPC member voting in favor of a cut. The euro was down 0.6% for the week. NOK (+1%) was the best former while AUD (-0.8%) was the worst performer on disappointing employment data. Among Asian currencies, the Indian Rupee (+1.2%) was the best performer this week, while the IDR (-0.9%) was the worst performer. The IDR has been bearing the brunt of a sell off in Indonesian equities on growth concerns. The offshore Yuan (-0.3%) was steady. The Rupee had the best weekly gain in two years, aided by multiple factors:
* Stronger than expected Feb goods trade data. Feb trade deficit came in at just USD 14bn, lowest since April'21. Combined with services we actually had a surplus. 
* Unwinding of arbitrage positions after the RBI apparently cautioned banks on trimming their arbitrage positions
* RBI is not aggressively putting a floor under the pair. The Rupee has strengthened for 8 straight sessions. The Rupee strengthened 0.6%-2.1% against its Asian peers this week. Rupee has strengthened by almost 2% against the Yuan since 10th March. 

COMMODITIES: 

Commodities too had a steady week. Brent rose 2.2% this week to USD 72.2 per barrel. LME Aluminum was down 2.2% while Copper was up 0.8%. Copper breached the USD 10000 mark for the first time in a year. Dalian Iron ore was down 1.7%. Gold rose 1.3% to USD 3022 per ounce, continuing to post record highs, while Silver ended the week 2.3% lower.