Global developments

The risk sentiment has improved a bit globally on a few positive developments. Natural gas prices plummeted 10% after Russian President Putin’s reassuring comments that Russia would increase natural gas supply to Europe. Crude prices too retreated from 7-year highs as EIA data indicated a much bigger than expected inventory build-up in the US. US equities were buoyed by comments from Mitch McConnell that Republicans would support extending the debt ceiling until December. This has pushed back chances of a US default in the near term and would give more leeway to Democrats to find a solution. US September ADP private payroll data too came in better than expected at 568k against the expected 430k. Euro broke through 1.1580 yesterday but did not recover as much when Dollar retreated against other currencies. The pound has been trading a 1.3530-1.3640 range.

Domestic developments

Equities

Nifty dropped 1% to end at 17646 yesterday on weak global risk sentiment. However, Asian equities are trading higher today as risk sentiment has improved. Dow futures too are trading 0.5% higher

Bonds and Rates

OIS got paid yesterday with 3y and 5y OIS ending 7bps higher at 4.90% and 5.43% respectively. Bonds too ignored the MSCI outlook revision to stable from negative with the yield on 10y rising 2bps to 6.28%. Stable US yields and lower crude prices should bring some respite today heading into MPC tomorrow. 3m and 1y T-bill cutoffs came in 6-7bps higher than the last auction at 3.47% and 3.88% respectively.

USD/INR

The rupee ended at its weakest level since April at 74.99 yesterday. Weakness in domestic equities amid poor global risk sentiment weighed on the Rupee. Stops got triggered once USD/INR broke above 74.65. The rupee is likely to open stronger around 74.80 on positive overnight developments. We expect a 74.65-75.05 range for USD/INR intraday with sideways price action. 3m ATMF vols climbed 13bps to end at 4.85%

Strategy: Exporters are advised to cover at the current level. Importers are advised to cover on dips towards 74.10 The 3M range for USDINR is 72.80 – 75.50 and the 6M range is 72.50 – 76.50.

fxsoriginal

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