Highlight of the Day
Emerging-market investors reeling from last month’s losses head into the first full week of April bracing for more pain driven by higher U.S. Treasury yields and a stronger dollar
Demand for developing-nation assets waned in March, with flows to equity funds falling to less than a third of the levels seen in February and bond funds seeing outflows, according to EPFR Global data
Morgan Stanley is staying bearish on emerging-market currencies, saying the slow pace of vaccine rollouts in many developing economies is threatening to ensure growth will lag behind the U.S.
Meantime, Citigroup expects higher U.S. yields and a resilient dollar to put further pressure on the asset class in the coming months
Investors will turn their attention this week to inflation data across EMs to seek clues on the path for monetary policy after Turkey, Russia and Brazil raised borrowing costs last month
India’s central bank is expected keep interest rates at a record low when policy makers meet on Wednesday
“This quarter can be big for the dollar and not necessarily amazing for emerging markets,” said Luis Costa, Citigroup’s London-based head of CEEMEA strategy. “We don’t believe the U.S. curve is pretty much done adjusting. Between now and June/July, we could see a further leg higher here in yields.”
Market Highlights at 07:30 a.m. I.S.T.
• The MSCI Asia Pacific ex-Japan is trading higher 0.31%, and the MSCI Emerging Market index is up 0.16%
• Trends on SGX Nifty look poised for a positive opening for Nifty 50 in India. The Nifty futures are trading 2 points, or 0.01% lower at 14,728 on the Singaporean Exchange at 07:30 a.m. I.S.T.
• U.S. equity futures fluctuated in early morning trade as investors assessed the economic outlook and any lingering impact from the Archegos Capital Management blowup; alongside a mixed start in Asia-Pacific benchmarks gauges in early Tuesday trade amid Easter holidays in Hong Kong with shares fallingng in Japan, fluctuating in South Korea and rising in Australia; a positive MSCI Asia-Pacific ex-Japan index; U.S. dollar dipping to one-week low at 92.62 with 10-Yr Treasury Yields declining to 1.68% and Gold futures steadying at $1,733 an ounce indicate a mixed and volatile outlook in Indian equity markets amid channel-wise resistance and decoupling in domestic benchmarks
• Biden is planning to raise the U.S. corporate tax rate to 28% from the 21% levy set by the Trump administration’s 2017 tax bill, which had previously been a support for stocks
India Markets
India’s equity benchmarks turned bearish on Monday trade and formed a long bearish candle for the day after the Maharashtra government imposed serious curbs in the state to stem the spread of Covid-19 infection
The blue-chip NSE Nifty 50 index dropped 229 points or -1.54% to 14,637 and the benchmark S&P BSE Sensex fell 870 points or -1.74% to close at 49,159
Bank Nifty dropped 1,179 points or -3.48% to 32,678
Broader markets under-performed headline peers — Midcap 100 index dropped -1.32%; Smallcap 250 index dropped -1.58% and Nifty 500 dropped -1.45%
Nifty P/E for Apr. 05 decreased to 33.08 from 33.60 with Nifty P/B sliding to 4.19 from 4.25, as recorded by NSE India
India VIX or the barometer of nervousness in the market, moved up 6.163% from 19.98 to 21.21 levels. A spurt in volatility from lower levels is keeping the market volatile amid selling pressure at higher zones
Overnight Call Money rate weighted average stood at 3.15% as per RBI data. It moved in a range of 2.60 — 3.35% for Apr 03
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 steepened to 6.17%, while the rupee weakened to 73.3700 per U.S. dollar
Shares of banks and non-bank lenders were at the forefront of the selling pressure in the market as investors feared that new lockdowns in parts of the country will further squeeze small business owners and raise the risk of many of them turning into bad loans for lenders. Further, renewed job losses due to the second Covid-19 wave could put pressure on the retail lending business of banks and non-bank lenders
Shares of alcoholic beverage makers tumbled up to 8% as the ban on pubs and bars in Maharashtra is likely to dent the nascent recovery in volumes for these companies
Investors seeking to protect their portfolio from the rise in volatility caused by the second Covid wave flocked to the defensive sector
Shares of steel stocks staged a remarkable recovery by the end of the session as companies said that they raised prices of domestic products in a move that will boost their profitability in the coming quarters. Analysts remain bullish on the sector despite the rise in Covid-19 cases in the country
India’s central bank is expected keep interest rates at a record low when policy makers meet on Wednesday
“We will look for any guidance on possible normalization of liquidity conditions,” Rini Sen, an economist at Australia & New Zealand Banking Group Ltd. in Bengaluru, wrote in a research note. “At this juncture, the financial system is in a unique environment of excess liquidity but rising long-term yields on government securities”
America Markets
U.S. stocks set a course for new record highs on Monday trade, as blow-out economic data increased investor risk appetite while putting bonds under pressure on worries the Federal Reserve could start raising interest rates sooner than expected
The broad-based S&P 500 climbed 58 points, or 1.4%, to 4,077
The Dow Jones Industrial Average, composed mostly of cyclical stocks, gained 373 points, or 1.1%, to close at 33,527
The tech-heavy Nasdaq Composite Index advanced 225 points, or 1.7%, to 13,705
U.S. equity futures eased in early Tuesday trade. S&P500 futures is down -0.06%; Dow Jones futures is down -0.13% and Nasdaq futures is up 0.06%
10-Yr U.S. Treasury yields, which move inversely to the price, fell to 1.69% in early Tuesday after climbing a fresh 14-month high of 1.78 early last week after the payrolls report showed the U.S. economy added 916K jobs in March, well above expectations and pushing the jobless rate to a 1-Yr low of 6%. Dollar was little changed at 92.62
The Cboe Volatility Index, known as Wall Street’s “fear gauge,” rose 3.35% to 17.91 on Monday
A measure of U.S. services industry activity surged to a record high in March amid robust growth in new orders, in the latest indication of a roaring economy that is being boosted by increased vaccinations and massive fiscal stimulus. The ISM’s non-manufacturing activity index rebounded to a reading of 63.7 last month also due to warmer weather. That was the highest in the survey’s history and followed 55.3 in Feb
The upbeat survey from the Institute for Supply Management (ISM) on Monday followed news on Friday that the economy added 916,000 jobs in March, the most in seven months. Economic growth this year is expected to be the strongest in nearly four decades
The Commerce Department said on Monday that factory orders dropped 0.8% after surging 2.7% in Jan. Factory goods orders in February were held down by declines in demand for machinery, computers and electronic products, as well as primary metals. But orders for electrical equipment, appliances and components rose
U.S. Treasury Secretary Janet Yellen said on Monday that she is working with G20 countries to agree on a global corporate minimum tax rate. Yellen said it was important to make sure governments “have stable tax systems that raise sufficient revenues in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”
President Biden has called for about $2 trillion in corporate tax increases over 15 years to pay for his infrastructure plan. A tax increase, which would take effect as early as January 2022, would cut into corporate profits as the economy recovers, and that could reduce the earnings of companies in the S&P 500 by at least 10%. Critics warn that raising the tax rate would hurt U.S. companies’ ability to compete globally, a core driving idea behind 2017’s corporate rate cut, and would likely slow the economy’s pandemic rebound
“There are so many moving pieces of the Biden proposal it’s not as simple as saying a higher tax rate in the U.S. by definition means less capital invested in the U.S.,” Mr. Gimigliano said. “For purely domestic companies, it’s more likely that a higher corporate rate reduces after-tax returns, unless offset by some other specific domestic tax incentive.”
“Friday’s employment number as well as today’s Non-manufacturing ISM data indicate growing economic strength, which raises concern about the Fed having to taper or increase interest rates,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
“Vigorous services activity in March sets the stage for robust expansion in the second quarter,” said Oren Klachkin, lead U.S. economist at Oxford Economics in New York. “All the right pieces for a faster services recovery – expanded vaccine eligibility, reopenings, and historic fiscal expansion – are falling into place.”
Asia-Pacific Markets
Asian stocks opened mixed in early Tuesday trade even as U.S. equities rallied to a record on solid economic data that added to evidence of a strengthening recovery
Japan’s benchmark dipped, while stocks rose in Australia and South Korea
Japan’s Nikkei 225 dropped -0.46% to 29,956 and Topix 500 fell -0.27% to 1,538
South Korea’s Kospi fell -0.01% to 3,119
In Hong Kong, Hang Seng and Hang Seng China Enterprises are closed for a holiday
In China, CSI 300 added 0.27% to 5,174 and Shanghai Composite fell -0.22% to 3,476
Australia’s S&P/ASX 200 added 1.15% to 6,907
China creates its own digital currency, a first for major economy. China’s version of a digital currency is controlled by its central bank, which will issue the new electronic money. It is expected to give China’s government vast new tools to monitor both its economy and its people. By design, the digital yuan will negate one of bitcoin’s major draws: anonymity for the user
South Korea’s consumer inflation accelerated to a 14-month high in March on higher oil prices and stronger demand for food produces, further signalling a stable recovery path for Asia’s fourth-largest economy
“We are entering a phase where the stock market rallies even as interest rates rise because of strong earnings growth. This stage will eventually lead to an overheated market but we are not there yet,” said Masayuki Kubota, chief strategist at Rakuten Securities.
EU Markets
The pan-European Stoxx Europe 600 and Stoxx 50 are closed for a holiday
Germany’s DAX30 is closed for a holiday
London’s blue-chip FTSE 100 is closed for a holiday
France’s CAC40 is closed for a holiday
Data showed euro zone factory activity growth galloped at its fastest pace in the near 24-year history of a leading business survey in March
France cuts growth forecast as new nationwide lockdown starts. French government previously expected GDP to grow 6% in 2021, but has now cut the country’s 2021 GDP growth forecast to 5%. Closing education establishments and 150,000 stores is essential to slow the spread of the virus, but these measures will have an impact on the French economy
“We remain optimistic on the recovery and believe current vaccine delays in the EU are unlikely to jeopardise the rebound in growth: the supply of vaccines is set to improve significantly in 2Q/3Q,” analysts at Equita said.
Oil & Natural Gas Markets
Crude-oil prices held onto losses in early Tuesday trade, ahead of talks this week between world powers to salvage a nuclear deal with Iran, while rising virus cases in parts of the world such as India muddied the demand outlook
Iran, the European Union and the U.S. are set to gather in Vienna on Tuesday to discuss the potential resurrection of the 2015 nuclear deal, presenting a possible path toward removing sanctions on the Middle Eastern country’s oil exports
WTI Crude is trading at $59.40 per barrel
Brent Crude, the international benchmark for oil, is trading at $62.93 per barrel
Natural Gas futures slipped to $2.514/MMBtu
“Seasonally, demand is getting better,” said Peter McNally, global head for industrials, materials and energy at Third Bridge. “Consensus view is that the market can absorb more barrels and that even with those additional barrels, inventories are going to continue to drop.”
Commodities Markets
Gold futures steadied in early Tuesday trade, as the safe-haven metal’s luster was dimmed by rising global equity prices
Forecasts of a rapid global economic expansion this year, powered by vaccinations and U.S. stimulus, have tarnished gold’s allure as a haven in uncertain times
Gold unlikely to rise above $1,700 – $1,750 range in the near-term, until growth and inflation likely stalls with investors favoring assets and commodities that track higher inflation
U.S. Gold futures (Comex) is trading at $1,734 an ounce
Silver futures (Comex) is trading at $24.94 an ounce
Gold / Silver Ratio rose marginally to $69.49
Copper futures (Comex) rose to $4.1060 per pound
In India, Spot Gold is trading at INR 45,479 per 10 grams
“The outstanding jump in employment is fueling optimism that growth this year will be extraordinary, boosting both stocks and interest rates, which pulls gold in opposite directions,” Tai Wong, head of metals derivatives trading at BMO Capital Markets, said.
Currency Markets
U.S. dollar index, DXY dipped to one-week low at 92.55 in early Tuesday trade, amid economy rebound and inflation bets
The greenback had rallied on Friday after data showed that the U.S. economy created the most jobs in seven months in March as more Americans got vaccinated and the government doled out additional pandemic relief money, marking the start of what could be the strongest economic performance this year in nearly four decades
INR strengthened with USD / INR at 73.3200
EUR weakened with EUR / USD at 1.1798
GBP strengthened with EUR / GBP at 0.8490
GBP strengthened with GBP / USD at 1.3896
“The trickiest thing for markets right now is to figure out what the dollar’s sensitivity is to good U.S. economic news,” said Erik Nelson, a macro strategist at Wells Fargo in New York. “This is a huge question because if we’re entering a phase where the dollar is no longer a safe haven and more of a ‘risk on’ currency, that’s big regime change.”
| 3-Month LIBOR Rate | As on 05 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 dropped -0.39% in early Tuesday trade to $58,892 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 : 1.68%
Canada : 1.56%
Europe, Middle East & Africa : 10 – Year Govt Bond Yields
Germany : -0.33%
United Kingdom : 0.79%
France : -0.08%
Asia Pacific : 10 – Year Govt Bond Yields
India : 6.12%
Japan : 0.11%
Australia : 1.83%
South Korea : 2.11%
Fund Flows on NSE, BSE and MSEI — 05 Apr 2021
FII/FPI Net Sell Rs (931.66) Crore in Capital Market
DII Net Buy Rs 75.48 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
