Multi-Asset Weekly Newsletter

TRUMP'S NATIONAL ADDRESS DOES LITTLE TO COMFORT MARKETS 

Global Developments:

• Trump delivered a national address on Wednesday evening. The market was expecting timelines for when the war would end. However, the comments were extremely general and vague. While he mentioned that the US would get out of Iran in 2-3 weeks, he said the US would hit Iran hard in that period. He has also asked allies to work towards reopening the Strait of Hormuz. 
• Meanwhile, blows continue to be exchanged between Israel and Iran and the US and Iran. Iran striking essential facilities in the Middle East is a key risk for supply chains. 
• Domestically, focus will be on the RBI policy in the coming week. Emergency, out-of-policy action cannot be ruled out either, and we may see the RBI indicate the possibility of that in the upcoming policy. There is a strong possibility of a 25bps rate hike to tame inflationary pressures and control the Rupee. 
• RBI's latest moves to deter speculation in the rupee have seen some success as far as the onshore spot is concerned, but the relief could be temporary if energy prices continue to remain elevated and surge further. 

Foreign Exchange:

• G10 currencies delivered a mixed performance this week, with the Yen leading gains (+0.4%) while the Kiwi lagged (-1%), as most majors hovered in a narrow range against the Dollar. 
• Asian currencies delivered a mixed performance this week against the Dollar, led by INR (+1.8%) and THB (+0.9%) gains, while MYR (-0.5%) and TWD (-0.3%) lagged, reflecting a broadly cautious regional sentiment. 
• Broader G10 stability with a slight positive bias supported the Euro’s mild uptick (+0.1%), reflecting limited downside pressure. 
• Weakness across key G10 peers, coupled with Dollar strength, kept the Pound under pressure, ending the week lower (-0.4%). 
• The rupee traded only 2 days this week, i.e., Monday and Thursday, due to a holiday-shortened week. 
• On Monday, the rupee reacted to the RBI's measures that prevent banks from engaging in arbitrage between onshore and offshore markets. It introduced a USD 100mn limit on the net open position for banks for onshore deliverable Rupee derivatives. Across the industry, there was about USD 35bn of arbitrage positions wherein banks had sold NDF and gone long onshore. RBI's measure required banks to trim these positions by 10th April and thereby required them to buy offshore and sell onshore. This widened the spread between onshore and offshore 1m to about 45p. On Monday, spot opened around 93.50 and subsequently inched higher through the session to make an all-time high of 95.23 (Rupee weakened past Friday's close of 94.81!) before ending at 94.75 
• On Thursday, the spot reacted to another set of measures introduced by RBI, this time restricting corporations' access to NDF and preventing them from freely cancelling and rebooking hedges against the same underlying exposures. Effectively, it said that the corporations should also not arbitrage between
  onshore and offshore and hold hedges till the underlying exposure is realized. This time, the gains in the Rupee held. After opening around 93.40, the rupee strengthened to 92.83 before ending at 93.10. 
• The measures are basically intended to curb speculation and reduce dollar demand in the domestic market, thereby reducing pressure on the Rupee. 
• FX Reserves dropped USD 10.3bn to USD 688.1bn in the week ending 27th March 

Fixed Income: 

• Global 10Y bond yields softened across major economies this week—led by sharp declines in the UK, France, and Germany—while Japan and China saw a marginal uptick. 
• Yield on the India 10y benchmark rose 19bps this week to 7.13% (levels not seen in almost 2 years) as excise duty cut on petrol and diesel weighed on sentiment. This is likely to result in a Rs 13000-15000crs impact on government revenue per month. Rising inflation expectations, too, on higher crude prices are making bond traders nervous. 
• Some of the SDL (SGS) cut-offs came in above the 8% mark in last week's auction 
• 1y OIS rose 32bps to 6.36% and 5y OIS rose 22bps to 6.85% this week. Overnight MIBOR fixing had happened at 6.98% on 30th March, i.e., the last Day of the fiscal, but on Thursday, it cooled off to 5.24%. Banks had parked more than Rs 4 lakh crore in SDF on Wednesday 
• 1y T-bill yield is at 5.69% while 1y CD is at 7.35%. 
• FPIs pulled out net USD 900mn from debt in March. 

Commodities: 

Commodities saw mixed momentum this week, with energy volatile (Brent +1%, WTI +18%, natural gas down), metals firming (aluminium +6.1%, copper +1.8%), and precious metals rallying strongly (gold +6.9%, silver +4.7%).
Energy prices continue to remain extremely volatile
and sensitive to war related news. Attacks ok Energy
facilities in Kuwait have stoked a fresh bout of
nervousness. WTI-Brent spread inverted this week as
Trump's national address did little to comfort the
markets and infact added to the anxiousness as he
said US would hit Iran hard over the next 2-3 weeks