Market Wrap - US 2Y Yields made new lows and Peak terminal Rate pricing shifts to 4.90%, India finds comfort in the recent Trade Data

 "The only limit to our realization of tomorrow will be our doubts of today."

Yesterday, US released the Advance Retail Sales data. Adv Retail Sales and Food Services Data fell 0.40% mom against consensus estimates of a 0.30% contraction and following a revised 3.20% in the month of January 2023. Compared to Dec 22, Retail Sales are up 2.81%. The data offers limited insight.

US also released the PPI data which fell 0.10% mom against consensus estimates of a rise of 0.30% following a downward revision to the Jan number to 0.30% rise from earlier reported 0.70% rise. This is seen as a welcome moderation in the data.

Overnight we saw the market deeply concerned about the contagion risk moving to European Banks. European Banking index was down 8.40% with concerns centred around Credit Suisse. Later, during the day, FINMA and SNB issued a statement expressing comfort on the Credit Suisse capital and liquidity metrics. SNB offered a $ 54 bn covered loan facility to the bank. At the time of writing this article, Credit Suisse has exercised its option to borrow from the Swiss National Bank (SNB) up to CHF 50 billion under a Covered Loan Facility as well as a short-term liquidity facility, which are fully collateralized by high quality assets

The US front end yields came off sharply after the uptick seen post the US inflation data. 

2Y yields made a low of 3.72%

10Y yields made a low of 3.39%

2X10 yield spread re-steepened to 48 bps

The Fed fund pricing of market interest rate expectation shifted lower with Terminal Rate peak seen at 4.90% at the May policy and Dec 23 rate seen at 3.94%.

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Now coming to the domestic data, India released the trade deficit number for the month of February. 

The merchandise trade performance was relatively stable with Feb 23 exports rising 3% mom to USD 33.88 bn and imports rose 1% to USD 51.31 bn thus bringing the merchandise trade deficit number to usd 17.43 bn, a tad bit lower than usd 17.75 bn recorded the previous month. The services exports were 10% lower mom at USD 29.15 bn while imports were 8% lower at USD 14.55 bn. The services export numbers were above the 11 month average of USD 27 bn. For the month of March , I have assumed numbers largely in line with the last 2 months and it is estimated that for FY 22 - 23 Current Account Deficit will largely be in USD 75 - USD 78 bn range. 

The recent fall in crude oil prices also brings much needed relief to the Current Account metrics. In the last 7 trading days, crude oil prices have fallen close to 17% from a peak of USD 86.70 per barrel to USD 71.71 overnight.

That's the peak into the data releases.