Multi-Asset Weekly Newsletter

Global Developments & Global Equities

TARIFFS BLOCKED AND THEN ALLOWED TO STAY ON; KEEPING MARKETS GUESSING 

The highlight of the week was the US international trade court ruling that deemed tariffs imposed by the Trump administration illegal and blocked them. However, the Trump administration's appeal against the verdict was upheld, and therefore, tariffs remained in place. Fed's preferred inflation gauge, headline PCE, came in at 2.1% yoy against the expected 2.2% yoy. Core PCE came in line with expectations at 2.5% yoy. The market is expecting the Fed to keep Rates on hold in June and July. The first cut is likely to happen in Sep/Oct. The market is pricing in 2 cuts by the end of 2025. President Trump met Fed Chair Powell in person this week and insisted that the Fed cut rates. Focus in the coming week will be on the US May labor data, due on Friday.

NIFTY V/S GLOBAL MARKETS

Global equities ended the week on a positive note, with most major indices posting gains, led by South Korea’s Kospi (+4.1%) and Japan’s Nikkei (+2.2%), while Hong Kong’s Hang Seng was the notable laggard (-1.3%). 

FIXED INCOME:

Yield on the US 2y treasury dropped 4bps, and that on 10y dropped 2bps this week. 10y sovereign yields across the Eurozone were down 5- 9 bps this week. Yield on the old India benchmark 10y rose 4bps this week to 6.29%. Cutoff on the new 10y benchmark in Friday's auction came in at 6.1928%. 1y OIS ended 5bps higher at 5.59%, and 5y ended flat at 5.63%. Overnight call rates are fixed in the 5.82-5.90% range. The RBI monetary policy is due on Friday. The market is pricing in a 25bps cut in the repo rate to 5.75%. FPIs invested a net USD 1.4bn in domestic debt in May. The flows turned positive on the last day of the month, due to tremendous participation in the auction involving the new 10y benchmark. 

FOREIGN EXCHANGE:

Alternative Reserve currencies, i.e., JPY, CHF, and EUR, had weakened on the US Court ruling deeming tariffs illegal. However, as the Trump administration's appeal was upheld, these currencies retraced from their lows. Nevertheless, all G10 currencies weakened against the Dollar this week. USDINR traded a 84.78-85.71 range this week and ended at 85.58. 1y forward yield is at 1.97% and 5y is at 2.70%. 3m ATMF implied volatility continues to remain elevated at 5.20% on higher realized volatility. FX Reserves rose USD 7bn in the week ending 23rd May to USD 692.7bn. 

COMMODITIES:

Brent was under pressure given the expected production hike at the OPEC+ meeting. OPEC+ agreed to hike output by 411k barrels per day in July yesterday, same as in May and June. This was the 3rd straight hike. Precious metals were under pressure this week as the Dollar strengthened.