Multi-Asset Weekly Newsletter

Global Developments & Global Equities

RISK ASSETS RALLY AS TRADE UNCERTAINTY DIMINISHES 

Risk sentiment improved this week as trade tensions eased. US and China agreeing to reduce tariffs for a 90-day window over the last weekend and approach trade talks constructively comforted markets. Prospects of a US-Iran nuclear deal also bolstered sentiment. US data this week, including CPI, PPI, Retail sales ex auto, and industrial production, was weaker than expected. This, coupled with the lowering of inflation expectations (due to trade tensions easing), means the Fed can turn a bit dovish now. However, the rates market is still just pricing in 2 cuts till the end of 2025. 

Rating agency Moody's cut the US credit rating by one notch to Aa1 from Aaa. It changed the outlook to stable from negative. Though the announcement just came before US bond markets shut and the US 10y rose 5bps in an immediate reaction, we will have to see if there is any follow-through on Monday. 

NIFTY V/S GLOBAL MARKETS

Equities globally had a good week. The easing of global trade tensions has eliminated a lot of uncertainty in the short term.

FIXED INCOME:

U.S. yields had spiked earlier in the week but retraced on weak US CPI, PPI, Retail sales, and Industrial production data. 2y ended at 4% and 10y at 4.48%. While UK 10y yield was flat, 10y yields across the Eurozone were down anywhere between 4- 10 bps this week. Domestic April CPI print came in at 3.16% yoy on low food inflation. This has, in most likelihood, sealed the June rate cut of 25bps. 1y and 5y OIS were down 2bps for the week and ended at 5.62% and 5.64% respectively. Yield on the old 10y benchmark fell 10bps to 6.27%, aided by soft domestic inflation print and also a move lower in US treasury yields post weak US data. Banking system liquidity is in surplus of around Rs 2 lakh crs. The overnight call rate has been fixed below the repo rate consistently, around 5.90%. 

FOREIGN EXCHANGE:

The dollar strengthened against most G10 currencies this week.
Rupee had opened the week stronger on Tuesday on news over the last weekend of a ceasefire between India and Pakistan (Monday was a holiday on account of Buddha Purnima). USD/INR saw a low of 84.64, and from there on Rupee gave up all gains to end at 85.52, weaker than the previous Friday's close of 85.37. It printed a low of 85.73 this week.
3m ATMF implied volatility dropped 1 percentage point to 5.22%.
1y forward yield dropped 18bps to 2.11%. Indian companies raised USD 11bn of ECBs in March, the highest in 6 years, as the Dollar turned around and started weakening.

COMMODITIES: 

Brent ended the week 2.4% higher at USD 65.4 per barrel. News of the likelihood of a US-Iran nuclear deal (I.e., US relaxing sanctions on Iran in exchange for Iran halting nuclear program) and EIA data indicating inventory build capped gains. LME Aluminum was up 2.7% for the week, and Copper was flat. Iron ore was up 1.7%. Precious metals came off as risk sentiment improved. Gold ended the week 3.7% lower at USD 3203, and Silver ended 1.3% lower at USD 32.3 per troy ounce.