Overnight Headlines
At least half of euro zone governments as well as banks and large companies are making contingency plans in case Greece decides to leave the single currency area, even though the preferred option is still for Athens to keep the euro.
The number of Americans filing new claims for jobless benefits dipped last week, indicating the economy is plodding along even though headwinds from Europe cut into U.S. factory activity growth this month
Britain fell deeper into recession than initially thought in the first quarter of 2012 due to a slump in construction output, raising the likelihood that the Bank of England will opt to inject more stimulus to protect the economy from the euro zone debt crisis
Foreign Exchange Market
USD/INR:
The dollar fell to 55.76/78 from a record high of 56.40 hit earlier in the session after the RBI governor Duvvuri Subbarao said the central bank was not ruling out issuing dollars directly to oil firms. The central bank is not considering a sovereign bond offering but has an option to sell dollars directly to state oil companies. Stops got triggered after the RBI comments. Foreign banks were seen selling dollars, with traders of the view that it was likely on behalf of their overseas clients who were investing in domestic shares. Benchmark BSE index rose 1.7%. The pair is expected to gain after dropping yesterday as most Asian stocks gave up early gains. The pair had closed at 55.65/66 levels. Currency players increased short positions in INR since Nov 2011. Traders will keenly watch RBI intervention both in spot and forward market. The range expected in the day is 55.60-56.20.
Forwards:
Forwards was largely range bound as FIIs were paying against receiving interest coming from profit takers. Rajesh Sharma CMD Money Matters Financial services ltd said he expects that the market would pay on dips on forwards. The 3M and 12M forward premia closed at 7.25% and 5.31% respectively.
Fixed Income Market:
Government securities:
The benchmark bond yield was down three basis down at 8.48% on Thursday. Traders are hopeful that rise in petrol prices might prompt to increase other fuel prices including diesel and LPG. Though any price hike would be inflationary, traders said the positives from government willing to take the politically fraught step of raising fuel prices are more important in context of meeting its fiscal target of 5.1% of GDP. Bond prices are seen supported as long as RBI continues with OMOs and secondary market purchases. The bonds are seen at 8.48-8.55%.
OIS:
Overnight indexed swaps in the shorter tenures ended marginally up as hike in petrol prices by state-owned oil marketing companies fuelled concern over inflationary pressures and as risk appetite improved globally. The one-year OIS ended at 8.00-8.04% as against 7.99-8.03% Wednesday, while the five-year swap ended flat at 7.47-7.51%.5Y OIS is expected at 7.40-7.60%.