Weekly Musings – Macro Quartet for the week ending June 9, 2023

11 Jun 2023 , 09:09 AM

These include the 10-year bond yield, the USDINR exchange rate, Brent Crude oil prices and the spot prices of gold. In a way, all these tend to be related to each other. For instance, higher crude prices weaken the rupee but a strong dollar weakens crude and gold prices. Similarly, fall in rates enhance the allure of gold as it reduces the opportunity cost of holding gold. These links can go on. While the thrust here is on the latest week, a 4 week perspective has been provided to understand the trend better.

Bond yield trends for the week to 09-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. However, in the latest week to 09-June, benchmark bond yields have once again jumped above the 7% mark.

Date	Price (%)	Open (%)	High (%)	Low (%)
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
Jun 05, 2023	6.997	7.005	7.009	6.994
Jun 06, 2023	6.977	6.999	6.999	6.974
Jun 07, 2023	6.982	6.984	6.986	6.972
Jun 08, 2023	7.021	7.006	7.023	6.990
Jun 09, 2023	7.039	7.012	7.044	7.012

Data Source: RBI

The latest week saw a disruption in the downward journey of banks. The RBI policy expectations played a role here. On Friday, when the RBI announced its bi-monthly policy, the focus was on keeping status quo on rates. However, the RBI governor did caution that rate cuts were ruled out. Also, the MPC language on inflation was quite hawkish. The markets have been worried that delayed monsoons could spike inflation pushing up bond yields higher. It was a combination of inflation expectations and the delayed monsoons that led to a late bounce in bond yields during the week. With surplus liquidity in the banking system, the RBI has also been using SDFs to absorb liquidity and that also tightened yields.

USDINR equation stays in a very narrow range for the week

The rupee was in an extremely narrow range in the previous week. While better than expected GDP had been a positive for the rupee, markets remain cautious about the hawkish tone of the Fed. That has led to dollar strength, putting pressure on the rupee.

Date	Price (₹/$)	Open (₹/$)	High (₹/$)	Low (₹/$)
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
Jun 05, 2023	82.520	82.456	82.697	82.398
Jun 06, 2023	82.510	82.511	82.663	82.483
Jun 07, 2023	82.500	82.510	82.587	82.454
Jun 08, 2023	82.488	82.628	82.628	82.475
Jun 09, 2023	82.440	82.515	82.525	82.404

Data Source: RBI

In the previous two weeks, the rupee weakened against the dollar despite robust FPI flows. For now, the RBI decision to keep rates static should keep the rupee in a range. The better than expected GDP growth and the promise of being the best performing large economy is likely to proffer strength to the rupee. In addition, the RBI has been in the market trying to hold the rupee in a steady range and that was evident in the constrained movement of the rupee during the latest week.

Oil prices weakened despite supply cuts by Saudi Arabia

There had been some concerns over oil prices when Saudi Arabia unilaterally decided to cut supply by 1 million bpd from July. However, that has hardly impacted the prices as is evident from the table. Even the decision by OPEC to increase the price of oil supplies across Asia has little impact on the oil prices.

Date	Price ($/bbl)	Open ($/bbl)	High ($/bbl)	Low ($/bbl)
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
Jun 05, 2023	76.71	77.68	78.73	76.31
Jun 06, 2023	76.29	76.55	76.75	74.72
Jun 07, 2023	76.95	76.22	77.64	75.51
Jun 08, 2023	75.96	76.80	77.68	73.58
Jun 09, 2023	74.79	75.53	76.57	74.71

Data Source: Bloomberg

During the week, the price of Brent Crude fell from close to $77/bbl to around $74.50/bbl. Even as Saudi Arabia has volunteered a unilateral cut in supplies by 1 million bpd, the markets have been more concerned about the impact of a global slowdown on oil prices. China demand has been weak and India is now relying on Russia for 42% of its oil import basket. That has surely marginalized the impact of the OPEC and that was evident in stock prices. The primary concern for oil now remains the risk of a global economic slowdown.

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 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
Jun 05, 2023	1,961.45	1,947.59	1,964.13	1,938.14
Jun 06, 2023	1,962.85	1,962.11	1,966.85	1,954.00
Jun 07, 2023	1,939.63	1,963.59	1,970.26	1,939.80
Jun 08, 2023	1,967.76	1,940.59	1,970.50	1,939.81
Jun 09, 2023	1,960.60	1,968.10	1,973.09	1,956.73

Data Source: Bloomberg

In the last 3 weeks, the price of spot gold has struggled to sustain above the $2,000/oz and that trend continues. Spot gold prices had crossed the $2,000/oz during the early part of May 2023, when concerns over a likely debt default had boosted gold prices. However, with the debt deal signed, and unlikely to be a concern for another 2 years, gold is reacting negatively to the strong dollar. 

The global slowdown fears have also resulted in weak consumption demand for gold and that is showing in gold prices facing resistance at $2,000/oz. As in the past, a rapid fall in interest rates could be a boost for gold, but that looks unlikely in the near future, if you go by the language of the global central banks.

To sum up the week to 09-June 2023, gold and brent crude have been under pressure, largely on account of a strong dollar. Bond yields in India spiked above the 7% mark on liquidity tightening and food inflation worries while the RBI is keeping the USDINR in a tight range.