Markets' focus stays on elevated 10Y yields
India 10Y yields have been rising since the RBI's Jun'25 policy. Recall here that even after the 50bps Repo & CRR cut from the RBI, 10Y yields have been on the rise. The reasons have been different: June saw crude prices 1/4 move higher and 10Y tag along, July saw a sharp depreciation in the Rupee and August lower liquidity surplus. Last few weeks have seen liquidity surplus contract sharply to Rs.1.8tr, from Rs.4tr+ at the start of August. While 10Y yield largely mimics this, August also 2/4

The tax conclusion. Markets heard comments last month from India's Principal Economic Advisor Sanjeev Sanyal talking about how 99% of the bond inclusion work was through. What are the key issues that are pending then? They are largely tax related. Let...(1/5) ...us take a look at what they are. Indian government security investments are subject to two key taxes: #withholdingtax (WHT) and #capitalgainstax. WHT on coupons is currently at 5% (+cess+surcharge), meaning that this tax is deducted from the coupons received. And...(2/5)

What is #Euroclear then? Euroclear is a major global clearing house that settles and clears securities traded on European exchanges. While some commentators feel this is not a must for Indian bond inclusion into major indices, it is certainly seen as a big sentimental...(1/4) ...positive. This is because onboarding bonds on Euroclear means that foreign investors need not worry about registering with onshore authorities, opening onshore accounts, and taking care of tax norms for transactions in India bonds. This appears relevant because some...(2/4)

What bond inclusions are the markets talking about? #India appears to be targeting inclusion into the #Bloomberg #Barclays Global Aggregate Index and JP Morgan's GBI-EM Global Diversified Index. Note here that the Bloomberg-Barclays index has an estimated passive AUM...(1/4) ...tracking of around $2.5tr and the #JPMorgan index around $250bn. Based on the above-mentioned o/s G-Secs held by foreign investors under the FAR, analysts estimate India to be given a weight of 0.3%-0.5% in the Bloomberg-Barclays index and 9.2%-10% in the JP Morgan...(2/4)

Indian governments have always been circumspect around foreign investment #debt markets. The taper tantrum was one such event that added to this discomfort. However, over the years, the current political dispensation has been very pro-active and disciplined in its...(1/7) ...approach towards the fiscal. In hindsight, its call to not stretch its finances during the #COVID19 phase, but deliver targeted measures, has worked very well for the country from the eyes of rating agencies. The last couple of years have witnessed a shift in attitude...(2/7)

Will #India see an increase in cases like #Kerala? Kerala daily infections appear to have just seen an increase after its recent festival ended. This appears to have been just after a surge in mobility indicators. The festive season for India as a whole is set to start...(1/5) ...early October and extending into mid-November. Like seen in Kerala mobility indicators that have just near normalised are expected to see a sharp increase. If Kerala #COVID19 cases rise now, can one extrapolate this into India infections? One cannot say for sure. But...(2/5)

One 'hawk' does not initiate normalisation. The markets were keenly awaiting the #MPC #minutes. And one can comfortably say that the details of what was discussed was hardly as hawkish as the markets had assumed soon after the policy. Prof.Jayanth Varma was the single...(1/12) ...dissenter in the August monetary policy. He voted against the status-quo accommodative policy on the following key counts. Firstly, he believed that the reverse repo rate must not remain at current levels (3.35%) and that a phased normalisation was warranted. He...(2/12)

China PMI weakness ahead? Following up on the quoted tweet, one zeroes in on #China's #manufacturing #PMI. Key Asian economies have seen weakness on the back of a rise in their #COVID-19 curves and related restrictions on activity. China has been experiencing multiple...(1/4)

https://twitter.com/arjungn80/status/1422133166093922304

...issues. The recent policy shock aside, from mid-July, China saw power outages, significant floods, all in provinces housing key manufacturing-hubs. Adding to this, the recent surge in COVID-cases have led to a string of lockdowns/restrictions across 14 provinces. While...(2/4)

Is the #RBI's #VRRR move policy normalisation? Fridays' note argued that the upward calibration of the variable rate reverse repo (VRRR) was not a sign of normalisation of policy, especially when the Governor said it himself explicitly. The note argued that the VRRR...(1/12) ...calibration was just shifting of monies from one pocket to another, especially when the #callmoney rate is still 22bps below the reverse repo rate. The focus therefore is to bring the call rate closer to the policy rate, when system liquidity is on the rise. One can...(2/12)

Have faith in the Fed. In his testimony to the Congress/Senate Banking Committee, Powell urged lawmakers to have faith in the Fed's judgement. The Fed Chair reiterated his message that inflation would stay elevated for a few more months before moderating...(1/6) ...and that it would be too risky to tighten policy too early. He said:
“The challenge we’re confronting is how to react to this inflation, which is larger than we had expected or that anybody had expected. To the extent that it is temporary, then it would not...(2/6)

#Crude down 5% in the last few days. Crude prices have been correcting over the last few days by around 5% from its recent high of $75.4 on Wednesday. This comes on the back of press reports quoting #OPEC+ sources that the #UAE had reached a compromise. UAE's baseline...(1/4) ...output is expected to be increased to 3.65mbpd from the current 3.17mmbpd. This is broadly in line with recent market expectations. This eases the markets' read of a tight supply situation and helps soften the demand-supply balance, especially given the...(2/4)

US inflation reaffirms 'transitory'. US inflation continued to rise and stood higher than expectations for a third month in a row. US inflation for the month of June stood at 5.4% y/y, much higher than market expectation of 4.9%. Core inflation also rose higher to...(1/8) ...4.5%, higher than the 4% consensus.
Why does this again reaffirm transitory for the Fed? This is mainly because the key drivers of inflation came from almost the same items seen in earlier months: used cars/trucks (45%), gasoline (45%), fuel oil (45%), utility...(2/8)

Vaccines seem at work in the #UK. With every incremental day of contained deaths in the UK, the efficacy of the #vaccines in containing #COVID19 mortalities appears clearer. The infection and mortality curves in the UK make this fairly clear. While the infections curve...(1/6) ...in the UK continues to rise and is yet to see a peak, the daily fatalities have barely seen a pickup, compared to where it was the last time around. During the last wave, the mortality curve saw a pickup around a month or so after the infections curve. Looking...(2/6)

Does the #US10Y yield puzzle affect India? An earlier tweet covered the various angles to the US10Y yield puzzle. The perceived softness around #USgrowth appears to stand-out as a prominent reason. During the same time last week, we saw a sharp rise in the Indian 10Y...(1/12) ...yield to 6.18%. This appears to have been on the back of the #RBI's surprising (disappointing for traders/underwriters) choice of picking relatively illiquid papers for its new tranche of G-SAP 2.0. The announcement of a new 10Y benchmark paper auctioned on...(2/12)

Five things that can keep crude prices in check. The conversation around crude prices will not be complete till one takes a closer look at the supply possibilities. The last tweet touched about Iran. Note here that the end of Iran sanctions is expected to bring...(1/7) ...about a near-term increase of 0.5-0.7mbpd of Iranian crude into global supply. It is interesting to learn that Iran used to export 2.4 mbpd, compared to the current level of 0.1 mbpd. Now, the numbers get even more interesting when one looks at US shale. The...(2/7)

Can crude really touch $100/bbl?. After initial commentary globally around the probability of $100/barrel on crude, the narrative appears to be moderating a bit. The global oil market that was in a surplus of 2mn barrels per day (mbpd) in 2020 and turned into a...(1/6) ...deficit of (1.6)mbpd during the first six months of this year 2021. This deficit is an artificial one, on account of the production cuts imposed by the OPEC+ to keep prices elevated. Commentators appear to increasingly feel that crude could peak around $80/bbl. Higher...(2/6)

Immediately after a sharp runup in crude, a drop appears to have puzzled some. The drop in crude appears to be largely on the back of a moderation in the earlier run-up in price. Heres a quick backdrop on the entire issue. During the pandemic, the OPEC+ countries...(1/12) ...agreed to production cuts that would span a broad 2Y period of May'20 to Apr'22. This was to keep crude prices from collapsing on the back of a sharp drop in demand caused by the pandemic. The production cuts peaked to around 10.3mn barrels per day (mbpd) in June'20,...(2/12)

We need to learn to live with COVID-19 and its variants. This appears to be what bellweather economies seem to be saying. While we are all aware of the US opening up, almost entirely in July, Singapore, and UK stand out in particular. Singapore is moving away from a...(1/7) ...“Covid-Zero” strategy of completely stamping out the virus from its country through strong border controls/aggressive contact tracing/social distancing. Singapore is now moving to a strategy that focussess on reopening its economy through mass-vaccinations with...(2/7)

India and its oil-dynamics. We spoke last week about the two key known unknowns that the global and domestic markets were closely tracking. This week, we take a look at India's oil dynamics. Before we get to the specifics, it is very important to note here that a rise in...(1/9) ...oil prices in itself does not matter. It is why they rise that is of more importance. If the increase in oil prices is because of an increase in demand, then it remains a positive. This is because like a rising tide lifts all boats, the increase in oil prices...(2/9)