Multi-Asset Weekly Newsletter

Global Developments & Global Equities 

RECIPROCAL TARIFF ANNOUNCEMENT ROCKS GLOBAL RISK SENTIMENT 

The date that the world was looking at with bated breath was 2nd April, aka... 'the liberation day'. The Trump administration unveiled the reciprocal tariffs and that sent shockwaves through the global financial markets. These tariffs have the potential to rock the existing global trade order and prove to be extremely disruptive. It will be interesting to see how countries respond, i.e., whether they retaliate or renegotiate with the Trump administration. There was classic risk aversion and a flight to safety seen across assets. US March labor data that came out on Friday was mixed with headline NFP print beating estimates (228k vs exp 140k), Unemployment rate ticking higher to 4.2% from 4.1%, and Average Hourly Earnings Growth coming in at 3.8% yoy against expected 4% yoy. Key data to look forward to in the coming week will be the US March CPI print and minutes of the latest Fed meeting. The market is pricing in 4 cuts by the end of 2025 compared to 3 as of last week. 

NIFTY V/S GLOBAL MARKETS

There was a bloodbath in global equities this week.

FIXED INCOME: 

US yield curve saw a parallel shift lower on recession fears and haven demand. US 10y yield dropped 21bps to 3.99%, lowest level since Oct'24. US 2y yield too fell 23bps to 3.65%.10y Yields across the Eurozone and the UK were down 10- 22 bps this week. Yield on the 10y JGB came off 32bps. Yield on the India benchmark 10y fell 12bps to 6.46% this week. A large part of the move happened before the announcement of reciprocal tariffs as the RBI announced an Rs 80000cr OMO purchase. By way of these OMOs, the RBI is replacing maturing VRRs with long-term durable liquidity.5y OIS fell 17bps to 5.73%, lowest level since Feb'22. 1y OIS fell 13bps to 5.91%. There is an expectation that the RBI will probably be able to cut rates deeper, given the negative impact on growth from tariffs and also given how the Rupee has appreciated in real terms in recent times. There is also chatter about the possibility of the RBI cutting rates by 50bps at the policy in the coming week. The RBI rate decision is due on Wednesday. While the terminal repo rate in this cycle was earlier expected to be 6%, there is the possibility that the RBI may be able to cut the Repo rate to as low as 5.5%, given the downside risks to growth.  

FOREIGN EXCHANGE: 

The dollar weakened significantly against majors, except commodity currencies. SEK (+11%) was the best performer, followed by CHF, DKK, EUR, JP, Y, and GBP, all of which appreciated 5.4-5.7% against the Dollar. Commodity currencies AUD (-2.9%) and NZD (-0.7%) were the major underperformers. As far as Asian currencies are concerned, currencies of those countries which were seen as benefiting from either lower impact on the economy on account of less reliance on exports to the US or relatively lower reciprocal tariff rates (which would help them in increasing export share to US) outperformed at the expense of the rest. INR (+1.6%) and PHP (+2.7%) were the best performers while TWD (-1.2%), IDR (-1.6%), and THB (-1.5%) were the worst performers. The  Offshore Yuan weakened 0.5% against the Dollar this week. Rupee was volatile this week, trading in an 84.95-85.75 range. It eventually ended the week onshore at 85.24, the strongest since Dec'24. However, it weakened offshore to end at the implied spot of 85.53, tracking overall risk aversion and sell-off in US equities. It was the third successive week of strength for the Rupee. Forwards got paid with 1y forward yield rising 16bps to 2.36% and 5y yield rising 34bps to 3.11%. This was because US Rates dropped more on fears of a recession. 

COMMODITIES:

Brent dropped 11% this week to USD 65.5 per barrel. Worsening the already poor sentiment from reciprocal tariffs, was OPEC's decision to not only go ahead with it's planned production increase but also nearly triple the expected increase figure. Base metals too had a torrid week with LME Copper and Aluminum 3 month contracts dropping by 10.4% and 6.6% respectively. Among precious metals, Gold was down 1.5% to USD 3038 and Silver was down 13.3% to USD 29.6.