Indian Bond Yields have risen to most since July 2016

Indian Economic Update

The minutes of RBI’s December MPC meet were released. Most of the members highlighted upward risks to the inflation trajectory, fiscal slippage risks and flagged major growth concerns.
Deputy Governor, Mr. Viral Acharya noted that there was limited scope for accommodation or a change in stance currently.
The Bharatiya Janata Party secured the majority of seats in each of the Assembly elections for Gujarat and Himachal Pradesh.
India's exports rose 30.6% in November from a year ago, while imports were up 19.6% in the month, resulting in a trade deficit of $13.8 bn, lower than $14 bn in October.
India's forex reserves fell $1.04 bn to $400.9 bn in the week to December 8.
IMF says demonetisation caused some temporary disruptions in India's economic activity due to cash shortages, but the effects are dissipating.

Global Update

US House of Representatives approved the tax reform bill by a 224-201 vote (second vote). The bill now heads to President, Mr. Donald Trump for signing the bill into a law.
The greenback's performance against a basket of six major currencies languished near two-week lows today due to some procedural issues that delayed the passage of the much awaited tax reform in the US House.
The Pound continues to derive support from the renewed optimism around the Brexit issue, especially after the UK PM, Ms. Theresa May and US President, Mr. Donald Trump agreed on the importance of swift post-Brexit trade talks.
In the US: Housing starts advanced by 3.3% MoM in November, significantly above market expectations of 3.1% MoM decline. The reading was, however, lower than the 8.4% MoM growth registered during the previous month.
US: Industrial production slowed down in November, expanding by 0.2% MoM, a sharp pull back from prior month’s 1.2% MoM advancement. Total net TIC flows stood at USD 151.2 bn in October, a sharp improvement over prior month’s USD 42.6 bn outflow. The long-term components however, declined to USD 23.2 bn from previous month’s USD 80.9 bn.

Equity

RBI’s December policy meet minutes which ruled out any probability of monetary accommodation, has weighed on investor sentiment.
During the week in a markedly volatile trading session, markets swung between losses and gains. But the mood soon swung for the better as trends reversed, with the Bharatiya Janata Party securing a majority of the seats in both states.

 

During the week Sensex gained 1.43% to close at 33940.30 while Nifty inclined 1.52% to close at 10493.00.

Debt

Fears of fiscal slippage and extra borrowing along with surging inflation are weighing on investor sentiment. However, markets recouped most of the early losses on reports that government may consider spending cuts to meet fiscal targets.
Government introduced the second Supplementary Demands for Grants in Parliament asking approval for INR 661 bn and INR 334 bn of gross and net spending respectively during the current financial year.

 

The 10Y benchmark yield ended at 7.27% vs. previous week’s close of 7.13%.

Oil

US crude stockpiles at the key pipeline hub in Cushing, Oklahoma, probably fell by 2.2 million barrel last week.
Oil edged higher, amid an ongoing North Sea pipeline outage. Supported by OPEC-led supply cuts and expectations that US crude inventories fell for a fifth week.
Signs that booming US crude output growth may be slowing as oil driller cuts their rigs by 4 last week also supported crude prices, although the 2018 outlook still points to ample supply despite production cuts led by OPEC.

Gold

The yellow metal rose to near two-week highs as it continued on its recovery mode, supported by a weaker dollar. Adding to this, a mildly softer tone around the US Treasury bond yields provided an additional boost to the non-yielding commodity and further collaborated to the yellow metal's up-move to the USD 1265 level.

Currency

RBI injected liquidity to the tune of INR 565.43 mn (net) under LAF (including fixed and variable rate repos and reverse repos), as of December 20.
It injected INR 0.76 and INR 20.79 bn under Marginal Standing Facility and Special Refinance Facility respectively.
During the week rupee opened higher at 64 against the US dollars on Wednesday.

 

Source: ICICI Bank Research, Bloomberg and CRISIL.