Currency Market Snapshot For The Week
· INR depreciated by 0.71% against the USD last week and depreciated by 2.74% against the euro.
· USD fell by 1.14% on a week on week basis and is at a level of 98.13.
· British pound depreciated by 1.09% against the USD
· Euro appreciated by 1.65% against the USD.
Global Bond Market Snapshot For The Week
· US 10-year benchmark bond yields fell by 31 bps last week.
· German 10-year bond yields fell by 17 bps, French 10-year bond yields fell by 8 bps to negative 0.29%.
· Italy’s 10-year benchmark yield rose by 18 bps to 1.09%.
· US benchmark Junk bond yields rose by 77 bps to 5.79%
Investor sentiment globally was marred by fading hopes of the virus being contained anytime soon, leading to fears of a global recession. The Japanese yen hit a seven-week high against the USD on Friday and has posted its largest daily gain since May 2017 along with the 10 year U.S. treasury bond yield falling to record a low level of 1.12% as market participants dumped riskier assets and searched for safer options amid the coronavirus outbreak.
German yield also followed the same path as it hovered around -0.6%. In Europe, peripheral bond yields surged further as risk aversion dominated the market. Additionally, the high yield bond spread widened sharply hitting October 2018 levels.
Despite weaker USD, INR along with other EM currencies depreciated sharply last week on the back of the coronavirus spillover effect. INR depreciated by 0.71% against the USD last week and depreciated by 2.74% against the euro. On the other hand, the CNY slightly appreciated as China started to show some signs of recovery.
India’s economy slowed to a more than six-year low in the Q3 of FY20, and it now faces a fresh threat from the coronavirus outbreak. Data on Friday showed GDP growth decelerated to 4.7% in Q3FY20 which was before the virus began spreading early this year.
INR is expected to remain lower against the USD as hopes of containment of the coronavirus anytime soon fades. However, expectations of a rate cut by the US Federal Reserves may weigh on the USD, which may provide some support to the INR. INR may also take cues from the Chinese yuan in the coming weeks.
The euro rebounded last week against USD as Germany considered stimulus to boost economic growth and amid solid eurozone economic data, whereas the British pound was under pressure after UK Prime Minister Boris Johnson warned Britain is ready to ‘walk away’ if the EU does not accept a free trade agreement similar to Canada’s by June.
USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 1.14% on a week on week basis and is at a level of 98.13.
Dallas Fed President Robert Kaplan said that he would be ready to make a decision at the March meeting, while St. Louis Fed President James Bullard said investors could be overestimating the economic damage from the coronavirus.
Fed Chairman Jerome Powell issued a statement on Friday that the economy’s foundations are strong, but that the central bank was ready to “act as appropriate” to support the economy. Market participants believe that the statement signals potential Fed action in the coming months.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields fell sharply by 31 bps to 1.16% last week as concerns about the global economic impact of the coronavirus dented investor sentiment this week. The outbreak sent investors fleeing equities in favor of treasuries, which have traditionally been a safer alternative to stocks.
Eurozone bond yields were mixed last week. German 10-year bond yields fell by 17 bps last week, France 10-year bond yields fell by 8 and is at negative 0.29%. Italy’s 10-year benchmark yields rose by 18 bps.
US benchmark Junk bond yield rose by 77 bps and is at 5.79%, Euro benchmark Junk bond yields fell by 62 bps to 3.06%.