StockmarketbreatherandincreaseinRupeevolatility

Stock markets have taken a breather from the relentless upwards movement. The Dow Jones is down 1.5%, the Hang Seng, Nikkei, and Shanghai are also showing relatively subdued trade. As the moves are small, there is no point in reading too much into this and attributing reasons to the same. It can be because some market participants have decided to take some money off the table without any change in their overall view. Nassem Taleb in his book Fooled by Randomness writes that daily moves in prices, unless above a certain threshold, should not be justified by a post facto concoction of a reasoning.

On the data releases for yesterday, in the US the JOLTS data was released for the month of May. The data showed that the job opening numbers were better than expected and provided a shot in the arm for the “V” believers. But as this data point is a delayed one (unlike NFP), the current spate of new virus cases and increased obstruction in reopening are probably not being reflected in the data.

Across the Atlantic, the Euro struggled against its peer currencies as the European Commission warned that the countries like France, Spain and Italy can face desperately deep recessions later this year. The industrial production data released for Germany for the month of May saw an improvement of 7.8% mom. The same figure the previous month had witnessed a downfall of 17%.

US Secretary of State Mike Pompeo told a news channel yesterday that the US is looking to ban a social media app for Sino parentage as it fears that the private data of the users is getting compromised. Interesting to note will be the Chinese response on this and whether consumer apps will be the new frontier in the rhetoric war between the two countries, as it is already being fought in domains like 5G hardware and intellectual property.

In India the rupee has come back to 75 levels amid increased intra-day volatility. With increased paying in the forward markets the forward levels have also moved up, increasing the hedging cost of USDINR. This impacts importers as well as foreign investors who bring in short term money into India on a fully hedged basis. As these investors are interested in returns net of any currency exposure, increased hedge costs work as a deterrent and force them to consider other currencies with a similar risk profile. USDINR spot opened around 74.88 levels today.

On the bond side, the news of de-escalation on the northern border, apart from the expectation of fresh OMOs, has helped creates a rise in yields. The 10 year benchmark bond closed at 5.79 levels yesterday against the previous close of 5.84 the day before. The SDL auction cut off results yesterday came as per market expectation as most of the states were able to sell their 10 year paper around the 6.5% mark.