USDINR and Global markets – morning update
25th September 2020
INR likely to open around 73.80
Markets stabilized yesterday after a late surge in equity markets in the US kept the main indices in the green. DOW ended 0.2% higher, and the futures continue to show more gains for equities today. Asia has opened positive after days of caution. USD reversed some of its gains, and the Dollar Index is around 94.4, after touching 94.6 yesterday. EUR is at 1.1665.
Coronavirus cases jumped 307k yesterday. The US has been seeing a slight increase in daily cases, yesterday’s being at 44k. Hospitalizations in places like NY are slowly creeping up, which is a concern. EU is now in a full-fledged second wave. France reported 16k new cases, and Spain reported yet another 10k rise. The UK reported 6.6k cases, close to being its highest ever. Chatter about lockdowns being re-imposed in some form is keeping markets worried. India has been reporting lower than 85k cases over the past few days as the testing rate has fallen to <1 million a day. The positive test ratio has come down slightly to 8% now, which is a silver lining. Further, the number of daily deaths has stabilized below 1150 for the past few days and has not blown up beyond 1250.
As per our estimate, taking into account the real mortality rate, India already has close to 250-300 million cases and growing at 2-3 million a day. At this rate, it would be at least another month before the optimistic herd immunity of 30% odd is achieved (assuming that a significant chunk already has natural immunity in the form of T-cell response). But, worryingly, places like NY have started to see a pick-up in cases. The antibody data from Thyrocare in some areas suggests that the seven-day moving average of the % of positives is lower than the cumulative number i.e. the % prevalence of antibodies has fallen in some areas. The next 3-4 weeks are critical to assess if there is a risk that the antibodies don’t stay for long, leading to a risk of a second infection. All is depending on where the true herd immunity threshold is for assessing when the pandemic would disappear.
INR could take a breather today as the overall USD strength has subsided. USDINR is now close to a strong resistance zone around 74.00. Economic data has been pointing to a slowdown in the pace of recovery, especially on the employment side. EU PMIs (services) have been slightly lower than expected. US jobless claims continue to be elevated. With a higher probability of more lockdown restrictions, the last quarter of the calendar year would be volatile from a market perspective. INR has survived on large FDI flows and the one-off FII bonanza in August of more than 10 billion. As flows dry up, the possibility of a continued INR appreciation has also diminished and the balance has tilted towards some Rupee depreciation, albeit milder compared to the previous dash.