Multi-Asset Weekly Newsletter

Risk sentiment positive into weekend on optimism around US-Iran truce deal

Global Development: 

US-Iran headlines were volatile this week. We saw escalation and strikes being traded earlier earlier in the week but towards the end of the week there were positive statements coming in from US and Iran about a potential agreement for 60 days while they negotiate terms around Iran's nuclear program. However, US and Iran have differing accounts of what is in the framework to be signed. Nevertheless Risk sentiment was positive heading into the weekend

ECB hikes rates by 25bps this week and said it would act on a policy to policy basis

Key event to look forward to next week would be the US Fed rate decision, Kevin Warsh' first policy as Fed Chair. Market is expecting rates to be kept unchanged. BoE is also expected to maintain status quo while BoJ is expected to hike by 25bps.

Foreign Exchange: 

• The Dollar ended the week mixed against major peers, weakening most notably against the New Zealand Dollar (+0.6%) and British Pound (+0.5%), while the Norwegian Krone (-0.7%) and Canadian Dollar (-0.4%) underperformed amid softer commodity prices.
• The Euro gained 0.4% against the Dollar this week, supported by improving risk sentiment and broad-based Dollar softness despite lingering concerns around Eurozone growth.
• The Pound advanced 0.5% against the Dollar, outperforming most G10 peers as expectations of a gradual easing cycle by the Bank of England continued to support the currency.
• The South Korean Won outperformed regional peers with a 2.8% gain against the Dollar this week, while the Indian Rupee (-0.2%) and Malaysian Ringgit (-0.7%) lagged amid continued capital outflows and softer commodity prices.
• Rupee traded a 94.95-95.76 range this week and ended at 95.11 compared to previous week close of 94.91.
• The USD/INR forward curve remained largely stable, with premiums near 3% across short tenors and rising to 3.2% at the 5-year tenor.
• FX Reserves dropped USD 700mn in week ending 5th June to USD 681.6bn.
• 3m ATMF implied volatility stands at 5.50%.

Fixed Income: 

• Bond yields declined across major economies this week, led by Korea (-18bps) and the UK (-11bps), as softer inflation expectations and easing growth concerns supported fixed-income markets.
• Yield on the benchmark 10y traded a 6.88-7% range this week and ended at 6.89% compared to previous week close of 6.99%
• 1y OIS dropped 9bps this week to 5.96%. 5y OIS dropped 20bps to 6.34%.
• Banking system liquidity is in surplus of around Rs 1.3 lakh crs.
• 1y T-bill yield stands at 5.85% while 1y CD is yielding 7.55%.
• 10y AAA PSU is yielding around 7.55% and 10y AAA NBFC around 7.70%
• FPIs have invested net USD 2bn in domestic bonds in June so far

Commodities: 

Crude oil led declines this week with WTI and Brent falling 6.2% each amid easing supply concerns, while industrial metals remained resilient as copper gained 1.3%; precious metals were mixed with gold down 2.5% and silver marginally higher.