INDIA: Country Wrap: GST Cut Announced

Oil prices are only slightly lower today after falling over 5% since last Wednesday. WTI is 0.15% lower at $66.19/bbl off its intraday low of $66.02. Brent is down 0.1% to $67.37/bbl after falling to $67.22, trading below the 50-day EMA at $67.95. The USD index is little changed.

• Oil is finding support from the August 8 deadline for Russia and Ukraine to agree on a truce otherwise the US will increase tariffs on not only Russia but also those who purchase its oil. He has been targeting India and PM Modi has responded that India is not going to stop buying Russian fossil fuels. If measures are imposed and are effective in reducing Russian exports, then global supply could be materially impacted as other sources are sought but currently markets see that scenario as unlikely.
• Before Russia’s invasion of Ukraine, India didn’t import oil from there but now around a third comes from Russia driven by its lower prices, according to Bloomberg. China is also a major importer of Russian crude but has not yet been named specifically.
• Assuming uninterrupted Russian oil shipments, global excess supply is widely expected with OPEC ramping up production. Supply indicators will therefore be monitored closely. Later on Tuesday industry-based US inventory data is released.
• Later June US trade, final July S&P Global services/composite PMIs and services ISM print. In Europe, there are July services/composite PMIs and June euro area PPI. 

JGB futures are holding stronger, +26 compared to settlement levels, despite today’s poor 10-year auction.

• (MNI) A few Bank of Japan board members said they would consider resuming interest rate hikes if trade tensions were expected to ease without further escalation, according to minutes of the June 16-17 meeting released on Tuesday. However, the minutes offered no indication on the timing or pace of future rate increases.
• Bloomberg - "MUFG CEO Hironori Kamezawa called on the BOJ to raise its policy rate as early as the next meeting to combat strong inflation."
• Cash US tsys are flat to 2bps cheaper, with a flattening bias, in today's Asia-Pac session after yesterday's modest extension of Friday's rally.
• Cash JGBs are 1-4bps richer across benchmarks, led by the 10-year. The benchmark 10-year yield is 4.1bps lower at 1.475% after today's supply.
• The 10-year JGB auction delivered weak results, with the low price failing to meet expectations at 100.21, according to the Bloomberg dealer poll. Moreover, the cover ratio decreased to 3.0592x from 3.5070x, and the tail lengthened to 0.14 from 0.03.
• Swap rates are flat to slightly lower. Swap spreads are mostly wider.
• Tomorrow, the local calendar will see Cash Earnings data.

The BBDXY has had a range of 1208.49 - 1211.50 in the Asia-Pac session, it is currently trading around 1211, +0.04%. The USD, with a huge rejection of the 1220/1230 area on Friday, had a knee-jerk reaction lower to the outsized move in US rates as the market's view on growth and interest rate cuts is re-evaluated. The USD is consolidating just above its 1205 support, with very little reaction to either rates extending lower or Equities bouncing strongly. 

• EUR/USD -  Asian range 1.1554 - 1.1588, Asia is currently trading 1.1560. The pair has bounced nicely off the important 1.1300/1.1400 area. The market is consolidating just ahead of its first resistance towards 1.1650/1.1700.
• GBP/USD - Asian range 1.3278 - 1.3303, Asia is currently dealing around 1.3280. This pair bounced nicely off the 1.3100/1.3200 support area. I would suspect sellers would be around on a bounce back towards 1.3400 initially.
• USD/CNH - Asian range 7.1774 - 7.1843, the USD/CNY fix printed 7.1366, Asia is currently dealing around 7.1830. Sellers should be around on bounces while price holds below the 7.2200/2500 area and the PBOC manages the fix lower. Above 7.2500 and we could see a test of the USD Shorts.
• Cross asset : SPX +0.15%, Gold $3372, US 10-Year 4.20%, BBDXY 1211, Crude Oil $66.16
• Data/Events : France Industrial/Manufacturing Production/HCOB PMI’s, Spain Homes Sales/Industrial Production/HCOM PMI’s, Italy HCOM PMI’s, Germany HCOB PMI’s, EZ HCOM PMI’s/PPI

Fig 1: GBP/USD Spot 120min Chart

Source: MNI - Market News/Bloomberg Finance L.P