INR ended the week marginally higher against the USD on account of selling in USD by banks and exporters amid sustained foreign fund inflows. Easing global risk aversion on progress in US-China trade talks and central banks accommodation drove in capital flows to emerging currencies. However, the rising crude oil prices can place some pressure the on INR. INR appreciated by 0.07% against the USD last week and depreciated by 0.70% against the euro.
The rebound in oil prices to year highs on output cuts and supply worries poses a risk to India’s benign inflation expectations as the data released on Friday showed headline inflation quickened to a five-month high of 2.86 % in March from 2.57 % in February. A slowdown in economic growth and subdued inflation still support an easing bias.
The RBI in its latest concluded policy meet has cut its inflation forecast to a range of 2.9% to 3% in the April-September period, compared with a February projection of 3.2% to 3.4%.
USD ended the week lower against major world currencies, snapping its three consecutive weekly gains. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.43% on a week on week basis and is at a level of 96.97. British pound appreciated by 0.28% against the USD last week and Euro appreciated by 0.74% against the USD.
USD came under pressure after the minutes from the Federal Reserve’s March meeting showed that the majority of policymakers expect the central bank to remain on pause for the rest of the year. Meanwhile, Euro and British Pound posted gains after the European Union agreed to push back the U.K.’s departure date as far as Oct. 31.
Further, the slump in the USD helped the euro gain in the wake of the European Central Bank’s unchanged decision on interest rates and downbeat economic remarks from ECB President Mario Draghi. Going forward the euro is likely to remain under pressure as the trade tensions between the European Union and the US are at a boiling point with President Trump threatening USD 11 billion in tariffs over Airbus subsidies. In response, the EU is preparing its own list of retaliatory tariffs worth over USD 22 billion. The World Trade Organization hasn’t officially recommended a penalty for the EU but if they do or the US pushes ahead with the tariffs, it will be very damaging to the region’s economy – and the euro.
Despite USD being under pressure throughout the week, it recovered on Friday after the release of stronger-than-expected wholesale inflation and jobless claims data. U.S. Labour Department reported that its core producer price index for final demand increased 0.3% last month, above the expectation for a 0.2% increase. In the 12 months through March, the core PPI rose 2.4%.
It also reported that initial jobless claims dropped by 8,000 to a seasonally adjusted 196,000 for the week ended April 7, confounding expectations for a rise.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields rose by 4 bps after series of economic data helped diminish concerns about growth slowdown, Initial jobless claims for the week ending on April 6 fell to 196,000, its lowest since 1969. Producer prices surged 0.6% in March, well above the market expectations of a 0.3% increase. China trade data also rebounded in March, Exports (dollar terms) rose 14.2% in March from a year ago, against market expectations of a 7.3% rise from a year ago. Imports (dollar terms) were down 7.6% in March from a year ago, falling short of expectations of a 1.3% percent decline from a year ago.
U.S. Treasury Secretary Steven Mnuchin said China and the U.S. have pretty much agreed to an enforcement mechanism for the trade deal. Mnuchin said both sides will establish enforcement offices that will deal with the ongoing matters. Several Fed officials also spoke last week, Fed Vice Chairman Richard Clarida said the U.S. economy remained healthy, though he did expect it to slow from last year. New York Fed President John Williams said the current level of interest rates and other aspects of the Fed monetary policy were well positioned, while St. Louis Fed President James Bullard said the campaign to normalize interest rates was largely successful and has come to an end.
European Central Bank (ECB) held interest rates steady in its April policy meeting, ECB Chair Mario Draghi said recent economic data, which are gathered by ECB, points toward an economic slowdown in Eurozone and warned that risk to economy remained to the downside. ECB also said it is considering if measures were needed to mitigate the impact on banks of its negative deposit rates as well as the pricing of new cheap two-year loans to banks, but said it was too early to decide.
Germany 10-year benchmark bond yields rose by 5bps and edged marginally above zero percent after Britain and Europe avoided a no-deal Brexit, European Union leaders gave Britain six more months to leave the bloc, Brexit deadline is now extended to 31st October, which gives the U.K six more months to finalize the terms of its departure from the bloc
Eurozone peripheral bond yields largely fell last week after dovish ECB. Greece 10-year benchmark bond yields fell by 25 bps, Italy 10-year benchmark bond yields rose by 7 bps, Portugal 10-year benchmark bond yields fell by 9 bps, Spain 10-year benchmark bond yields fell by 6 bps.
Emerging economies 10-year benchmark bond yields were mixed last week.
South Africa 10-year benchmark bond yields fell by 3 bps, Manufacturing production in South Africa rose 0.6% year-on-year in February 2019, after an upwardly revised 0.9 percent increase in the prior month and slightly above market expectations of a 0.5% gain.
Brazil 10-year benchmark bond yields rose by 2 bps. PMI reading suggests Brazil economic activity is picking up. Brazilian services PMI rose to 52.7 in March from 52.2 in February, the highest since February last year. Services account for around 70% of Brazil economy. The manufacturing PMI showed a slight dip to 52.8 in March from 53.4 in February, but that still indicates growing activity as reading is above 50.
China 10-year benchmark bond yields rose by 7 bps. Russia 10-year benchmark bond yields fell by 14 bps, Indonesia 10-year benchmark bond yields rose by 12 bps,
US benchmark Junk bond yields fell by 11 bps to 6.17%, Euro benchmark Junk bond yields fell by 8 bps to 3.25%.