People’s Bank of China maintains key rate at 3.7%
Ukraine has rejected Russia’s ultimatum to hand over the city of Mariupol to Russian forces. Although Ukraine is open to negotiations, there does not appear to be an immediate diplomatic solution that would end the conflict which has been going on for almost a month now. The People’s Bank of China left borrowing costs unchanged, keeping the prime lending rate at 3.7%. However, further easing from the People’s Bank of China is expected, including a reduction in the MLF and the reserve requirement ratio.
Price action on assets
While the yen continues to weaken against the US dollar and is trading at its lowest level in 6 years, currencies linked to raw materials are stronger. Aluminum prices rose after Australia banned the export of ore to Russia.
The euro and the pound sterling are stable against the US dollar. US yields are flat with light trading in the Asian session given the Japanese holiday.
The yield on the 10-year fluctuates around 2.15%. U.S. stocks ended higher on Friday, the S&P500 having finished up 1.2%. Asian stock indices are trading flat.
Impact on financial markets in India
The Nifty finished up 1.8% on Thursday at 17287. We expect the Nifty to trade in a range of 16800-17600 over the next few sessions.
Bonds and Rates
The yield on the benchmark 10-year ended almost flat on Thursday at 6.78%. We could see a sell-off in domestic bonds and OIS today due to rising crude oil prices. The 3-year and 5-year OIS had fallen about 10 basis points last week to end at 5.39% and 5.86% respectively.
The rupiah strengthened on Thursday, following the US dollar’s overall weakness in forex after the Fed’s monetary policy decision. The pair ended last week at 75.80. However, the rupiah weakened in offshore trading on Friday to 76.15 following higher crude prices.
Domestic markets were closed on Friday for a public holiday. ATMF 3-month implied volatility fell to 5.95%. Futures remain under pressure with a 1-year yield at 3.88%.
It is suggested that exporters only hedge confirmed positions. For any additional hedge based on expectations, we suggest holding the stop loss at 75.80 until the panic subsides. Importers hedge through options or declines. The 3M range for the USD/INR pair is 74.00-77.00 and the 6M range is 73.80-77.30.
Par Abhishek Goenka, CFA, MBA, IFA Global
Abhishek Goenka is a highly regarded and sought-after speaker at global conferences and actively contributes to discussions and reports for many regulators. He embarked on his entrepreneurial journey at the age of 24 and holds an MBA in finance, a CFA and has undertaken various certified executive programs from Harvard University. He is witty and passionate about management and human psychology.
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