The INR was highly volatile last week but managed to end the week higher against the USD despite USD exhibiting strength mid part of the week against major world currencies largely on the back off easing tensions between the White House and the Federal Reserve. However, tumbling oil prices continued to provide support to INR. Oil prices fell to their lowest levels in more than a year on Friday and is currently trading at USD 53.21 per barrel. Indian Rupee appreciated by 0.33% against the USD last week and appreciated by 0.13% against the euro.
The volatility in USD was also high last week amid heightened political uncertainty in U.S. after the failure by the U.S. Congress and President Donald Trump to agree on a spending bill by midnight Saturday, which resulted in a partial U.S. government shutdown. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.58% on a week on week basis and is at a level of 96.39.
USD started the week on a lower note while safe haven Yen turned higher as sentiment in financial markets remained fragile on heightened worries over political instability in the United States. U.S. President Donald Trump’s budget director and chief of staff told reporters that the partial U.S. government shutdown could continue into January. Further, reports suggested that President Donald Trump had privately discussed the possibility of firing Federal Reserve Chairman Jerome Powell, as the President became furious at the Fed chief.
However, on Thursday, the chairman of the Council of Economic Advisers Kevin Hassett said Powell job is 100% safe, but a lack of direct reassurance from Trump could rattle market sentiments. Trump has repeatedly blamed Powell for raising interest rates and reportedly discussed the possibility of firing Powell.
Further, on Friday, USD came under pressure after reports suggested that U.S. President Donald Trump is considering banning U.S. companies from using equipment made by China’s Huawei and ZTE. The news came in one day after a report, which suggested that China and the U.S. are set to resume trade talks early January. Washington and Beijing earlier this month agreed to a 90-day ceasefire in their tariff dispute.
Weekly Global Bond Market Analysis
US 10-year benchmark Treasury prices rose, pushing yields lower, as bonds recouped few of their losses after the stock market sharp mid-week rally briefly eased appetite for government paper. Haven assets like U.S. government debt tend to rally when stocks slip, but when equities rebound, bond prices usually recede.
Recently the chairman of the Council of Economic Advisers Kevin Hassett said Powell job is 100% safe, but a lack of direct reassurance from Trump could rattle market sentiment. Trump has repeatedly blamed Powell for raising interest rates and reportedly discussed the possibility of firing Powell.
On the data front, Jobless claims for the week ending 22d December 2018 fell to 216,000. The University of Michigan’s said its consumer confidence index fell to 128.1 in December from 136.4,
Germany 10-year benchmark bond yields fell by 1 bps, stock market volatility has boosted demand for government bonds in recent months sending the yield on German 10-year bund to a six-month low.
Italy 10-year benchmark bond yields fell by 3 bps. Italy bond yields edged lower after the successful auction of two-year debt, with investor demand rising from last month as investors offered to buy 1.78 times the amount of securities on sale, compared with a bid-to-cover ratio of 1.56 at the previous auction.
Portugal 10-year benchmark bond yields rose by 4 bps. The Bank of Portugal trimmed its economic growth forecasts for this year and next due to decelerating export growth and a weakening tourism market. The central bank now sees gross domestic product expanding 2.1% this year, down from its previous forecast of 2.3%. Next year, the bank predicts a GDP increase of 1.8%, down from 1.9% previously.
Greece 10-year benchmark bond yields rose by 3 bps, Spain 10-year benchmark bond yields rose by 2 bps
Emerging economies 10-year benchmark bond yields largely fell last week.
China 10-year benchmark bond yields fell by 8 bps, series of poor economic data suggest China growth will slow further in the fourth quarter from the decade-low gross domestic product (GDP) growth rate of 6.5% in the third quarter. China retail sales growth slowed to a 15-year low, industrial production grew at the slowest rate in 10 years and foreign direct investment fell sharply compared to a year earlier.
South Africa 10-year benchmark bond yields fell by 11 bps after Statistics South Africa announced South Africa economy grew by 2.2% in the third quarter after contracting by a revised 0.4% in the second and has now exited the technical recession.
Australia 10-year benchmark bond yields fell by 3 bps, Brazil 10-year benchmark bond yields fell by 14 bps, Indonesia 10-year benchmark bond yields remain flat.
US high-yield bond yields rose by 67 bps to 7.99% and Eurozone high-yield bond yields rose by 10 bps to 4.70%.