INR strengthen last week against the USD amid broad weakness in USD and easing crude oil prices. Crude oil prices fell sharply after data released on Thursday showed that US crude stockpiles rose 9.9 million barrels in the week ended Apr 26 to 470.6 million barrels, highest since September 2017. INR appreciated by 1.15% against the USD last week and appreciated by 1.04% against the euro.
USD ended the week lower against major world currencies amid release of mixed U.S. economic data, softer wage growth, sharp rise in British Pound and Fed vowing to continue with its patient approach on monetary policy. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.50% on a week on week basis and is at a level of 97.52. British pound appreciated by 1.99% against the USD last week and Euro appreciated by 0.42% against the USD.
USD started the week on a lower note on Monday, as the pace of U.S. inflation undershot market expectation ahead of Federal Reserve FOMC meet. The personal consumption expenditures (PCE) price index excluding food and energy, slowed to 1.8% in the 12 months through March, against the expectation for a 1.7% rise.
However, USD turned higher on Wednesday, as the Federal Reserve left interest rates unchanged and vowed to continue with its patient approach to monetary policy, raising expectation that the central bank is unlikely to give into calls to cut rates.
The unchanged decision on rates came after the data showed manufacturing growth undershot the expectations. ISM manufacturing data for April showed a downtick to 52.8, missing expectations of 55.0.
Further, on Thursday Fed Chair Jerome Powell said at his regular press conference that Fed officials “don’t see a strong case for moving in either direction,” indicating that it believes the weakness of inflation and private demand in the first quarter will be temporary. The comments, which pushed back against public lobbying for lower rates from President Donald Trump, triggered a sell-off in U.S. Treasuries and helped USD to pare its early week decline.
U.S. monthly job data released on Friday showed that the Nonfarm payrolls rose by 263,000 compared to expectations for a 181,000 gain. The unemployment rate fell to 3.6%, but average hourly earnings, an important number to gauge inflation, rose 0.2% below expectations for a 0.3% rise. The mixed jobs report does little to divert the Fed’s current course of no action.
British Pound appreciated sharply last week as the main opposition party signalled it was ready to make a Brexit deal with the government after local election results showed voters were turning their backs on the country’s main parties amid frustrations over Brexit deadlock. Labour leader Jeremy Corbyn and Prime Minister Theresa May have been in talks for several weeks, but recent media reports had suggested both parties were still far from reaching a consensus.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields rose by 2 bps after the Fed policy outcome Economic data also pushed yields higher, In April, US economy added 263,000 jobs against market expectation of 190,000 jobs, the unemployment rate fell to 3.6%, the lowest since December 1969. US GDP grew at 3.2% in Q1 2019, substantially above the projected 2.1%, buoyed by stronger state and local government spending, lower imports and business inventories.
Eurozone economy picked up in Q1 2019 and GDP growth accelerated to 0.4%, from 0.2% growth in Q4 2018 and 0.1% growth in Q3 2018. Markets were expecting a growth of 0.3% in Q1 2019. Eurozone unemployment rate dropped to its lowest level since September 2008, the jobless rate fell to 7.7% in March. The number of unemployed in Eurozone is at 12.63 million in March 2019, down by 174,000 from the previous month and by 1.172 million from a year ago.
Germany 10-year benchmark bond yields rose by 4 bps, moving back to positive territory after euro zone economic growth came in above market expectation and inflation in Germany picked up. Inflation in Germany rose 2.1% in April, exceeding the ECB inflation target of 2% for the first time since November.
Eurozone peripheral bond yields rallied after improved GDP data eased fears of a growth slowdown.
Italy 10-year benchmark bond yields fell by 3 bps, as Italy economy came out of technical recession, Italy GDP rose by 0.2% in Q1 2019 (quarterly basis) and by 0.1% (yearly basis), Italy GDP had fallen by 0.1% in Q3 & Q4 2018.
Portugal 10-year benchmark bond yields fell by 1 bps, Spain 10-year benchmark bond yields fell by 5 bps.
Emerging economies 10-year benchmark bond yields were mixed last week.
Indonesia 10-year benchmark bond yields rose by 10 bps after CPI reading in April rose beyond market expectation, Indonesia CPI rose 2.83% in April against the market forecast of 2.69%. This is the highest reading so far this year. The April annual core inflation rate, which excludes government-controlled and volatile food prices, was at 3.05% in April.
Brazil 10-year benchmark bond yields fell by 3 bps, Brazil PMI activity suggests its manufacturing activity rose at the weakest pace in six months, PMI index fell to 51.5 in April from 52.8 in March. Reading above 50 indicate expansion.
South Africa 10-year benchmark bond yields fell by 1 bps, China 10-year benchmark bond yields was flat. Russia 10-year benchmark bond yields fell by 13 bps, Australia 10-year benchmark bond yields rose by 1 bps
US benchmark Junk bond yields rose by 2 bps to 6.15%, Euro benchmark Junk bond yields rose by 7 bps to 3.31%.