Last Updated on 01/12/2021
NRI Newsletter - Market News

TODAY: Monday 01st December,2021

USD/INR: As on 30th  November ,2021

INR:

After opening stronger against the US dollar, the rupee took a hit on Tuesday as reports quoted Moderna’s Chief Executive Officer as saying that existing vaccines may not be as effective against the latest strain of the coronavirus, dubbed Omicron.

Government bonds extended gains as the news fuelled speculation of global central banks prolonging monetary policy accommodation to shield economies from the fresh risk to growth posed by the new strain of the virus.

 

The partially convertible rupee weakened well past the psychologically significant 75/$1 mark and was last at 75.11 per US dollar. The Indian currency, which had opened at 75.03/$1 as against the previous close of 75.10/$1, touched a day’s low of 75.20 per dollar on Tuesday.

Since the new strain was detected in some African countries and Hong Kong on Friday, the rupee has shed 0.9 per cent against the US dollar, with Monday’s close marking the weakest settlement in six weeks.

 

Globally, fixed income and currency markets have been roiled since the detection of the new strain with investors rushing to the safety of assets such as the Japanese Yen and US Treasuries and accordingly reducing exposure to riskier emerging market currencies such as the rupee.

 

Yields on US 10-year US Treasury bonds, which earlier in the month had climbed past the crucial 1.60 per cent mark after the Fed struck a hawkish tone, have tumbled close to 15 basis points in the last couple of days. The 10-year US government bond yield was last at 1.47 per cent. The bearish outlook on global growth has also led to a flurry of overseas investment outflows from Indian equity markets, accentuating the fall in the rupee.

 

Benchmark equity indices, which started the day on a strong footing, pared gains after the report quoting Moderna’s head was released.

 

With the latest developments on the coronavirus casting a shadow on growth prospects worldwide, investors speculated whether the Reserve Bank of India would opt to delay a formal announcement of policy normalization at its statement on December 8th and instead adopt a wait-and-watch approach.

 

“The earlier view as that a reverse repo hike is definitely on the cards, but now it seems more and more possible that the RBI will maintain status quo,” a dealer with a large foreign bank said on condition of anonymity.

“There is still a lot left to see regarding the spread of Omicron but the biggest factor in support of the RBI doing nothing is the uncertainty element. Because the RBI cannot find itself in a position where it has to cut rates again after hiking. That is why bonds are rallying,” he said.

 

Yield on the 10-year benchmark 6.10 per cent 2031 bond was last at 6.31 per cent, three basis points lower than previous close. Bond prices and yields move inversely.

 

USD/INR  as on 30th  November ,2021

Currency

OPEN

HIGH

LOW

CLOSE

USD/INR

75.0330

75.1940

74.8420

75.09

 

 

Forward premium (%)  as on 30th  November ,2021

Periods

1 Month

3 Month

6 Month

12 Month

Premiums

3.64/3.79

3.75/3.80

4.70/4.72

4.74/4.75

       

 

USD/INR Cash/Tom/Spot Levels: (in Paisa)                                      

(Updated as on 01ST December, 2021 @ 10.00am)

 

Cash/Tom:     0.25/1.25                    Cash/Spot: 0.50 /2.50

Tom/Spot :     0.25/1.25                     Spot/Next: 1.50/3.00

 

Cash Date  :   01st  December,2021 

Tom Date    :   02nd December,2021 

Spot Date    :  03rd  December,2021 

Outlook for the day (30th November,2021)

USD/INR is expected to trade in the range 74.80 to 75.10 more chances towards upside. All major currencies are expected to trade low against the US dollar.

MAJOR WORLD CURRENCIES:

As on 30th  November ,2021

CURRENCY

OPEN

HIGH

LOW

CLOSE

GBP

1.3312

1.3370

1.3193

1.3295

EUR

1.1289

1.1382

1.1234

1.1336

AUD

0.7139

0.7170

0.7061

0.7123

JPY

113.52

113.89

112.52

113.13

CHF

0.9231

0.9266

0.9156

0.9186

XAU

1784.96

1808.36

1768.90

1773.7845

 

MAJOR WORLD CURRENCIES:  As on 30th  November ,2021:

USD:

Currencies and equities sold off sharply today after Federal Reserve Chairman Powell said, “it is time to retire the word transitory regarding inflation.” Investors bid up the U.S. dollar but having sold off before Powell’s announcement, the greenback was unable to turn positive against all of the major currencies. 

 Today’s announcement is significant because investors have been waiting months for the Fed Chair to admit that high price pressures may linger for longer – something other central bankers have given into. Powell does not see inflation subsiding until the second half of 2022 which is why they will talk about speeding up taper at their next meeting on December 14 to 15th. They may even need to consider ending taper a few months sooner than anticipated. What makes today’s announcement so important is the timing. The COVID-19 Omicron variant is a serious risk that many scientists are still struggling to understand. As Powell put it, we won’t know more about Omicron for another week to 10 days. The Fed could have easily waited another week before making this significant shift in forward guidance but their decision not to wait is a reflection of how worried they are about price pressures accelerating and how desperately they felt the need to prepare the market for policy change (pace of taper) next month.

 Although Powell was quick to add that these assumptions do not include the risk of Omicron variant, which they’ll know more about in a few weeks, it is clear from his comments today that as long as it does not cause new lockdowns in the U.S., they will normalize monetary policy quicker. Investors can expect upgrades to next month’s inflation forecasts along with more “dots” moving in favor of rate hikes next year. 

 

While the prospect of fewer stimuli is generally positive for the U.S. dollar, the combination of weaker economic data and ongoing Omicron concerns will limit its gains. Instead, the Japanese Yen and Swiss Franc should be the biggest beneficiaries of Powell’s comments. Consumer confidence and the Chicago PMI index dropped more than expected in the month of November and with Omicron, we have every reason to believe that sentiment will sour further.

 Traditionally the U.S. dollar catches a safe haven bid from bad news but instead of rising, the greenback weakened after Moderna’s CEO said it is very likely that current COVID-19 vaccines will be less effective against Omicron COVID variant.  The explanation for this counterintuitive move is simple – it is only a matter of time before cases of the Omicron variant are found in the U.S. at which point everyone will begin speculating about the local and national response. Even if new restrictions and lockdowns do not return, consumers could retreat before the holidays, leading to less shopping, cancel trips and reduce other end of year expenditures. The risk to the U.S. economy could be significant which explains why some investors are selling first.

 Euro was the best performing currency behind the Japanese Yen and Swiss Franc which is surprising as European nations are the most likely to come down hard with restrictions.  There’s already a full lockdown in Austria and Slovakia with partial lockdown in the Netherlands. Belgium and Portugal announced new restrictions while France requires masks for all indoor activities. Pressure is growing for tighter restrictions in Germany. Yet, stronger Eurozone inflation and German labor market numbers kept euro supported and prevented it ending the day lower against the greenback.

 Between falling oil prices and a rising U.S. dollar, the Canadian dollar was hit the hardest. Over the past month, the price of crude has fallen from a high of nearly $85 a barrel to a low $64.45, the first time WTI crude trades below $65 in 3 months. Omicron has already made its way into Canada with 5 reported cases.  While Canadian labor market numbers are expected to improve, the plunge in oil prices combined with the demand for U.S. dollars should keep loonie under pressure.

 On the calendar for Wednesday will be Australian’s third quarter GDP report, revisions to Eurozone and U.K. PMIs, ADP, ISM Manufacturing index and the Federal Reserve’s Beige Book report.  While important, these numbers may have limited impact on in light of Powell’s comments, which along with Omicron headlines will continue to drive risk appetite and FX flows.

 

 

 

 

GBP:

GBP/USD has failed to close in positive territory on Monday.

Dollar valuation is likely to continue to drive GBP/USD's action.

FOMC Chairman Jerome Powell will testify before the US Senate Banking Committee.

GBP/USD has lost its traction in the late American session and ended up closing in negative territory on Monday but managed to gather recovery momentum early Tuesday. The dollar's market valuation continues to impact GBP/USD's movements and the pair could find it difficult to extend its rebound unless the greenback stays under selling pressure.

Falling US Treasury bond yields are weighing on the dollar as investors adopt a cautious stance while trying to figure out how the new coronavirus variant will affect global economic activity. At the time of press, the US Dollar Index was down 0.37% on the day at 95.83 and the benchmark 10-year US Treasury bond yield was nearly 3% lower at 1.441%.In an interview with the Financial Times, Moderna’s Chief Stéphane Bancel said that they see current vaccines being less effective against Omicron than previous variants. Vaccine producers reportedly need around 100 days to adjust their vaccines.

Later in the day, FOMC Chairman Jerome Powell will testify before the US Senate Committee on Banking, Housing, and Urban Affairs on coronavirus and CARES Act. According to Powell's prepared statement, the Fed thinks that the new variant creates uncertainty surrounding the inflation outlook.

In case Powell notes that they will prioritize controlling inflation despite the potential negative impact of Omicron on the economic outlook, the dollar could regain its strength and limit GBP/USD's upside. On the other hand, the greenback is likely to continue to suffer losses if Powell signals that they will remain patient regarding the policy tightening while waiting to make sure that the new variant will not derail the economic recovery. The pair is currently trading near the static resistance that seems to have formed at 1.3360. In case this level turns into support, additional gains toward 1.3380 (50-period SMA on the four-hour chart), 1.3400 (psychological level) and 1.3420 (100-period SMA) could be witnessed.

On the downside, 1.3320 (20-period SMA) aligns as initial support before 1.3300 (psychological level) and 1.3280 (2021-low).

 

 

Foreign Currencies

Updated: 17:30 hrs (12:00 GMT)   on 30th  November ,2021

USD/INR: 75.1650 [FXIR]

Against

USD

INR

1 EUR    =

1.1336

85.20

1 GBP   =

1.3295

99.93

100 JPY =

113.13

66.44

1 AUD   =

0.7123

53.54

1 CHF    =

0.9186

81.83

 

Precious Metals

Updated: 17:30 hrs (12:00 GMT)  as on 30th  November ,2021

Gold ($/oz)

1795.6740

Silver ($/oz)

22.8689

 

Stock Indices

( As on 29th  November ,2021)

 

Index Close

29th November

30th November

BSE Sensex

57260.58

57064.87

NSE Nifty

17053.95

16983.20

Dow Jones

35135.94

34483.72

NASDAQ

15782.83

15537.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

              Major Economic Data Releases for the Day

Date

Region

Time(IST)

Description

01.12.2021

USD

6.45 PM

ADP NON FARM EMPLOYMENT CHANGE

01.12.2021

GBP

7.30 PM

BOE GOV BAILEY SPEAKS

01.12.2021

USD

8.30 PM

FED CHAIR POWELL SPEAKS

01.12.2021

USD

8.30 PM

ISM MANUFACTURING INDEX PMI

01.12.2021

USD

8.30 PM

TREASURY SEC YELLEN SPEAKS

01.12.2021

USD

9 PM

CRUDE OIL INVENTORIES

 

 

 

 

 

 

 

 

EUR :

The EUR/USD plummeted during the New York session, on Federal Reserve Chairman Jerome Powell, remarks against the Senate Committee on Banking and Housing.

Market reaction on Fed’s Chair Jerome Powell remarks

At the beginning of the Q&A session, the EUR/USD pair was trading around the 1.1370s but plummeted to 1,1240s on remarks of Jerome Powell.

Jerome Powell said that higher prices are related to supply-demand issues, reiterating that price increases have spread more broadly. He further noted that the risk of higher inflation has increased and commented that it is time to retire the word Transitory when talking about elevated prices.

Regarding a faster QE’s reduction, he said that it is “Appropriate to consider wrapping up taper in a few months sooner.” Further noted that he “will talk about speeding up taper at the coming Fed meeting.” He added that recent data showed elevated inflationary pressures, rapid labor market improvement, and strong spending. When he was asked about the COVID-19 omicron variant, he said that he “will know within a week or 10 days, can only assess the impact on the economy then.”

EUR/USD Price Forecast: Technical outlook

The 1-hour chart leaves us with a 130 pip sizeable bearish candle on the remarks of retiring the “T” word for inflation. The price plunged through the R3, R2, R1, central daily pivot, S1, and found support around the S2 area at 1.1233, where it bounced towards 1.1270. At press time, EUR/USD bulls are having a tough time, trying to break above the 200-hour simple moving average (SMA) at 1.1270. Meanwhile, EUR/USD bears, on the other side, are battling the 100-hour SMA at 1.1261, at the confluence of the S1 daily pivot. On the way up, the first resistance would be the central daily pivot point at 1.1286, followed by the 50-hour SMA at 1.1300, and November 29 high at 1.1311. On the flip side, the S1 daily pivot at 1.1261 would be the first support, followed by the S1 daily pivot at 1.1233 and then the S3 pivot at 1.1208.

Gold:

Gold beat a hasty retreat on Tuesday as investors latched on to seemingly hawkish remarks from the U.S. Federal Reserve chair, erasing gains from an over 1% rally fuelled by concerns over the Omicron coronavirus variant. Spot gold fell 0.7% to $1,773.21 per ounce by 02:14 p.m. ET (1914 GMT). U.S. gold futures settled down 0.5% at $1,776.5.

Prices earlier rose as much as 1.3% earlier in the session after a warning from Moderna’s CEO that COVID-19 vaccines were likely to be less effective against the new variant.

In a testimony before the U.S. Senate Banking Committee, Fed Chair Jerome Powell said the Fed likely will discuss speeding up its taper of large-scale bond purchases at its next meeting.

Powell’s comments drove a slight rebound in the dollar, which has steadied since then.

“Everyone got a little surprise as Powell moved closer toward the hawkish side,” said Edward Moya, senior market analyst at brokerage OANDA, adding the Fed would likely implement rate hikes at a more rapid pace.

Gold is used to hedge against inflation, but interest rate hikes raise the opportunity cost of holding gold.

But longer term, gold will be supported by worries over the virus variant, Moya added.

Gold’s fall came alongside a tumble in Wall Street after Powell’s comments hinting at a faster shift to tightening policy hurt risk sentiment already weighed down by concerns over Omicron.

Elsewhere, spot silver fell 0.1% to $22.86 per ounce, platinum dropped 2.6% to $938.50 and palladium slumped 3.5% to $1,732.50.

Looking ahead to 2022, increased investment in solar panels should boost silver, BofA Global Research said in a note.

“Platinum is the rebound trade on a normalization of chip shortages in the auto industry; substitution from palladium should also help.”

 

 

The views contained herein are those of individuals and not necessarily those of the Bank.  This is for information purpose only and no recommendations are intended.  While due care has been taken in preparation of this communication, IOB cannot be held responsible for any consequences of any decisions based on this information. Comments/Suggestions may be freely emailed to feddeal@iobnet.co.in