The Indian rupee saw strong gains last week on hectic FII buying of Indian assets. The currency is aided by dovish Fed and ECB, low domestic and global inflation and speculation on the current government being reelected in the May 2019 polls. INR should see some profit taking prior to the RBI USD/INR swap auction on the 26th of March.
The Indian rupee strengthen sharply against the USD last week, as foreign investors continued to buy Indian equities and debt ahead of general elections. INR appreciated by 1.53% against the USD last week and appreciated by 0.60% against the euro.
Indian rupee continued to gain on Friday despite the RBI announcement to inject USD 5 billion into the system. RBI will inject long-term liquidity worth USD 5 billion into the system through dollar-rupee swap arrangement with banks for three years.
So far this year, Indian rupee has gained 0.97%. Since the start of the March, foreign investors have bought Indian equities worth USD 2557.14 million and debt worth USD 362.86 million respectively. For the year 2019, foreign institutional investors have bought Indian equities worth around USD 4369.54 million and sold around USD 662.31 million in debt market.
USD ended the week lower against major world currencies as tame U.S. inflation data affirmed expectations that the Federal Reserve will continue to hold off raising interest rates. Further, the gain in British Pound also kept USD under pressure after U.K. lawmakers voted to reject leaving the EU without a withdrawal agreement. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.74% on a week on week basis and is at a level of 96.58. British pound appreciated by 1.99% against the USD last week and Euro appreciated by 0.85% against the USD.
Producer prices in the U.S. rose marginally in February, showing a similar increase to the consumer price index and adding to signs that inflationary pressures were muted. U.S. Labour Department reported that its core consumer price index slowed to 0.1% last month after edging up 0.2% in January. For the year through February, the core consumer price index rose 2.1%, missing expectations for a 2.2% increase.
Durable goods orders did show the strongest growth in six months in January but were insufficient to change the outlook that the U.S. economy has been losing momentum in the first part of the year. U.S. durable goods order rose by 0.4% in January against the expectation of 0.5% drop and compared to 1.3% growth seen in December 2018.
British Pound rallied against the USD last week even after U.K. Prime Minister Theresa May’s Brexit deal suffered another defeat in Parliament on Tuesday. The gain in pound was boosted on Wednesday after U.K. lawmakers voted 312 to 308 for an amendment that ruled out the U.K. leaving the EU without a withdrawal agreement under any circumstances.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields were flat at 2.63%. U.S. Treasury Secretary Steven Mnuchin said that a summit between the US & China leaders would not take place in March, as more negotiations and work needs to take place. Markets will be keeping a close eye on the Federal Reserve monetary policy meeting, which is scheduled to take place this Tuesday and Wednesday. On the economic data front, Consumer prices in the United States increased 1.5% year-on-year in February of 2019, following a 1.6% rise in January and below market expectations of 1.6%. It is the lowest inflation rate since September of 2016, mainly due to a fall in cost of gasoline and clothing while prices of electricity stalled.
British parliament’s rejection of a no-deal Brexit boosted risk sentiments, as UK departure from EU is delayed for at least three months, The agreement was rejected by 149 votes after 242 MPs voted for the deal and 391 MPs voted against it. However, UK Prime Minister Theresa May has already indicated that she will bring her much-maligned Brexit deal back in front of Parliament next week for another vote. No date has yet been scheduled for the voting.
Germany 10-year benchmark bond yields rose by 10 bps, as safe-haven demand reduced after a delayed Brexit.
Greece 10-year benchmark bond yields rose by 4 bps, Portugal 10-year benchmark bond yields fell by 23 bps, Italy 10-year benchmark bond yields fell by 1 bps, Spain 10-year benchmark bond yields rose by 13 bps.
Japan 10-year benchmark bond yields fell by 1 bps, BoJ in its recent policy meeting kept interest rates unchanged. BOJ maintained a pledge to guide short-term interest rates at minus 0.1% and 10-year government bond yields around 0%. BoJ also said overseas risk can derail a fragile economic recovery, factories across the globe are under-pressure as demand was hit by the U.S.-China trade war, slowing global growth and political uncertainty in Europe.
Emerging economies 10-year benchmark bond yields were mixed last week.
China 10-year benchmark bond yields were flat on poor industrial data, which suggests that the Chinese economy is struggling. Value-added industrial output in China rose 5.3% in the January-to-February period compared to 5.7% increase a year ago. Market prediction was of 5.5% increase. Industrial output reading was the slowest pace of growth in 17 years.
South Africa 10-year benchmark bond yields rose by 5 bps after poor manufacturing and mining data. South Africa showed mining output contracted for the sixth time in eight months in December, South Africa mineral production was down 3.3% in January 2019, compared to the same period last year, while Manufacturing output, came close to a standstill, expanding 0.3% on a yearly basis
Australia 10-year benchmark bond yields fell by 4 bps. Brazil 10-year benchmark bond yields fell by 16 bps, Indonesia 10-year benchmark bond yields fell by 15 bps.
US benchmark Junk bond yields fell by 13 bps to 6.48%, Euro benchmark Junk bond yields fell by 6 bps to 3.62%.