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10/5/2018 Wealth Overview

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Government takes steps to curb oil pressure


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10/5/2018 Wealth Overview
Government takes steps to curb oil pressure

(https://www.icicibank.com/campaigns/mailers/2016-june/sotw-17-06-2016/voice118.html)

Indian Economic Update

The government on Thursday reduced excise duty for crude oil by Rs 1.50 per litre and
said the Oil Marketing Companies (OMC) will absorb the impact to the tune of Re 1 per
litre. Following the Centre’s path, Gujarat and Maharashtra also reduced fuel prices by
Rs 2.50 per litre.
The Reserve Bank of India (RBI) has allowed state-owned oil marketing companies to
raise external commercial borrowings for working capital with minimum average
maturity period of 3/5 years from all recognised lenders under the automatic route.
Further, the individual limit of USD 750 million or equivalent and mandatory hedging
requirements as per the External Commercial Borrowing (ECB) framework have also
been waived for borrowings under this dispensation.
The growth of eight infrastructure sectors slowed to 4.2% YoY in August against 7.3%
YoY last month on account of decline in production of crude oil and fertilizer.
Manufacturing Purchasing Managers Index (PMI) rose to 52.2 in September from 51.7
in August. Services PMI, although showing expansion, dropped from 51.5 to 50.9.

Global Update

US Treasury yields rose sharply across the curve responding to a combination of


stronger US data releases and hawkish statements from Fed Chair Mr Powell. The US
10-year yield moved to its highest level since 2011.
Private businesses in US hired 230K workers in September, compared with an upwardly
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10/5/2018 revised 168K in August and beating market expectations of 185K. ItWealth is the highest
Overview
reading in seven months.
According to Fed Chair Mr Jerome Powell, the rise in wages is broadly consistent with
observed rates of price inflation and labour productivity growth and therefore does not
point to an overheating labour market. Adding further, he said that higher wage growth
alone need not be inflationary.
US President Mr Donald Trump has threatened to impose new tariffs on additional USD
267 billion worth of imports from China and asserted that there will be no deal with
Beijing unless it changes its unfair trade practices.
Services PMI in UK fell to 53.9 in September from 54.3 in the previous month,
manufacturing PMI rose unexpectedly to 53.8 in September from an upwardly revised
53.0 in the previous month.
Ms Theresa May addressed the rest of her Conservative party but there wasn't anything
from her speech there to suggest much change to the Brexit rhetoric so far.

Equity
Domestic stock markets ended lower on a weekly basis, amid weakening rupee and surging
crude oil prices. Most of the major indices were trading in the red.
The recent developments with respect to adverse macros have created fear of systemic risks
especially in the non-bank financials space – causing stocks in general to correct sharply.

During the week Sensex lost 5.11% to close at 34376.99 and Nifty declined 5.62% to close at
10316.45.

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10/5/2018 Wealth Overview
Debt
Global oil prices and persistent weakness in the INR proved to be upside drivers for domestic
yields.
Some near-term relief was expected from the dual releases of a much lower than expected
market borrowing programme and the RBI announcing Open Market Operations (OMO)
purchases of INR 360 billion to be conducted over October 2018.
RBI injected liquidity to the tune of INR 431.72 million (net) under Liquidity Adjustment Facility
(LAF) (including fixed and variable rate repos and reverse repos) as of October 3. It injected
Special Refinancing Facility of INR 19 billion.

The 10Y benchmark yield ended at 8.05% as compared to the previous week’s close of
8.02%.

Oil
Oil prices remained near four-year highs ahead of US sanctions against Iran’s oil exports that
start next month.
The report of American Petroleum Institute (API) showed that U.S. crude stocks rose by a
lower than expected 907,000 barrels for the week ended September 28.
The Energy Information Administration (EIA) data showed a large increase in US crude oil
stocks of approximate 8 million barrels last week to about 404 million barrels, the biggest
increase since March 2017.
Saudi Arabia is expected to raise its output to 10.7 million barrels per day (mbd) in October
and is planning to increase that beyond the 10.7 mbd mark in November as per the Saudi
Arabia minister.

Gold
Gold edged higher, trading at over USD 1,200 per ounce level. However, the uptrend in the
yellow metal was curbed because of a higher Dollar index that continues to remain supported
by robust US economic data and hawkish comments by the Federal chair. Investors also await
the nonfarm payroll (NFP) data due for release on Friday.

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10/5/2018 Wealth Overview
Currency
High oil prices weighed on the Rupee, which traded above the 73 handle for the first time.
The Dollar rose to a one-month high because the Euro slumped as concerns over Italy's
budget deficit rattled investors.
Political concerns surrounding Italy stay poised to keep the risk-associated complex under
pressure and therefore continue to lend support to the upside bias in the greenback. Euro is
trading at ~ 1.15 levels and the Pound is currently trading at ~ 1.3 level against the greenback.
USD/JPY is trading at ~ 114.2 level, entering consolidative mode ahead of US NFP report.

Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and
CRISIL.

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