Highlight of the Day
Credit Suisse shares have dropped by 25% in the space of a month, with Switzerland’s second biggest bank reeling from its exposure to the collapse first of Greensill Capital and then Archegos Capital Management
Greensill Capital, a U.K. finance firm and was deeply entangled with Credit Suisse, filed for insolvency and left the bank on the hook for losses
The Swiss bank said that it would take a $4.7 billion loss from the Archegos hedge fund scandal
The bank’s share-buyback program will be suspended following completion of buybacks in the first quarter and won’t resume until the bank regains its target capital ratios and restores its dividend
The double blow of Archegos and Greensill represents the bank’s biggest test in years and comes at a time of leadership transition. Bank CEO Thomas Gottstein took over a year ago after his predecessor, Tidjane Thiam, was forced out after the bank was caught spying on a recently departed executive
Credit Suisse has struggled through a series of mishaps in recent years, causing surprise one-off charges that have dented its earnings and undermined its reputation as a safe place for the world’s rich to store their wealth
One headhunter in Hong Kong said that he had received several inquiries from employees in Credit Suisse’s markets business looking to leave in the wake of the Archegos scandal
Market Highlights at 07:15 a.m. I.S.T.
• The MSCI Asia Pacific ex-Japan is trading lower -0.03%, and the MSCI Emerging Market index is down -0.25%
• Trends on SGX Nifty look poised for a positive opening for Nifty 50 in India. The Nifty futures are trading 50 points, or 0.33% higher at 14,912 on the Singaporean Exchange at 07:00 a.m. I.S.T.
• U.S. equity futures rose in early morning trade after S&P 500 eked out a record close on Wednesday; alongside a mostly positive start in Asia-Pacific benchmarks gauges in early Thursday trade with shares falling in Japan, but climbing in Australia, Hong Kong and China; a negative MSCI Asia-Pacific ex-Japan index; U.S. dollar weakening to 92.42 with 10-Yr Treasury Yields staying lower at 1.66% and Gold futures drifting lower to $1,736 an ounce indicate a mixed and volatile outlook in Indian equity markets amid channel-wise resistance and decoupling from global benchmarks
• Treasury Secretary Janet Yellen unveiled details of a plan to bring back about $2 trillion in corporate profits into the U.S. tax net. That would help fund the government’s spending initiatives, potentially reducing reliance on more borrowing that could drive rates higher
India Markets
India’s equity benchmarks jumped on Wednesday trade on the back of dovish “accommodative” stance in RBI’s monetary policy
The blue-chip NSE Nifty 50 index added 135 points or 0.92% to 14,819 and the benchmark S&P BSE Sensex added 460 points or 0.94% to close at 49,661
Bank Nifty added 489 points or 1.51% to settle at 32,991
Broader markets out-performed headline peers — Midcap 100 index added 1.32%; Smallcap 250 index added 1.38% and Nifty 500 added 1.00%
Nifty P/E for Apr. 07 increased to 33.49 from 33.18 with Nifty P/B edged higher to 4.24 from 4.20, as recorded by NSE India
India VIX or the barometer of nervousness in the market, moved down -2.84% from 20.84 to 20.24 levels
Overnight Call Money rate weighted average stood at 3.13% as per RBI data. It moved in a range of 2.10 — 3.50% for Apr 06
Under Liquidity Operations by RBI, Reverse Repo for the week (Mar 22 to Mar 28) stood below 5 lakh crores (4.93 lakh crores), marking lower surplus liquidity in the market
Yield curve on the benchmark 10-Yr government bond dipped to 6.09%, while the rupee weakened to 74.3520 per U.S. dollar
India’s central bank took a step toward formalizing quantitative easing, pledging to buy up to 1 trillion rupees ($14 billion) of bonds this quarter to keep borrowing costs low and support the economy’s recovery
The debt purchases under the program in the secondary market will start from April 15, RBI Governor Shaktikanta Das said on Wednesday, after policy makers held the benchmark repo rate at a record low of 4% and reverse repo rate at 3.35%
Although inflation at 5.03% in February was within the central bank’s 2%-6% target band, sticky underlying price pressures have been a problem for policy makers in resuming policy easing. That’s because higher fuel and volatile food prices, which make up more than 50% of the consumer price index
The central bank also retained its GDP growth forecast of 10.5 per cent for the current financial year despite the threat from rising Covid-19 infections and return of localised lockdowns
“The key takeaway in today’s policy announcement has been a step taken to manage long term yields by announcing G-Sec Acquisition Program, which is akin to an OMO calendar,” said Shubhada Rao, founder of QuantEco Research in Mumbai. “It becomes imperative in the context of a large government borrowing program.”
“RBI’s endeavor is to ensure orderly evolution of the yield curve, governed by fundamentals as distinct from any specific levels thereof,” Shaktikanta Das said. “The recent surge in infections has, however, imparted greater uncertainty to the outlook. Localized and regional lockdowns could dampen the recent improvement in demand conditions and delay the return of normalcy.”
“We can definitely see it as a quantitative easing program and markets taking it very positively,” said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership in Mumbai. “Still, it would be a challenge to keep absorbing the huge supply at prevailing prices.”
America Markets
The S&P 500 eked out a record close on Wednesday trade after notes from the Federal Reserve’s last policy meeting showed that the central bank remains committed to supporting markets and the economy
The broad-based S&P 500 rose 6.01 points, or 0.1%, to 4,079
The Dow Jones Industrial Average, composed mostly of cyclical stocks, gained 16.02 points, or less than 0.1%, to 33,446
The tech-heavy Nasdaq Composite Index edged down, falling 9.54 points, or -0.1%, to 13,688
U.S. equity futures rose in early Thursday trade. S&P500 futures is up 0.27%; Dow Jones futures is up 0.14% and Nasdaq futures is up 0.31%
10-Yr U.S. Treasury yields, which move inversely to the price, stayed lower at 1.66% in early Thursday. U.S. stock investors have been encouraged lately by signs of stabilization in the government-bond market. Dollar was weak at 92.42
The Cboe Volatility Index, known as Wall Street’s “fear gauge,” fell -5.30% to 17.16 on Wednesday
The trade deficit in the U.S. widened for the second month to $71.1 billion in February from a revised $67.8 billion in the previous month, slightly above market expectations of a $70.5 billion gap. It is the biggest trade deficit on record as imports fell less than exports, in another sign the American economy recovers faster than its trading partners. Exports went down 2.6% to $187.3 billion, mainly due to other industrial machinery, civilian aircraft, semiconductors, foods and beverages, autos and travel services. Imports fell at a slower 0.7% to $258.3 billion, due to passenger cars and pharmaceutical preparations. The goods deficit widened with China (to $30.3 billion) and Canada (to $4 billion) but narrowed with Mexico (to $6.8 billion)
U.S. crude oil inventories fell by 3.522 million barrels in the April 2nd week, following a 0.876 million decline in the previous period and compared with market forecasts of a 1.436 million drop, according to the EIA Petroleum Status Report
Investors are fretting over the potential tax bill companies could face as part of President Joe Biden’s proposed $2.25 trillion infrastructure plan
“If yields are going up because the economy is reopening and massive real growth is expected, that won’t bother the economy or the stock market,” Jim Bianco, president of Bianco Research said. “But if interest rates are going up because of inflation, which is a loss of purchasing power, that’s a problem for the economy and the stock market, and we’re going to continue to have that debate.”
“Taxes are top of mind for U.S. equity investors, with tax policy coming in at No. 2 on the list of things they are losing sleep over, behind monetary policy but ahead of inflation,” said RBC’s head of U.S. equity strategy Lori Calvasina. “The policy backdrop for stocks under Biden now skews towards the pessimists.”
“Further gains in 2022 could be very limited, given higher interest rates, higher wage costs, slowing economic growth and, potentially, a hit from higher corporate taxes,” global market strategist David Kelly of JPMorgan. “This makes today’s overall market valuations, at over 22 times forward earnings, look pretty rich.”
Asia-Pacific Markets
Asian stocks mostly gained in early Thursday trade after the S&P 500 inched up to another record, bolstered by the Federal Reserve’s commitment to supportive policy
Falls in Japan and Chinaa gauges weighed on MSCI Inc.’s regional share gauge, while Australia jumped
Japan’s Nikkei 225 dropped -0.31% to 29,633 and Topix 500 fell -0.72% to 1,517
South Korea’s Kospi added 0.03% to 3,139
In Hong Kong, Hang Seng added 0.51% to 28,821 and Hang Seng China Enterprises added 0.11% to 11,081
In China, CSI 300 fell -0.41% to 5,084 and Shanghai Composite fell -0.17% to 3,473
Australia’s S&P/ASX 200 added 1.13% to 7,006
Japanese regulators will heighten scrutiny on high-risk trades by domestic financial institutions in the wake of the Archegos fallout, the Nikkei business daily reported on Wednesday. Top investment bank and brokerage, Nomura Holdings, was one of the highest-profile casualties while Mitsubishi UFJ Financial Group (MUFG) warned of a loss of around $270 million
South Korea, seen as a beneficiary from a global recovery given its reliance on trade, reported its highest number of new Covid-19 cases in three months
Foreigners were net buyers of South Korean shares for a fifth straight day, the longest since November 2020. They purchased net 1.9 trillion won worth shares over the previous four sessions
Travel stocks in Australia extended gains following the announcement of quarantine-free “travel bubble” between Australia and New Zealand
The Reserve Bank of Australia left its cash rate unchanged at a record low of 0.1% during its April meeting, as widely expected. Policymakers reaffirmed their commitment to maintaining highly supportive monetary conditions until at least 2024 when actual inflation is sustainably within the 2 to 3% target. The board also remains committed to the 3-year government bond yield target of 10 basis points. Later in the year, it will consider whether to retain the April 2024 bond as the target bond or to shift to the next maturity. It added that the second $100 billion government bond purchase program will start next week. Regarding CPI inflation, it is expected to rise temporarily because of the reversal of some Covid-19-related price reductions. On rising housing prices, the bank said it will monitor trends in borrowing carefully and it is important that lending standards are maintained
EU Markets
European stocks were little changed and closed just short of record highs on Wednesday trade with healthcare shares among top decliners, while optimism over speedy vaccination drives and a weaker pound helped U.K. equities outperform
The pan-European Stoxx Europe 600 dropped -0.12% to 430 and Stoxx 50 dropped -0.34% to 3,956
Germany’s DAX30 dropped -0.24% to settle at 15,176
London’s blue-chip FTSE 100 added 0.91% to settle at 6,885
France’s CAC40 dropped -0.01% to settle at 6,130
A rebound in economically sensitive sectors such as banks, energy and automakers pushed European stocks to pre-pandemic levels earlier this week, as investors bet on a strong global economic recovery, driven by vaccines and unprecedented stimulus measures
A final reading of IHS Markit’s Purchasing Managers’ Index showed euro zone business activity returned to growth in March, underpinned by a record expansion in the manufacturing sector and as the service industry coped with new lockdowns better than expected
Profits for companies on the STOXX 600 are expected to jump 47.4% in the first quarter versus beaten-down numbers a year earlier, according to Refinitiv IBES data
“It appears that while the UK blue chip index, and its mid-cap sibling, enjoy the optimism surrounding the country’s post-COVID comeback, sterling has been saddled with concerns over the vaccine programme,” said Connor Campbell, an analyst at Spreadex
Oil & Natural Gas Markets
Crude-oil prices extended losses in early Thursday trade, after slumping on concerns that coronavirus outbreaks in India, Europe and other major economies will weigh on demand
While the consumption recovery in countries like the U.S. is picking up steam, the global rebound remains shaky. In India, state-run refiners are looking to buy less crude from Saudi Arabia as demand in the Asian nation is poised to dip amid a resurgence of Covid-19
WTI Crude is trading at $59.45 per barrel
Brent Crude, the international benchmark for oil, is trading at $62.82 per barrel
Natural Gas futures slipped to $2.525/MMBtu
“With supply side support dwindled, marginal price action in oil markets will now shift to demand dynamics, without as much of a safety blanket from the supply side,” TD Securities commodity strategists led by Bart Melek said. “While the demand outlook is expected to improve substantially into the second half of the year, and should keep markets on a tightening path, near term markets are likely to be balanced rather than in hefty deficits as they have been.”
“U.S. demand, which was supposed to show a steady recovery given the robust vaccine program, is somewhat disappointing and certainly not serving as the offset to the poor European outlook,” TD Securities commodity strategists led by Bart Melek said in a note. “This, along with planned OPEC+ supply increases over the next three months and the distinct possibility Iranian exports to China will increase, should continue to prompt specs to lighten their long exposure.”
Commodities Markets
Gold futures hovered near the highest in more than a week in early Thursday trade, as gains in bond yields and the dollar abated
Gold has been under pressure this year because of increasing optimism over the post-pandemic economic recovery in the U.S., which buoyed bond yields and the dollar. Investors fled bullion-backed exchange-traded funds, a major pillar in gold’s ascent to an all-time high last year, with holdings in ETFs dropping to the lowest since May
Gold is in a “bottoming-out phase” with support at a low of $1,680 an ounce and an upper bound of $1,760 an ounce
U.S. Gold futures (Comex) is trading at $1,737 an ounce
Silver futures (Comex) is trading at $25.03 an ounce
Gold / Silver Ratio rose marginally to $69.32
Copper futures (Comex) slipped to $4.0545 per pound
In India, Spot Gold is trading at INR 45,801 per 10 grams
“As the yields fall, the reduced opportunity cost of being invested in bonds, along with a weaker dollar are likely primary reasons why gold is doing better,” said Bart Melek, head of commodity strategies at TD Securities. “Investors believe that we are not going to see another huge run-up in the yields and that has prompted gold to just technically rebound.”
Currency Markets
U.S. dollar index, DXY stayed lower at 92.42 in early Thursday trade, weighed down by widening U.S. trade deficits and China’s expansion
A retreat from havens will likely drag on the currency as the global economy improves and short-term interest rates in the U.S. remain relatively low—making it appealing for investors to move capital overseas. However, Other analysts said that strong U.S. growth and rising interest rates might support the dollar over the short term
INR weakened with USD / INR at 74.3520
EUR strengthened with EUR / USD at 1.1884
GBP weakened with EUR / GBP at 0.8647
GBP weakened with GBP / USD at 1.3742
“Several structural trends skew the medium-term dollar outlook in a negative direction, including the widening U.S. trade deficit, China’s financial opening and the European Union’s efforts to create a common bond market for the region,” said Zach Pandl, head of foreign-exchange research at Goldman Sachs.
| 3-Month LIBOR Rate | As on 07 Apr 2021 |
| US DOLLAR | 0.20 per cent |
| Euro | – 0.55 per cent |
| British Pound | 0.09 per cent |
| Swiss Franc | – 0.75 per cent |
| Japanese Yen | – 0.07 per cent |
Bitcoin
Bitcoin / U.S. Dollar rose 1.20% in early Thursday trade to $56,595 as of 07:15 a.m. I.S.T.
The recent pullback in Bitcoin’s volatility is setting the stage for a trend that could encourage institutions to dive in, according to JPMorgan Chase. The coin’s volatility has kept institutions away, which is a key consideration for risk management – the higher the volatility of an asset, the higher the risk capital consumed by it
Goldman Sachs is close to offering investment vehicles for Bitcoin and other digital assets to private wealth clients. Morgan Stanley plans to give rich clients access to three funds that will enable ownership of crypto and BNY Mellon is developing a platform for traditional and digital assets
Rally in Bitcoin over the past two quarters has come at the expense of gold, JPMorgan’s strategists said, citing $7 billion of inflows into Bitcoin funds and $20 billion of outflows from ETFs tracking the precious metal
“These tentative signs of Bitcoin volatility normalization are encouraging,” strategists including Nikolaos Panigirtzoglou said. “In our opinion, a potential normalization of Bitcoin volatility from here would likely help to reinvigorate the institutional interest going forward.”
Bond Markets
Americas : 10 – Year Govt Bond Yields
United States : 1.66%
Canada : 1.47%
Europe, Middle East & Africa : 10 – Year Govt Bond Yields
Germany : -0.33%
United Kingdom : 0.77%
France : -0.08%
Asia Pacific : 10 – Year Govt Bond Yields
India : 6.09%
Japan : 0.08%
Australia : 1.74%
South Korea : 2.07%
Fund Flows on NSE, BSE and MSEI — 07 Apr 2021
FII/FPI Net Buy Rs 227.42 Crore in Capital Market
DII Net Buy Rs 381.08 Crore in Capital Market
Where We’ve Been Reading —
- Bloomberg
- The Wall Street Journal
- Reuters
- Trading Economics
- Seeking Alpha
- Axios
- Tech Crunch
- NSE Indices India
- Morningstar India
- The Star
- Harvard Business Review
- The Economic Times
