Daily Market Report: Tuesday October 16, 2012

The Indian rupee opened at 52.99 levels after closing yesterday at 53.02 levels. The Intraday range for the rupee is seen between 52.80-53.10 levels. The Asian peers are trading stronger after the U.S. reported better-than-expected retail sales. Nikkei advanced 1% as the local company confirmed a $20 billion acquisition of a U.S. competitor.

The Inflation figures released yesterday were higher than the expectation. The rising fuel prices boosted inflation in September to 7.8%, its highest level since November.

A rate-cut is quite unlikely, because the inflation data has been much above the consensus. The primary inflation has eased, particularly food inflation. Even non-food primary inflation has eased, but what is critical is core inflation. The Core inflation has escalated and the month-over-month momentum has not eased.

Events to look, the ministerial panel is expected to finalize the controversial land acquisition bill in its third meeting today.

Internationally, better than expected economic data drove the U.S. Dollar and U.S. stocks higher. The back to back improvements in U.S. data will definitely lead some investors to consider the possibility of an earlier withdrawal of monetary stimulus by the central bank and today's consumer price report will play a role in shaping those expectations.

The 10 year Spanish bond yields rose 19 bps today to 5.77%. The pressure is still building in Spain to ask for a bailout. We don't think that this will happen before the October 21st regional elections. The US treasury Yield is trading at 1.66% after rising to 1.67%.

The Indian 10-year bonds were little changed, with yields holding at two-week high, on concern accelerating inflation will keep the central bank from easing the monetary policy. The central bank will review its policy on Oct. 30.

Outlook: Rupee has made a temporary short term bottom below 51.50 levels. Exporters can sell above 53.00 levels; importers who couldn't cover at 52 levels can cover close to 52.60 levels. Exporters maintain selling partially only in long term. Rupee is expected to be in the range of 52 - 54 levels for next couple of months.

(Source: Corporate Communications Team, India Forex Advisors Pvt. Ltd.)