Highlight of the Day
India’s retail inflation, CPI accelerated to a four-month high 5.52% in March on higher food and transport costs amid rising coronavirus cases and fears of a surge in some commodity prices due to lockdowns in some states. Core Inflation too has risen to 5.76%.
The retail inflation during the month of February was at 5.03%.
The rise in retail inflation for March was due to the rise in food prices. The Consumer Food Price Index (CFPI) or the inflation in the food basket rose to 4.94%, up from 3.87% in February. The month-on-month rise in the food basket was led by a rise in prices of oils and fats which rose a whopping 24.92% in March, while that of meat and fish rose 15.09%. Non-alcoholic beverages gained 14.41% while pulses and products segment witnessed a rise of 13.25% and egg prices too rose 10.60%. Vegetable prices, however, slipped -4.83% YoY in March.
Separately, the factory output, measured in terms of Index of Industrial Production (IIP), contracted by -3.6% in February.
The contraction in IIP during February is primarily on account of the manufacturing and mining sectors. The manufacturing sector saw a contraction of -3.7% YoY to 129.3 in February, while the mining sector witnessed a fall of -5.5% to 116.5. The electricity sector on the other hand rose 0.1% to 153.9
“March CPI rose expectedly to 5.5% (5.6% our estimate) due to weak base from last year and higher fuel prices. We believe March CPI to be the peak and see headline inflation easing towards 4.5% due to stabilization in international commodity prices and weak pass-through to final prices given that growth momentum will soften on Covid 2.0,” said Prithviraj Srinivas, Chief Economist at Axis Capital. “However, there is a risk that the second wave distorts the supply of goods and labour yet again thereby adding to inflation impulse.”
“Consumer Price Index (CPI) for March has surprised us and markets on the upside, with strong price pressures seen in fuel and non-vegetables food prices of meat and fish, oils and fats and fruits, amid an unfavourable base. Further, core inflation too accelerated to more than a 2-year high, at close to 6.0% which does not offer comfort,” said Yuvika Singhal, economist at Quanteco Research. “Looking ahead, we expect CPI to remain somewhat sticky and average at 5.0% in FY22. Continued comfort on food and goods inflation as production continues to normalize should prove supportive. Upside from crude oil prices, if any, could be offset by a likely hold or reduction in duties on petroleum products, softening of demand due to a resurgence in Covid-19 infections, and likelihood of a normal monsoon outturn (as per private weather forecasting firm AccuWeather) in 2021.”
Market Highlights at 07:45 a.m. I.S.T.
• The MSCI Asia Pacific ex-Japan is trading higher 0.55%, and the MSCI Emerging Market index is up 0.41%
• Trends on SGX Nifty look poised for a muted opening for Nifty 50 in India. The Nifty futures are trading 1.5 points or -0.03% lower at 14,358 on the Singaporean Exchange at 07:45 a.m. I.S.T.
• U.S. equity futures rose slightly in early morning trade; alongside a higher start in Asia-Pacific benchmarks in early Tuesday trade with shares fluctuating in South Korea, and falling in Japan, Australia, Hong Kong and China; a positive MSCI Asia-Pacific ex-Japan index; U.S. dollar steady to 92.19 with 10-Yr Treasury Yields drifting higher to 1.67%; Indian rupee extending weakness to 75.0350 and Gold futures sticky at $1,734 an ounce indicate a stable but volatile outlook in Indian equity markets amid a channel-wise resistance and decoupling from global benchmarks
• India reported a record 168,912 new infections for a day, taking the tally to 13.53 million cases, the government said on Monday. Indian rupee dropped past 75 to a dollar for the first time since August 2020
India Markets
India’s equity benchmarks tumbled more than 3% on Monday trade, as a relentless surge in Covid-19 cases and a possible lockdown by a large state threatened to derail a recovery in Asia’s third-largest economy
The blue-chip NSE Nifty 50 index dropped 524 points or -3.53% to 14,310 and the benchmark S&P BSE Sensex dropped 1,707 points or -3.44% to close at 47,883
The Nifty 50 has now retreated about 7% and the Sensex is down 9% from their mid-February record highs
Bank Nifty dropped 1,656 points or -5.10% to settle at 30,792; its worst day in more than a year
Broader markets under-performed headline peers — Midcap 100 index dropped -5.68%; Smallcap 250 index dropped -5.39% and Nifty 500 dropped -4.02%
Nifty P/E for Apr. 12 decreased to 32.34 from 33.53 with Nifty P/B edged lower to 4.09 from 4.24, as recorded by NSE India
India VIX or the barometer of nervousness in the market, moved up 16.22% from 19.78 to 22.99 levels
Overnight Call Money rate weighted average stood at 3.15% as per RBI data. It moved in a range of 1.90 — 3.50% for Apr 09
Under Liquidity Operations by RBI, Reverse Repo for the week (Mar 29 to Apr 04) rose above 6 lakh crores (6.13 lakh crores), marking higher surplus liquidity in the market
Yield curve on the benchmark 10-Yr government bond dropped to 6.01%, while the rupee extended weakness to 75.0350 per U.S. dollar
The Nifty auto index closed down 5.11%. The Society of Indian Automobile Manufacturers on Monday warned that the pandemic had set back an already bruised auto industry by many years
Pharma stocks saw limited losses. The Nifty Pharma index closed down 0.26%, compared with the 1.96% to 9.26% losses for the other sub-indexes. Dr Reddy’s shares jumped 7.56% in the last few minutes of trade after India approved the use of Russia’s “Sputnik V” Covid-19 vaccine. “Sputnik V” is being marketed in India by Dr. Reddy’s
Investors also watched out for data on the country’s retail inflation for March. Retail price inflation in India edged up to 5.52% in March of 2021, the highest in 4 months from 5.03% in February and above market forecasts of 5.4% mostly due to higher commodity prices and economic recovery. Food inflation accelerated for the second month to 4.94% from 3.87% with the cost of pulses jumping 13.25% and the cost of vegetables felling at a slower 4.83%
India’s virus resurgence has prompted some brokerages to reconsider their preference for stocks, which are most sensitive to the economic recovery. Nomura cut the weight of financials and cement shares in its model portfolio, while Jefferies downgraded Indian banks to underweight from overweight
India’s fuel consumption rose in March, for the first time in three months, to its highest since December 2019, as economic activity gradually picked up after a coronavirus-induced slowdown. Diesel consumption gained 10% in March from February to 7.22 million tonnes, and also rose 27.6% year-on-year
“We expect the rupee to weaken versus the U.S. dollar as have other EM currencies,” and given the slow progress of vaccination, the economy “will be slower to recover,” R Venkataraman, managing director at IIFL Securities, wrote in a note.
America Markets
U.S. stocks inched lower on Monday trade at the start of a busy week of corporate earnings and economic data
The broad-based S&P 500 finished down 0.81 point, or less than -0.1%, to 4127
The Dow Jones Industrial Average, composed mostly of cyclical stocks, fell 55.20 points, or -0.2%, to 33745, backing away from Friday’s record close
The tech-heavy Nasdaq Composite Index lost 50.19 points, or -0.4%, to 13850
U.S. equity futures rose slightly in early Tuesday trade. S&P500 futures is up 0.01%; Dow Jones futures is up 0.04% and Nasdaq futures is up 0.04%
Government bonds weakened. 10-Yr U.S. Treasury yields, which move in the opposite direction to bond prices, rose to 1.67% in early Tuesday, after the U.S. Treasury’s auctions of 3- and 10-year notes attracted decent demand on Monday. Dollar is steady at 92.19
The Cboe Volatility Index, known as Wall Street’s “fear gauge,” rose 1.32% to 16.91 on Monday
Shares of Nuance Communications jumped $7.27, or 16%, to $52.85 after Microsoft agreed to acquire the speech-recognition firm for $16 billion
Tech shares turned lower again after Nvidia Corp. said it’s offering the company’s first server microprocessors, extending a push into Intel Corp.’s most lucrative market. Intel shares fell more than 4% on the news
While the U.S. recovery is accelerating, parts of Europe and South America are beset by rising Covid-19 cases and troubled vaccination rollouts. The rotation toward cyclical and small-cap stocks appears to have stalled as well, prompting worry about the strength of the U.S. economic comeback at the start of earnings season
Federal Reserve Chair Jerome Powell sought to provide reassurance in CBS’s 60 Minutes that any surge in price pressures won’t last
“The breakdown of small caps and cyclicals is a potential early warning sign that the actual reopening of the economy will be more difficult than dreaming about it,” Morgan Stanley strategist Mike Wilson said.
“We’re just kind of digesting,” said Marc Odo, client portfolio manager at Swan Global Investments. “This quiet period is just everyone digesting the first quarter and all of the news coming out of Washington about fiscal policy and monetary policy.”
Asia-Pacific Markets
Asian stocks edged higher in early Tuesday trade with U.S. stocks around record highs as investors eye the start of the corporate earnings season and relatively smooth sales of government debt
Shares rose in Hong Kong, Korea and Japan, and fluctuated in China
Japan’s Nikkei 225 added 1.13% to 29,870 and Topix 500 added 0.56% to 1,527
South Korea’s Kospi added 0.97% to 3,166
In Hong Kong, Hang Seng added 1.21% to 28,792 and Hang Seng China Enterprises added 0.94% to 10,976
In China, CSI 300 added 0.57% to 4,976 and Shanghai Composite added 0.24% to 3,421
Australia’s S&P/ASX 200 added 0.07% to 6,979
China has imposed a sweeping restructuring on Jack Ma’s Ant Group, two days after Ma’s Alibaba Group Holding Ltd, of which Ant is an affiliate, was hit with a record $2.75 billion antitrust penalty. The overhaul, in the works for several months, includes Ant turning itself into a financial holding firm, a move expected to curb its profitability and valuation by curtailing some of its freewheeling businesses. The People’s Bank of China said that under a “comprehensive and feasible restructuring plan,” Ant would cut the “improper” linkage between Alipay, virtual credit card business Jiebei and consumer loan unit Huabei
Japanese wholesale prices marked their first annual increase in more than a year in March, a sign that rising commodities costs are pinching corporate margins and adding inflationary pressure to the world’s third-largest economy. Analysts, however, expect the impact on consumer inflation to remain more modest in Japan than in the U.S.., as soft wage growth and a slow vaccine rollout are seen weighing on household spending. That would add to reasons for the Bank of Japan (BOJ) to maintain its massive stimulus programme and meet a pledge to keep its money tab wide open until inflation exceeds 2% in a stable manner
Most of the gain in Japan’s March wholesale prices was driven by a spike in non-ferrous metals and oil goods costs, highlighting how rising raw material costs were pinching firms
“While there’s still a lot of uncertainty on the outlook, global economic activity is picking up and keeping commodities prices high,” said Kouta Fujiwara, an economist at NLI Research Institute. “Given the base effect of last year’s sharp fall, Japan’s wholesale inflation may spike to around 3% from April.”
EU Markets
European stocks slipped from record highs on Monday trade, as investors booked profits ahead of the quarterly corporate earnings season, while two French utility companies surged on news of a merger deal after months of wrangling
The pan-European Stoxx Europe 600 dropped -0.49% to 430 and Stoxx 50 dropped -0.43% to 3,961
Germany’s DAX30 dropped -0.13% to settle at 15,215
London’s blue-chip FTSE 100 dropped -0.39% to settle at 6,889
France’s CAC40 dropped -0.13% to settle at 6,161
Shares of Veolia and Suez surged 9.7% and 7.7% after the waste and water management companies agreed on a merger deal worth nearly 13 billion euros ($15.4 billion)
European earnings will kick into higher gear later in April, with analysts expecting a 47.4% jump in first-quarter earnings for STOXX 600 companies, according to Refinitiv IBES data. Much of the support is likely to come from consumer cyclicals and industrial firms
Economically sensitive automakers were the top-performer among the European stock sectors
ECB board member Fabio Panetta said that European Central Bank should accept no further delay in lifting inflation back to its target of 2%, which they have already undershot for nearly eight years and as the projections go, the bloc will continue to miss it for years. After the ECB ramped up stimulus last month, inflation is seen to rise to 1.4%by 2023
“The year has been without a major correction so far, and with equity inflows continuing to hit new multi-year highs the sense of ‘irrational exuberance’ is building once again,” said Chris Beauchamp, chief market analyst at IG. “Some measure of caution would seem to be the prudent approach until a more comprehensive conclusion can be drawn.”
Oil & Natural Gas Markets
Crude-oil prices edged higher in rangebound trade in early Tuesday trade on optimism about a rebound in the U.S. economy as vaccinations accelerate, but rising COVID-19 cases in other parts of the world kept a lid on prices
West Texas Intermediate futures ended last week, down 3.5%, the biggest weekly loss since mid-March. With the OPEC+ planning to start raising output, markets are now focused on whether the demand recovery will be enough to absorb growing supplies. While consumption is climbing in India and the U.S., rising virus cases and the possibility of stricter travel limits in Europe are muddying the forecast and putting pressure on crude
Saudi oil giant Aramco entered into a $12.4 billion deal with a consortium of investors led by EIG Global Energy Partners that would give the investor group a 49% stake in Aramco’s pipeline assets. Total is poised to go ahead with a $5.1 billion plan to tap more than a billion barrels of Ugandan crude and ship it across east Africa by pipeline
WTI Crude is trading at $59.79 per barrel
Brent Crude, the international benchmark for oil, is trading at $63.38 per barrel
Natural Gas futures rose slightly to $2.560/MMBtu
“If we get some hotter inflation readings, that could send Treasury yields higher again, negatively impacting oil,” said Edward Moya, senior market analyst at Oanda Corp.
“The Covid situation has really not had a strong recovery in Europe and across many emerging markets, and that’s really weighed down the demand outlook for oil,” said Edward Moya, senior market analyst at Oanda Corp.
“We’re towards the lower end of the range on concerns over the global economic recovery,” said Gary Cunningham, director at Stamford, Connecticut-based Tradition Energy. “Until we start to see some jet fuel demand come back, Asian demand pick up and European countries ease restrictions, prices may not surge much higher in the near term.”
Commodities Markets
Gold prices struggled to gain traction in early Tuesday trade, weighed down by a jump in U.S. Treasury yields and a rebound in the dollar
In a potential flip to gold’s safe-haven appeal, U.S. Fed Chair Jerome Powell signaled that the central bank is nowhere reducing its economic support and warned an uptick in Covid-19 cases could slow the recovery. Plus U.S. producer prices increased more than expected in March, resulting in the largest annual gain in 9 years. This type of potentially inflationary environment is generally viewed as supportive for gold
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 $1,735 an ounce
Silver futures (Comex) is trading at $24.84 an ounce
Gold / Silver Ratio increased to $69.70
Copper futures (Comex) steady at $4.0245 per pound
In India, Spot Gold is trading at INR 46,423 per 10 grams
“While overall, gold market is bullish short-term, with expectations of a break higher through $1,760-65, caution about fresh 10- and 30-year (Treasury) auctions and the CPI report next week are keeping yields supported, keeping gold’s advance in check,” said Tai Wong, head of base and precious metals derivatives trading at BMO. “Yields are driving most markets at (the) moment, directly impacting U.S. dollar and stocks and all three matter to gold with varying impact.”
Currency Markets
U.S. dollar index, DXY rose slightly to 92.20 in early Tuesday trade, amid steady Treasury yields as investors await for the US earnings season to kick-off and the release of several economic indicators including consumer inflation that will provide an update on the economic recovery
U.S. producer prices increased more than expected in March, fitting in with expectations for higher inflation, driven by pent-up demand. Most economists and Federal Reserve officials believe higher inflation will be transitory because of labor market slack
The dollar was also helped by data showing a second straight monthly drop in industrial production in Germany, further boosting the likelihood of Europe’s biggest economy having contracted in the first quarter
INR weakened with USD / INR at 75.0350
EUR strengthened with EUR / USD at 1.1915
GBP strengthened with EUR / GBP at 0.8671
GBP strengthened with GBP / USD at 1.3741
“I guess this may only be a pause with the U.S. dollar selling likely to resume so long as the Fed’s patient rhetoric remains unchanged, especially this early in the anticipated inflation cycle,” Stephen Innes, chief global market strategist at Axi, said.
| 3-Month LIBOR Rate | As on 12 Apr 2021 |
| US DOLLAR | 0.19 per cent |
| Euro | – 0.54 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 1.37% in early Tuesday trade to $60,663 as of 07:45 a.m. I.S.T.
Bitcoin’s performance over the last year is directly aligned with movements in bond yields. When yields rise, so does bitcoin. This implies that the digital currency benefits directly from the “reflation trade” — or the belief that inflation is coming.
British research firm Quant Insight Ltd. shows bitcoin’s key sensitivity is to inflation breakevens. The same is true of gold. The difference, at present, is that bitcoin is positively correlated with breakevens, gaining when fears about inflation rise, while gold is negatively correlated
The current drive in bitcoin therefore looks like a bid to protect against currency debasement, by means of a measured transfer from gold, which is deemed the weaker anti-fiat asset for the moment. Is bitcoin really that direct a substitute for gold? It’s a tough proposition to handle
For now, bitcoin fills a demand for a wider array of alternatives to fiat currencies at a time when many are deeply skeptical of monetary policy, while also promising the kind of exciting growth that tech stocks have done. It’s understandable that there would be wide demand for such an asset. And while that demand is strong, it is aided by that other universal force in markets; fear of missing out
“Bitcoin seems to have it all. It is one of the few assets that seems to benefit from a rising bond yield – something we reserve for true growth stocks and those cyclicals enjoying recovery. Conversely, this is normally detrimental to traditional low-growth safe assets such as gold, defensive yield stocks and bonds. Unlike defensive stocks and bonds, Bitcoin and gold are both inflation-sensitive, but gold is happiest when the world faces a downward spiral. In contrast, Bitcoin prefers a stronger economy, when the yield is rising. This is where we are today,” said Charlie Morris, chairman of ByteTree
Bond Markets
Americas : 10 – Year Govt Bond Yields
United States : 1.67%
Canada : 1.51%
Europe, Middle East & Africa : 10 – Year Govt Bond Yields
Germany : -0.30%
United Kingdom : 0.79%
France : -0.04%
Asia Pacific : 10 – Year Govt Bond Yields
India : 6.01%
Japan : 0.10%
Australia : 1.76%
South Korea : 2.01%
Fund Flows on NSE, BSE and MSEI — 12 Apr 2021
FII/FPI Net Sell Rs (1,746.43) Crore in Capital Market
DII Net Buy Rs 232.76 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
