INR: Rupee Recovers Ahead of Much-Anticipated RBI Dividend Announcement
May-23 08:05
USDINR has fallen 0.8%, more than reversing yesterday’s advance, ahead of a much-anticipated announcement from the RBI of dividend transfer to the government. Last year, the central bank surprised markets by transferring a record surplus of INR 2.1trln for FY24, more than double that was transferred in FY23. This year, the dividend is likely to be even higher at around INR 2.5-3.5trln (which is 5-7% of India’s FY26 budget size), local economists have suggested, providing a potential fiscal boost to the government ahead of key expenditure plans.
- Broader greenback weakness will be assisting the move lower for USDINR today, while the recovery for local equities (with the major benchmarks over 1% higher today) also reflecting improved sentiment towards Indian assets.
- Gains yesterday were attributed to strong USD demand from local oil importers, while foreign portfolio outflows likely contributed to rupee weakness as well – provisional data showed international investors sold about $586m of Indian shared on Thursday, the third such session of selling in four days.
- Commerce Minister Piyush Goyal pointed to further signs of progress regarding a US-India trade deal. He said that he had a “constructive meeting” with his counterpart Howard Lutnick for a mutually beneficial trade agreement between the two countries.
- Meanwhile, RBI Governor Sanjay Malhotra said in an interview with the Times of India that “I am hopeful that the impact of trade tariffs on our growth will be moderate.”
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MNI: EUROZONE FLASH APRIL MANUF PMI 48.7 (FCAST 47.4, MAR 48.6)
Apr-23 08:00
- MNI: EUROZONE FLASH APRIL MANUF PMI 48.7 (FCAST 47.4, MAR 48.6)
- EUROZONE FLASH APRIL SERVICES PMI 49.7 (FCAST 50.5, MAR 51.0)
GBP: Potential Hammer Formation Headed into Trade Talks
Apr-23 07:57
- Tariff and Fed-independence induced volatility has prompted the potential formation of a hammer in the GBP/USD daily chart which, if confirmed, could see the pair establish a base and resume the short-term uptrend. Strength through 1.3400-24 would be key here - opening the 1.3434 bull trigger (the Sep'24 high).
- The prospects of a UK-US trade deal remain front page news. Today's Times runs that the government is "hopeful" that a deal will allow the UK to avoid the worst of the tariffs - specifically the 25% tariff on steel, aluminium and car imports - however the 10% blanket tariff could be here to stay. Chancellor Reeves is set to meet the US Treasury Secretary on Friday. The Times concludes that ministers hope that they will be able to get a deal over the line by the end of the month.
- JP Morgan write that GBP strength on any US-UK trade deal would present good entry levels to fade over the medium term - with any deal unlikely to undo the key impacts of the last months events on the currency. The UK could also get caught between opposing demands from the US and EU on trade. As a result, they use favourable levels to enter a short GBP position vs NOK, SEK cash basket. They see Sterling’s stagflationary reaction function as remaining on the table as a threat over the rest of the year.
GILTS: 5s Cheapen On 2s5s10s Fly After DMO Revision, Still At Rich End Of Range
Apr-23 07:51
This morning’s DMO remit revision has seen 5s cheapen by ~5bp on the 2s5s10s butterfly.
- The structure failed to break below the June ’24 low (-47.2bp) in recent weeks.
- Any fresh questions surrounding the UK’s fiscal health or the pricing of a deeper BoE easing cycle could result in fresh richening for 5s on the structure.
- However, today’s early focus on the DMO’s remit, aggressive curve flattening and prevailing level compared to the recent range suggests that those looking to express such a view will not be rushing to engage at this stage.
Fig. 1: UK 2-/5-/10-Year Butterfly (bp)
Source: MNI - Market News/Bloomberg
