Weekly Musings – Macro Quartet for the week ending June 2

5 Jun 2023 , 08:31 AM

The quartet essentially constitutes of the 10-year bond yields, crude oil prices, spot gold prices and the Dollar rupee exchange rate. While the thrust will be on the latest week, we shall look at the data for the month to get a broader perspective of the trend in these four macro variables.

Bond yield trends for the week to 02^nd June

The table below captures the bond yields on the benchmark 10-year bond in India. After peaking at around 7.5%, the bond yields tested the 7% level through the last few weeks before decisively falling below the 7% mark in the latest week.

Date	Price (%)	Open (%)	High (%)	Low (%)
May 08, 2023	7.047	7.049	7.050	7.021
May 09, 2023	7.046	7.070	7.070	7.030
May 10, 2023	7.036	7.056	7.061	7.034
May 11, 2023	7.023	7.021	7.033	7.016
May 12, 2023	6.995	7.027	7.030	6.992
May 15, 2023	7.001	7.042	7.042	6.978
May 16, 2023	6.963	7.028	7.028	6.961
May 17, 2023	6.972	6.992	6.992	6.947
May 18, 2023	6.983	6.985	6.989	6.968
May 19, 2023	7.004	7.013	7.016	6.967
May 22, 2023	6.985	6.989	7.001	6.976
May 23, 2023	7.016	7.005	7.020	6.995
May 24, 2023	6.990	7.009	7.023	6.982
May 25, 2023	7.007	7.013	7.015	6.996
May 26, 2023	7.003	7.026	7.026	6.996
May 29, 2023	7.024	7.020	7.031	7.002
May 30, 2023	7.011	7.034	7.034	7.010
May 31, 2023	6.989	7.027	7.027	6.982
Jun 01, 2023	6.979	7.019	7.019	6.963
Jun 02, 2023	6.984	6.992	6.992	6.966

Data Source: RBI

What has led to the sharp fall in the bond yields in the Indian context? Firstly, there are expectations being built that the US Fed may also call a top on rates. Also, the RBI is broadly expected to maintain status quo on rates in the June policy too. Bond yields had spiked on fears that the debt ceiling default could spike yields, but with the deal being signed off last week, that risk is out of the way. That possibly explains the yields falling decisively below the 7% mark in the current week. The government borrowing program is also under control with the fiscal deficit target for FY24 reduced to 5.9%. The ability of the government to boost GDP to 7.2% in FY23 even while controlling fiscal deficit in the previous year also led to compression of bond yields. The yield trend is clearly heading lower from current levels.

USDINR equation and how it panned out this week

The rupee has been displaying weakness in the last couple of weeks, but this week the RBI intervention appears to have helped boost the rupee value versus the US dollar. Check the table below for how the USDINR tapered to Rs82.26/$ after scaling a high of Rs82.87/$.

Date	Price (₹/$)	Open (₹/$)	High (₹/$)	Low (₹/$)
May 08, 2023	81.770	81.711	81.836	81.659
May 09, 2023	82.100	81.787	82.162	81.771
May 10, 2023	81.900	82.105	82.114	81.875
May 11, 2023	82.090	81.926	82.195	81.901
May 12, 2023	82.173	82.120	82.244	82.095
May 15, 2023	82.237	82.244	82.388	82.182
May 16, 2023	82.264	82.239	82.317	82.160
May 17, 2023	82.400	82.272	82.460	82.260
May 18, 2023	82.720	82.453	82.797	82.348
May 19, 2023	82.878	82.767	82.953	82.623
May 22, 2023	82.840	82.809	82.903	82.725
May 23, 2023	82.830	82.835	82.890	82.749
May 24, 2023	82.670	82.880	82.897	82.570
May 25, 2023	82.733	82.680	82.821	82.666
May 26, 2023	82.570	82.745	82.748	82.542
May 29, 2023	82.586	82.591	82.682	82.511
May 30, 2023	82.665	82.557	82.794	82.548
May 31, 2023	82.680	82.648	82.777	82.620
Jun 01, 2023	82.266	82.666	82.668	82.268
Jun 02, 2023	82.398	82.277	82.447	82.262

Data Source: RBI

Like in the previous weeks, the dichotomy of the rupee weakening against the dollar despite robust FPI flows continued. However, the last two days of the week saw a sharp spike in the rupee. The rupee got a boost from the strong GDP data as well as the fiscal deficit for FY23 coming in a full 8 bps below the target of 6.4%. However, the real factor was the RBI intervention selling dollars to defend the rupee around the 82.5/$ levels. Post the GDP and fiscal deficit data and the RBI intervention, the rupee showed strength in the week.

Oil prices had a volatile week amidst news flows

As the debt ceiling concerns had continued, the crude prices had fallen sharply to 72/bbl. However, with the debt ceiling deal signed, the crisis has been averted and it is now very likely that the recession in macro growth may not really happen this year..

Date	Price ($/bbl)	Open ($/bbl)	High ($/bbl)	Low ($/bbl)
May 08, 2023	77.01	75.23	77.43	74.95
May 09, 2023	77.44	76.71	77.50	75.07
May 10, 2023	76.41	77.36	77.60	75.68
May 11, 2023	74.98	76.62	77.41	74.61
May 12, 2023	74.17	75.35	75.85	74.03
May 15, 2023	75.23	74.15	75.75	73.49
May 16, 2023	74.91	75.55	75.95	74.50
May 17, 2023	76.96	74.67	77.31	74.10
May 18, 2023	75.86	76.78	76.99	75.50
May 19, 2023	75.58	76.03	77.50	75.12
May 22, 2023	75.99	75.63	76.46	74.55
May 23, 2023	76.84	76.15	77.74	75.65
May 24, 2023	78.36	77.70	78.66	77.03
May 25, 2023	76.26	78.22	78.50	75.10
May 26, 2023	76.95	76.09	77.35	75.73
May 29, 2023	77.07	77.39	77.75	76.15
May 30, 2023	73.54	76.98	77.57	73.20
May 30, 2023	72.66	73.60	73.81	71.39
Jun 01, 2023	74.28	72.15	75.25	72.03
Jun 02, 2023	76.13	74.28	76.50	74.18

Data Source: Bloomberg

Brent Crude did manifest a late bounce in the week with oil gaining nearly $4/bbl in the last 2 days. Crude is still a global phenomenon and once the debt ceiling crisis was averted, markets started betting on a sharp spike in crude demand. Most traders have also been building long positions in oil. As long as the price of crude holds between $70 and $76, it is a win-win for all parties. Producers make their margins and buyers are not stressed beyond a point. Oil has broadly been in the range of $74 to $77 during the last one month.

Gold prices have weakened further in the latest week

The table below captures the international spot prices of gold in dollars per troy ounce (oz). A troy ounce is approximately 31.1035 grams. Here is a gist of gold prices in the week.

Date	Price ($/oz)	Open ($/oz)	High ($/oz)	Low ($/oz)
May 08, 2023	2,021.39	2,015.95	2,029.63	2,014.10
May 09, 2023	2,034.17	2,022.24	2,037.70	2,019.50
May 10, 2023	2,029.51	2,034.19	2,048.22	2,021.57
May 11, 2023	2,015.55	2,030.56	2,041.44	2,011.19
May 12, 2023	2,011.15	2,015.19	2,022.56	2,001.05
May 15, 2023	2,018.41	2,011.72	2,022.20	2,007.28
May 16, 2023	1,988.60	2,015.90	2,018.94	1,985.47
May 17, 2023	1,981.72	1,988.94	1,993.13	1,974.80
May 18, 2023	1,958.05	1,981.52	1,986.12	1,951.97
May 19, 2023	1,976.56	1,957.40	1,984.09	1,954.05
May 22, 2023	1,969.43	1,977.80	1,982.66	1,968.40
May 23, 2023	1,974.73	1,971.99	1,977.80	1,954.29
May 24, 2023	1,957.01	1,975.19	1,985.30	1,956.51
May 25, 2023	1,940.34	1,958.13	1,964.95	1,938.86
May 26, 2023	1,946.33	1,940.69	1,957.40	1,936.84
May 29, 2023	1,942.84	1,944.09	1,949.75	1,940.30
May 30, 2023	1,959.14	1,944.19	1,963.63	1,932.08
May 31, 2023	1,962.30	1,959.30	1,975.34	1,953.67
Jun 01, 2023	1,977.88	1,962.80	1,983.27	1,953.43
Jun 02, 2023	1,947.63	1,978.14	1,983.52	1,947.67

Data Source: Bloomberg

In the last 3 weeks, the price of spot gold has struggled to sustain above the $2,000/oz. It may be recollected that spot gold prices had decisively crossed the $2,000/oz during the early part of May 2023. However, in the last three weeks, the price of spot gold decisively dropped below the $2,000 mark. In the latest week, the price of spot gold has dropped to $1,947/oz. There are several reasons that have driven the price of gold lower.

Firstly, dollar strength has been a major dampener for the rally in gold. The debt ceiling decision led to a sudden strengthening of the dollar index. Secondly, a slowdown in demand means gold purchases are being postponed by most consumers. The only thing that could change this equation is a sharp fall in interest rates, which brings down the opportunity cost of holding gold. But that does not look too likely at this point.

During the week ended 02nd June, gold prices fell and the bond yields have also fallen decisively below the 7% mark. The USDINR remained volatile, but some strength in the rupee is visible on the back of RBI intervention. Brent Crude, the index of global commodities, has been in a tight and narrow range in the week.