Multi-Asset Weekly Newsletter

Risk sentiment recovers as market sees faster Fed easing

The US August CPI print was in line this week, while the US PPI surprised on the downside. The market is pricing in a cut at each of the next 3 Fed meetings this year. The market is seeing a terminal rate of around 3% getting reached somewhere around the end of 2026. The ECB kept rates on hold and suggested that it wouldn't cut further unless there is a major weakness in the Eurozone economy.

The key event to look forward to next week will be the Fed rate decision on Wednesday. The BoE rate decision is due on Thursday, and the BoJ on Friday. It was a steady week in terms of price action. Risk assets generally had a strong week. Equities globally did well. Base Metals gained as well. Oracle shares were in the limelight this week after the company reported tremendous demand for its cloud services. 

Foreign Exchange

G10 currencies posted broad gains against the Dollar this week, led by NOK (+1.8%), AUD (+1.4%), and NZD (+1.1%), while CAD (-0.1%) and JPY (-0.2%) slipped marginally. Asian peers also strengthened, with THB (+1.5%) and TWD (+1.3%) outperforming, though KRW (-0.5%) and PHP (-0.4%) declined. Rupee traded in a 87.96-88.46 range during the week and ended onshore at 88.28, almost unchanged from the previous week. Even NDF implied spot ended at 88.28 in offshore.

Forwards remained supported as markets priced in faster Fed cuts, with implied yields rising from 1.8% (1m) to 3.3% (5y). 1m to 1y ATMF vol curve is in 3.80-4%. FX Reserves rose USD 4bn in the week ending 5th September to 698.3bn. Equity MFs saw net inflow for the 54th straight month (Rs 33430 crs in August). Midcap MFs saw the biggest ever inflow of Rs 5331crs in August.

 

Fixed Income 

Domestic August CPI print came in at 2.07%, in line with expectations

Yield on the US 2y treasury moved up 5bps to 3.56% and that on 10y ended 1bps lower at 4.06% this week. 10y Yields across the Eurozone and UK were up anywhere between 5-10bps. France 10y saw the biggest rise of 10bps as the government lost a confidence vote on the passage of budget reforms. Yield on the domestic benchmark 10y traded a 6.44-6.53% range and ended at 6.49%, 2.5bps higher than the previous week. 

1y OIS is at 5.47% and 5y is at 5.69%. Overnight call rate fixings have been below the Repo rate this week. Banking system liquidity is in surplus of around Rs 2.8 lakh crores. 1y T-bill is at 5.65%, 1y CD at 6.46%. 10y AAA PSU spread over Gsec is 52bps and that of 10y AAA NBFC is around 79bps. 

FPIs have invested a net USD 200 million in domestic debt so far in September. 

 

Commodities 

OPEC+ agreed to increase production further from October. This kept a lid on Crude prices despite Israel's attack on Hamas officials in Qatar. Base Metals, particularly Copper, saw some positive traction this week. Precious metals continued their uptrend amid overall Dollar weakness.

Below is how major global commodities moved this week: 

 

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