Multi-Asset Weekly Newsletter

Global Developments & Global Equities

RBI FRONTLOADS EASING TO BOOST GROWTH

Most US data until Thursday ( ADP, jobless claims, ISM manufacturing and services PMIs) had come in weaker than expected, but the tables turned on Friday with the release of the jobs report. Headline NFP print came in at 139k against the expected 126k. Unemployment rate was steady at 4.2% and Average Hourly Earnings grew 3.9% yoy against the expected 3.7% yoy. The market is expecting 1.8 cuts by the Fed till the end of 2025. The US May CPI print will be the key data to look forward to in the coming week. 

US President Trump announced that US and China will be holding trade talks in London on Monday. Possible amelioration in US-China trade ties has lifted risk sentiment. In a social media post, they said, "The meeting should go very well". Strained ties between Trump and Musk weighed negatively on Tesla stock, which fell almost 15% this week. 

NIFTY V/S GLOBAL MARKETS

Asian indices outperformed this week, led by Korea's KOSPI surging 5.3% on political optimism, while Western markets posted modest gains.

FIXED INCOME: 

Yield on the US 10y had dropped to 4.35% but spiked after the US Jobs report to end the week at the highest point of 4.50%. Likewise, US 2y had dropped to 3.87% but ended the week at the highest point at 4.04%.  The RBI cut repo rate by 50 bps to 5.50%. The consensus on the street was a 25-bps reduction. The RBI also cut CRR (Cash Reserve Ratio or the amount that banks need to park aside with the RBI as a percentage of their NDTL on which they get a 0% rate of return) by 100bps in a surprise move to infuse durable liquidity into the banking system. This would unleash Rs 2.5 lakh crs of liquidity into the banking system. This move is intended to facilitate the transmission of rate cuts to the real economy. However, the RBI changed the stance to neutral from accommodative. This suggests that we have probably reached the terminal rate in this cycle. Yield on the old benchmark 10y had dropped to 6.13% in a knee-jerk reaction, but ended at 6.29%. 1y OIS fell 11bps to 5.49% while 5y OIS ended 3bps higher at 5.67%. FPIs have sold net USD 2.5bn of domestic debt in June so far.

FOREIGN EXCHANGE: 

Commodity currencies outperformed this week as it seemed US-China trade relations are on the mend. Rupee continues to underperform amid a weak Dollar environment. The 40 currency trade-weighted REER, above 108 in November, had already dropped to 100.8 by April end. Since April end, the Rupee has underperformed its peers. The index is likely to have fallen below 100 now, which is rare. Since April end the Chinese Yuan has strengthened 1.1% while the Rupee has weakened 1.3%. Therefore, in addition to Rates and Liquidity, FX is the third pillar of easing. This correction in overvaluation bodes well for our domestic manufacturing and exports. Due to the rupee's underperformance, cross/INR is on a tear. GBPINR is at an all-time high above 116! FX Reserves fell USD 1.3bn in the week ending 30th May to USD 691.5bn. 

COMMODITIES:

Brent ended 6.2% higher this week at USD 64.6 per barrel. US Natural gas rose almost 10% to USD 3.78. LME Copper gained 2% this week to USD 9693. LME Aluminum was up 0.3% to USD 2450. Silver advanced 9.1% this week, breaking a key resistance zone, to end at USD 36. Gold was up 0.6% on the week and ended at USD 3310.