INDIA: RBI Loosen Grip on Rupee as Trade Uncertainty, Flows Continue to Weigh
Persistent intervention from the RBI is a key feature of Indian currency markets, and the 88.70-88.80 region for USDINR emerged as a key ‘line in the sand’ for RBI action since September. The surge higher in spot above this level today suggests that the central bank is loosening its grip on the currency as investor unease over the lack of a US-India trade agreement, persistent outflows from local assets, and the broad-based recovery for the USD Index off the September lows all weigh on sentiment. Reuters report that the RBI was seen stepping in today at higher levels, at around 89.50.
- While both US and Indian officials have expressed optimism that a trade deal is close, an agreement to lower the 50% levies imposed by Washington is yet to be formalised. Alongside the slip in the currency, India’s major equity benchmarks have declined around 0.5% today after trading at/close to new record highs on Thursday.
- Today's release of the Preliminary November PMI numbers likely provided an additional rupee headwind. India's manufacturing PMI fell to its lowest since February. At 57.4 it was materially down from a prior 59.2, with output down to 60.7 from 63.7 and new orders also down from October. But whilst these numbers are weaker, the PMIs have generally held firm through the middle of the year, with many forecasters having been expecting a fall earlier in the year.
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UK FISCAL: Reeves looking to tax limited liability partners: Implications
- Stories out just after the close yesterday suggested that Chancellor Rachel Reeves was looking to impose a charge on limited liability partners in the Budget as she sees these as ways to easily avoid tax.
- Limited liability partnerships are used in particular by legal firms, GPs and accountancies. Because they are taxed as partnerships (similar to the self employed) they do not need to pay employers National Insurance Contributions (NICs) on the partners' earnings. As a reminder employers NICs were increased to 15% in April.
- The proposed plans could raise up to GBP2bln and would likely be popular with Labour's core voter base (taxing the wealthy).
- However, there could be adverse side effects. If this leads to GPs closing down or more senior GPs cutting back hours or retiring then access to front-line healthcare could be more restriced. This could lead to more pressure on A&E departments and one of UK's issue's is trying to reduce the proportion of those inactive in the labour market due to long-term sickness. This may be exacerbated if it makes it harder for people to get doctors appointments.
SNB: Schlegel Speaking On Economic Situation, SNB Monetary Policy
Little monetary policy signal in Schlegel's speech on the "Economic situation and monetary policy of the SNB" ahead of tomorrow's minutes.
- Paragraph potentially of note regarding tariff impact: "The announced but currently suspended US tariffs on certain pharmaceutical products could increase the downside risks somewhat."
- Full slides here (in German).
GERMAN AUCTION RESULTS: Weak 7-year Bund Auction
Weak demand again on that 2.50% Nov-32 Bund auction despite it being the only re-opening of the line in Q4.
- Bid-to-offer at 0.93x, below last month’s 1.13x.
- Lowest accepted price of 101.05 below the 101.062 pre-auction mid.
- The secondary price has fallen 3 points since the auction results were published, now at 101.034.
- Very little spillover to Bund futures however (5 ticks of downside)
