Multi-Asset Weekly Newsletter

India Sep quarter GDP beats estimates; RBI policy in focus next week. 

US Developments: 

• India’s Q2 GDP surprised on the upside at 8.2% YoY (vs. 7.4% consensus), with GVA at 8.1% YoY and Nominal GDP at 8.7% YoY. 
• On the expenditure side, strong private consumption and private capex drove growth, offsetting weaker government spending and the drag from imports. 
• Strong private consumption and private capex supported overall growth. This offset a weaker government spending and the import drag. 
• Robust manufacturing activity and electricity generation lifted Q2 performance. 
• Some market participants expect a 25 bps rate cut. Strong GDP data + INR pressure may give the RBI reason to wait and hold. However, with low inflation (below the 2–6% mandate), the RBI may still choose to deliver one last rate cut to support growth. 
• India’s exchange rate regime has been reclassified to “crawl-like” from “stabilised” due to higher FX volatility. 

Foreign Exchange: 

• The dollar weakened against all G10 currencies this week. The UK Autumn budget was balanced, and that supported the Pound. Higher than expected Tokyo CPI print increased chances of a hike by BoJ in December/January. 
• With higher-beta currencies like NZD (+2.2%), AUD (+1.5%), and NOK (+1.2%) outperforming, EUR’s modest 0.7% gain reflects a more defensive stance—supported but not leading the risk-on momentum. 
• GBP’s 1.1% rise aligns with broader G10 strength, but its performance sitting below NZD/AUD yet above EUR signals steady resilience driven by improved risk appetite and relative UK data stability. 
• This week, nearly all Asian currencies posted gains against the Dollar — led by the THB and SGD at +0.9% — while the Indian Rupee stood out as the lone underperformer, slipping 0.1%. 
• After a break of 88.80 last Friday, RBI intervened heavily on Monday, causing it to open around 89.20 compared to the Friday close of 89.49. However, the Rupee weakened through the week again to end at 89.46 onshore. 
• Implied spot as per NDF ended at 89.35. 
• The forward curve shows a steady, mildly upward slope, indicating gradually rising rate expectations from 1.87% in the near term to 3.27% over 5 years. 
• 3m ATMF implied volatility ended at 3.66% 
• FX Reserves fell USD 4.5bn to USD 688.1bn in the week ending 21st Nov 
• Rupee weakened 0.5% against the Yuan to hit a time low of 12.65. 

Fixed Income: 

Yield on the US 10y dropped 1bp to 4.01% while that on 2y was almost unchanged at 3.49%
UK 10y yield eased 10bps as the budget was seen as fiscally balanced. France and Italy 10y bond yields were down about 4bps Japan 10y yield rose 3bp to 1.80%
Yield on the India 10y, which had traded a 6.44-6.47 range for a large part of the week, shot up 4bps post the GDP print yesterday to end at 6.51%, almost unchanged compared to last week. The low for the week was 6.445%. Rate cut hopes have been diminished by a much stronger-than-expected growth print.
1y OIS and 5y OIS also spiked 3bps and 6bps respectively after the GDP print came out to end at 5.43% and 5.76%
Banking system liquidity is in surplus of more than Rs 1 lakh crore
Spread of 10y AAA PSU over Gsec is 55bps, and that of 10y AAA NBFC is 87bps
FPIs bought net USD 700mn of domestic debt in November

Commodities: 

• Commodities saw mixed moves with energy softening and metals surging — Brent dipped 0.3% while US Natural Gas jumped 8.4%, and
  industrial/precious metals rallied sharply (Aluminium +2.9%, Copper +3.8%, Gold +4.3%, Silver +13%). 
• Disruptions due to an outage in CME pushed Silver to new highs amid low Black Friday volumes. Silver inventories in China have fallen to the lowest level in 10 years following large shipments to London triggered by a supply squeeze. Copper surge was driven mainly by concerns over supply expressed at a miners, traders, and smelters meet in Shanghai

Our Views: What we like? 

FX: Ranges continue to hold in EUR, GBP, and AUD, and are likely to hold into year-end. Yen continues to remain under pressure. BoJ jawboning may have put a cap around 158 for now. Rupee continues to underperform. The market is clearly wanting to position long USD. RBI's resolve will be tested. Elusive positive news on trade agreement with the US, deteriorating CAD dynamics, and lack of FPI flows are weighing on sentiment. Moreover market believes RBI may choose to expend its firepower cautiously, given that it is already sitting on significant short positions in forwards, including NDF. We expect the Rupee to trade in a 88.80-89.80 range over the next 6 weeks. Our base case is that the range has shifted Rs 1 higher. There would be huge barriers around 90, and therefore, price action around that level could be quite volatile. 

Fixed Income: Ranges continue to hold on the 10y benchmark. 6.45-6.60% is what we have been trading in. Any uptick towards 6.60% is a good opportunity to add duration to the portfolio. Paying 5y OIS on dips has worked well. One can look to exit on an uptick to 5.85-5.90%. 

Commodities: We have been bullish on precious metals and continue to remain so. However, we may see short-term corrections given the run-up. Base metals are also likely to trend higher amid a weak Dollar environment gradually.