Making Sense

The Liquidity Update: The liquidity surplus has turned flat as per the  Money Market Operations report as on Sep 19, 2022. Liquidity surplus has shrunk to 294 crs after the advance tax outflow. The Durable liquidity surplus stands at 342k Crores ( Sep 9, 2022). As the government spends money, the system liquidity surplus will improve. As the liquidity surplus has shrunk, the o/n rates have shot up with o/n call rate touching a high of 5.80% and Cash tom points trading at 0.80 ps. OIS Rates have similarly inched up as global central banks* tighten monetary policy.  1Y OIS 6.75% ( Resistance - 6.88% - 6.95% and then 7.05%) 5Y OIS 6.74% ( Resistance - 6.75% and 6.88% - 7.00%) *  Riksbank hikes its Rate by 100bps to 1.75%.  Inflation continues to be single most important item for CBs. Data released shows  German Producer Prices YY (Aug) rose 45.8% vs. Exp. 37.1% (Prev. 37.2%), MM (Aug) 7.9% vs. Exp. 1.6% (Prev. 5.3%) Whether we get further upside on rates ...

  The Trajectory of interest rates in India is likely to be predicated on the movement of the currency more than the inflation numbers. Inflation appears to have peaked in April 2022 and has declined subsequently. It is likely to trend lower in the coming months - sticky around the 7% level in the months of Aug and Sep and then start declining towards 5.80% in December. I’m generally guided by average of 10y historical mom spreads to outline the trajectory. The risk to inflation come from spike in prices of paddy (10%) and pulses (2%). Liquidity – Liquidity surplus stands at 84K crore ( LAF ) as on aug 17, 2022. The system has a durable liquidity surplus of 464K crore. LAF + Government Cash balance equal durable liquidity, hence government cash balances stand at 380K Crore. The LAF number would improve as RBI starts spending. In the months ahead till December, CIC leakage is estimated at 110K crore - 3% - 3.50% on account of currency leakage during festival season and 2 state...

 A small overview on fx swaps: Swaps is an agreement to exchange cash flows. So say I (Bank A) have surplus USDs and I need INR. However, Bank B is in the exact opposite situation. So Bank A can swap cash flows with bank B.  I will give out the surplus USDs in exchange for INR and Bank B will do the vice versa with an agreement to swap out the cash flow at the end of the term. USDINR spot 76.00 USD Rate 0.50% INR Rate 4.00% Tenor 1 year The transaction can also be thought of in terms of buying and selling of money market instrument. So say I buy USD security, I will give out USD to you and receive interest on USD. I sell INR security and receive INR funds and pay out the interest to you.  Basically, interest rate parity is a fundamental concept linking the exchange rate to the interest rate. It defines a no arbitrage condition, wherein my hedged returns are same whether I invest in a USD security and convert it to INR or invest in an INR security and convert it to USDs. F...

 It's been a really long time since I posted last and I feel inspired to do so again and share with readers my thoughts and concepts. I have decided to start posting 1 concept a day related to markets. The concepts are chosen at random and as we move forward in the journey we can give it more structure. All the best !!

  In my previous post, I had indicated longs can be accumulated in the zone of 63.60 - 63.70.   On Friday, .Inr made a high of 63.695 ( prz for the bat pattern was b/w 63.60-63.70).  The CD leg of the bat pattern was characterised by a falling wedge.  Falling wedges in a rising market are indicative of a reversal / continuation. Trend line resistance for the wedge was at 63.75. We traded past the resistance to trade a high of 63.88.  Now target for INR is 64.15 with a stop at 63.68.

From The Economist Espresso: The shivers: America’s shrinking economy http://econ.st/1EAsEIF

USDINR has formed a nice BAT pattern on the hourly's -  targeting 63.60. Longs can be accumulated in the zone of 63.60 - 63.70. Also be mindful that 63.57 is the zone from where we reversed.

The trigger for the fall is largely being attributed to PBoC draining cash from the banking system on Thursday via "back-door repos” to the tune of 100 bn yuan in 7, 14 & 28 days contract.  Bloomberg reports that PBOC likely refrained from offering repos in open-market operations to avoid signalling a tightening of policy. China’s lenders are awash with funds after the central bank reduced interest rates three times since November and eased reserve requirements to help an economy growing at the slowest pace since 2009 (update to the earlier post below) Of note, SSEC fell 6.50% today after having risen almost 150% in a year. Couple of factors led to the fall: Central Huijin holdings (state investment fund) which until recently was not allowed to sell its stake in big banks has now been allowed and offloading of big chunk lead to a massive sell off A decision from index provider MSCI, due on June 9, on whether to include domestic Chinese ...

GBPUSD is carving out a beautiful BAT pattern.  Attaching the snapshot for your reference. PRZ for the pair is 1.5170 to 1.5270. One can accumulate longs in this zone for a stop at 1.5112. Bat patterns are pretty liable patterns and have a high probability of success.

USDINR made a slanting H&S pattern. The neckline of the pattern was at 63.57. One would've gone short with a stop loss at 63.89 - the high of the right shoulder. Today that level was breached and we traded a high of 64.00. Failure of a technical pattern is potent for USD bulls. I am also seeing a double bottom with 63.50 as the tip of the pattern and neckline at 63.85 levels. Immediate target for USDINR is 64.20 which happens to be the earlier high.  On the monthly chart, I'm seeing the formation of a BAT (harmonic pattern) which opens the room for 65.82. Fundamentally, RBI has been constantly intervening in the Fx markets to augment its reserves plus also to create a line of  defense to curb excessive volatility as and when Fed decides to hike rates. Since we are a current account deficit country we rely on capital flows and a hike in rates in US will impact USD flows and outflows could be exacerbated due to broad portfolio rebalancing by FIIs ...

12th May 2015 - Quick snapshot 1.        The revenue department will not act on demands for minimum alternate tax on foreign investors nor will it make any fresh MAT claims 2.        Lok Sabha passes bill on Black money 3.        NDA may agree to demands to refer the GST bill to Rajya Sabha’s select committee and form a joint panel of Parliament to examine land bill 4.        Brent crude marginally lower @ 64.85 5.        10Y bond yield rose 8 bps for Spainish debt, 6 bps for German bunds 6.        Japan’s Meteorological Agency, first to project an El Nino in 2015 will release its monthly forecast today. 7.        India releases April CPI data today; reading is expected to be 4.9%. Inflation is expected to further ease from 5.17% for the month of march. RBI in its...

Hey people..  It's been a long absence.. I have been blessed with a baby and that explains..  I will be resuming my blogging now..  Analysing RBI's money market operations since beginning March, we observe announcement of variable reverse repo auctions. RBI in essence has been trying to maintain liquidity at current repo rate and not let the LAF window operate near reverse repo rate as that straight away amounts to 100 bps of rate cut. Monetary Policy Review (MPR) shows that RBI is cognizant of the extremely high asset valuations of riskier assets such as equity and lower rated debt instruments due to ultra-loose monetary policy of AEs. Our vulnerability to a crash has increased. Many economists and traders have issued a warning in this regard, most recent being Jamie Dimon. Mohamed El-Erian concedes that most asset prices have been pushed to very elevated levels and he is now “mostly in cash”. Upside risks to INR depreciation have only increased. So I would look to initi...

Target of 60.00 was met. 60.00 is a very crucial level and a sustained and decisive break below 60.00 is needed for rupee to target 57.00. After making a low of 59.59, USDINR was constantly bid up today. We touched 9% on the 10Y benchmark yield and equity benchmarks closed marginally down. 9% yield on 10Y G-Sec does not bode well for the overall economy. With downside risks to CPI inflation, the return on deposits by banks will have to be increased to incentive depositors to put the savings in banks. The growth in aggregate deposits at 11.5 per cent in September 2013 lagged behind the credit growth of 15.10%. With liquidity being tight, deposit growth will have to play catch up for smoother credit off take. Plus if the cost of deposit rises then so does the cost of credit. Higher rates on credit coupled with sticky inflation, will only delay the revival in investment cycle. Announcement of OMOs will support the yields. However, any action is yet to come from RBI. In a scen...

While Rupee has been consolidating in the 60.80 – 61.40 range I have been questioning if appreciation beyond 60.50 levels is warranted and should one go long here. Had a couple of points in mind: 1.   When rupee had surged past 64 – 65 levels, Indian Exports had become cheaper compared to Chinese exports due to sharp depreciation of the INR. INR has since appreciated 11.25% and CNY has depreciated 3% in 2 months. This basically goes to show that Indian Exports will lose the competitiveness and the natural adjustment process associated with depreciation will be halted if rupee continues to appreciate. Is RBI comfortable with rupee below 60.00 levels when other emerging market currencies are depreciating? 2.     Looking at the Fx Reserves - Our FX Reserves are at $ 295.448 bn as on 07 th March 2014 from lows of $ 274.806 bn in Sep 13. The maximum Fx reserves held from data analysed since 2001 is $ 320.785 bn held in Sep 11. Can we say that RBI then can atlea...

On my post dated 10 November, 2013, I had shared my view to go long around 99.00 levels with a clear stop below 97 for a target of 108.15. We are currently trading @ 105.00 levels having already captured 6 big figure move. One may take profit on half the position and run the remaining for 107.00 levels. We may first test 106.00 and then retrace for 107.00 levels. P.S. I am a long 15 day leave and hence not updating frequently. Promise to be more regular !!