Release of the US CPI print was the single most important event for financial markets. Yesterday's release showed moderation with headline print at 7.70% yoy (prior 8.20%), 0.40% mom (prior 0.40%) and Core CPI at 6.30% (prior 6.60%).
The data release confirmed few narratives. The June print of 9.1% CPI marked the peak in inflation and FOMC will slow the pace of rate hikes. Market is now pricing in the terminal rate at 4.92%. Post the FOMC , mkt had priced in a peak terminal rate of 5.25%. Interestingly, there has been extensive talk on the Shelter component of US CPI which measures rental values / imputed rent (owners' equivalent rent) and lodging away from home. Though the shelter component rose 0.80% mom, the sticky OER component rose 0.60% (prior 0.80%) which is a welcome sign.
The markets went into a frenzy mode or may be long liquidation mode. USD fell across the board, bonds rose and equities rose. Also aiding the sentiment was China adjusting protocols for covid control.
For the India market, equities are up 1.70% and with stable FPI trend seen in the last three months, the current CPI print bodes well for the outlook. 1Y OIS opened at 6.63% ( 6.82% close) and 5Y OIS opened at 6.43% ( 6.69% close). Forwards are naturally higher as US rates get repriced with Oct 23 premia trading at 190 ps (prev close 182.75). WAR on call money is trading at 5.90%
On USDINR , volume buying is seen at 80.60. I am leaning into the long camp with plan to buy 30% at 80.65 levels and add at 80.20 levels with stops below 80.00. On the rates side, India inflation release will be an important one which I have covered in my previous posting.
I end the market briefing here. Happy navigating financial markets.
I take profit on the long USDINR initiated on 11 Nov 22 at 80.65. Unwind rate 81.85.
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