India's Services PMI Rises To 61.2 In March After Small Dip In Feb

Economic

Summary:

Faster expansion in services activity, alongside a manufacturing industry growing at the fastest pace in 16 years in March, pushed the HSBC final India Composite PMI Index to an eight-month high.

India's dominant services industry grew faster in March amid strong demand, according to a private business survey that also showed employment increased at the fastest rate in seven months and export business expanded at a record pace.

The final HSBC India Services Purchasing Managers' Index, compiled by S&P Global, rose to 61.2 last month from February's 60.6, confounding a preliminary reading for a fall to 60.3.

That put the reading above the 50-mark separating growth from contraction for a 32nd consecutive month.

"India's services PMI rose in March, following a small dip in February, on the back of strong demand that spurred sales and business activity," said Ines Lam, economist at HSBC.

While buoyant domestic demand and favourable economic conditions drove up new business, exports jumped at the quickest pace since the sub-index was included in the survey in September 2014.

That encouraged firms to increase hiring at the fastest rate since August. That is good news for a country with millions of entrants to the workforce every year.

The outlook for the coming year remained optimistic, although last month's reading showed the future activity sub-index had slipped to a four-month low as there were some concerns surrounding competitive pressures.

Rising input costs coupled with robust demand led firms to pass on the increase to clients, resulting in prices charged climbing at the strongest rate since July 2017.

"Input costs rose at a faster rate, yet service providers were able to broadly maintain margins by charging higher output prices," added Lam.

High prices could mean the Reserve Bank of India would keep its repo rate at 6.50 per cent for a longer period.

Faster expansion in services activity, alongside a manufacturing industry growing at the fastest pace in 16 years in March, pushed the HSBC final India Composite PMI Index to an eight-month high of 61.8 from the previous month's 60.6 and higher than a preliminary reading of 61.3.

Source：business standard

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Samantha Luan

Economic

Bond

Yields on the benchmark 10-year Treasury – which move inversely to bond prices - hit 4.429% on Wednesday, their highest level in over four months.

The selloff comes amid a broad shift in sentiment on the timing and magnitude of expected rate cuts. Futures markets on Wednesday showed investors are betting the Fed will lower rates by 70 basis points this year, compared to the 150 basis points priced in at the beginning of 2024.

Notably, investors have become slightly less optimistic on rate cuts than the Fed itself, which projected to deliver three 25 basis point reductions this year. Fed Chairman Jerome Powell in a Wednesday speech maintained that rates will fall later this year, despite stronger-than-expected growth.

"The Fed is starting to get ahead of the market because the Fed is saying ‘we're going to cut’ and the market is saying ‘you don't need to because economic activity is so strong,’" said Tony Roth, chief investment officer at Wilmington Trust Investment Advisors.

Bond yields are moving higher for several reasons. U.S. data has consistently come in stronger than expectations, leading some investors to believe that the Fed won’t be able to cut interest rates without risking an inflationary rebound.

The latest evidence of a robust economy came this week, when stronger-than-expected March manufacturing data was followed by solid U.S. job openings figures for February and other data pointing to labor market strength.

U.S. investment management firm PIMCO said in a 6-12 month outlook report on Wednesday it expects inflation to remain above the Fed’s 2% target. It still believes the central bank will start cutting rates in the middle of 2024, but said sticky inflation may lead to a more gradual path of rate cuts than in other economies.

At the same time, concerns over the state of U.S. finances that helped drive yields to 16-year highs last October have not dissipated, with many investors anticipating a rise in term premiums - or the compensation demanded to hold long-term debt.

The Congressional Budget Office last month forecast U.S. public debt will climb to 166% of GDP in 2054 from 99% in 2024 - though their outlook has improved from forecasts made last June due to spending limits passed by Congress and stronger projected economic growth.

Additional worries over an inflationary rebound could come if oil prices continue their recent spike. Brent crude settled at its highest level since October on Wednesday following concerns of a widening conflict in the Middle East.

Overall, yields on the 10-year have risen by 50 basis points since the beginning of the year. Some investors have used that as an opportunity to lock in yields with the hopes that bond prices will rise as the Fed cuts rates later in the year.

That trade, however, is increasingly becoming a test of patience, and investors will be closely watching Friday's employment and consumer price data next week to assess how sustainable the current selling pressure in bonds is.

Year-to-date total returns - which include bond payouts and price fluctuations - are at minus 2.1%, according to the ICE BofA 7-10 year Treasury Index.

Meanwhile, net bearish positions in key two- and 10-year Treasuries futures last week have increased for the first time in three weeks, according to data by the Commodity Futures Trading Commission.

Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research in New York, said she still believes there is an opportunity to add more duration, or interest rate exposure, if yields rise further.

However, "it's becoming less of a high-probability trade and more one that people are going to lose confidence in."

Campe Goodman, lead portfolio manager of the Hartford Strategic Income Fund, believes the selloff in the bond market is unlikely to go much further, as higher yields draw income-seeking investors. He expects 10-year yields to trade between 4% to 4.75% and for inflation to remain under control.

“We’re not talking about a reacceleration in inflation, we’re talking about inflation stalling in the 3% range … I’m not that worried,” he said.

Source: Reuters

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Thomas

Economic

Forex

Measures of historical and expected volatility - how much prices move over a set time period - have sunk in recent months with the world's biggest central banks stuck in a holding pattern, depriving FX traders of the divergent moves between regional bond yields on which they thrive.

Deutsche Bank's closely-followed implied currency volatility gauge is around its lowest in two years, and not far off pre-pandemic levels.

"The music isn't playing in FX so far this year," said Andreas Koenig, head of global FX at Amundi, Europe's biggest asset manager. "U.S. (bond market) rates go up and down, but the others all follow, and therefore we have no change in differentials."

"Who's cutting first and how far...and then the U.S. elections, will be the FX events, the big macro events," Koenig said.

Currency Markets Are in A Deep Freeze. Rate Cuts and Trump Could Thaw Them_1

Central banks are slowly stirring. The Swiss National Bank in March was the first major central bank to lower borrowing costs this cycle. The Federal Reserve, European Central Bank, and Bank of England are expected to follow later this year.

Although U.S. yields have risen in recent days as investors reined in bets on Fed rate cuts after stronger-than-expected data, euro zone bond yields have largely followed suit.

"What would lead to any real volatility is increased differentiation among central banks," said Samuel Zief, head of global FX strategy at JPMorgan Private Bank, although he said that's unlikely in the first half of the year, with European and U.S. inflation following a broadly similar path.

TRUMP CARD

Donald Trump also looms large, last year floating the idea of a 10% universal import tariff should the former U.S. President regain the White House and in February adding that he could slap levies of 60% or more on Chinese goods.

"Tariffs, extra tax, means the dollar could get stronger," said Themos Fiotakis, global head of FX strategy at Barclays, adding that the euro and the Chinese yuan would likely suffer.

Barclays thinks the dollar could rally 3% on the back of tariffs in the event Trump secures a second term and has even said the euro could drop to parity with the U.S. currency.

Trump and Joe Biden currently appear neck and neck, suggesting heightened volatility in the $7.5-trillion-a-day global currency market as opinion polls swing in the run up to November's election.

Currency Markets Are in A Deep Freeze. Rate Cuts and Trump Could Thaw Them_2

Oliver Brennan, FX volatility strategist at BNP Paribas, said options, which let investors bet on currency prices, suggest traders are bracing for moves in the Mexican peso , Polish zloty and the yuan , all of which tumbled after Trump's 2016 victory.

"Volatility in the 9-month to one-year range (for those three currencies) is really high, and because nothing is happening now, volatility is really low," he said.

"If you look at any currency there is a kink around the November election, but the kink is huge in those three."

NOT WORTH TRADING

For now, the volatility slump is limiting opportunities.

"Looking at our risk today, substantially less than the long-term average is allocated to currency," said Jamie Niven, senior portfolio manager at Candriam.

That's particularly true in certain currency pairs. "It's not worth trading euro-sterling at the moment," said Yusuke Miyairi, strategist at Nomura. Volatility in the pair is at its lowest since 2006 .

There are, however, signs rate moves are beginning to drive pockets of volatility.

The Bank of Japan raised rates for the first time in 17 years in March, but that didn't stop the yen tumbling to near its lowest since 1990 as traders realised Japanese borrowing costs would stay near zero.

Strategists said that led to swings in Asian currencies including China's yuan, showing how fluctuations in one area can ripple across the market.

Currency Markets Are in A Deep Freeze. Rate Cuts and Trump Could Thaw Them_3

Direct intervention by Japanese authorities to prop up their currency could provide another jolt.

In Europe, Switzerland's rate cut helped the euro post its biggest quarterly gain on the franc since the common currency's creation.

Meanwhile, investors are doing what they can.

"If volatility is low, we find carry trade strategies particularly attractive," said Guillaume Rigeade, co-head of fixed income at Carmignac, referring to trades where investors borrow in a currency with low rates to buy higher-yielding ones.

He said low volatility also makes it cheaper to hedge an equity or bond portfolio.

For JPMorgan's Zief, there have been worse times. "At least we have an environment where yes, it's low volatility, but there are carry trades," he said. "Low volatility with very low rates...is even worse."

Source: Reuters

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Zi Cheng

Traders' Opinions

Forex

Fundamental Analysis

During the early European session on Thursday, the AUD/JPY cross continues to climb, reaching two-week highs around 99.92. The dovish stance taken by the Bank of Japan (BoJ) in its March meeting, coupled with the absence of clear guidance on future policy actions, has exerted downward pressure on the Japanese Yen (JPY). Investors are now awaiting the release of Australia's Trade Balance for March on Friday, which could offer fresh momentum.

Despite the BoJ's first interest rate hike in 17 years, the JPY failed to gain traction, given that interest rates in Japan remain substantially lower compared to global rates. Additionally, concerns about the BoJ's cautious approach to further rate hikes, coupled with the lack of clarity on the pace of policy normalization, weigh on the safe-haven appeal of the JPY against the Australian Dollar (AUD), consequently favoring the AUD/JPY cross.

In Australia, business activity showed signs of improvement in March. The final reading of Australia's Judo Bank Services PMI increased to 54.4 from the previous 53.5, while the Composite PMI figure rose to 53.3 compared to 52.4 previously. This upbeat data lends support to the AUD, especially amid positive sentiment in equity markets on Thursday.

However, the upside potential of the AUD/JPY cross may be limited by the heightened likelihood of intervention by Japanese authorities in the foreign exchange (FX) market to prevent excessive depreciation of the JPY.

Technical Analysis

AUD/JPY has been bullish for the week with huge bullish candlesticks and fair value gaps as well. This means that the buyers are very aggressive and wants to push AUD/JPY to a higher price. I personally think it is too late to jump in for a long position now as the risk-reward ratio doesn't suit my risk appetite.

AUD/JPY is also at a key resistance level confluencing with psychological level 100.000. This level has previously rejected price with a huge long wick and huge bearish candlestick. This is one of the reason why it is not advisable to long currently.

Most of the traders might have the idea to sell but it is not recommended as well because the buying pressure is still very strong it could pierce through the resistance easily. Main goal in trading is to follow the trend, it increases the probability.

My outlook would be waiting for retracement back to around 50% of the Fibonnaci which we also a small support area there as well for confluence. If it does not retrace, I will wait for a clean breakout then look for long positions.

AUD/JPY Faces Strong Psychological Resistance Level 100.000_1

Risk Warnings and Disclaimers

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Samantha Luan

Central Bank

Economic

Forex

Dollar was sold off overnight after weaker than expected ISM Services data, and the weakness persisted following comments from Fed Chair Jerome Powell. Powell downplayed the significance of recent robust labor and inflation figures, suggesting them as fluctuations in "bumpy road" of moderating demand and inflation. This narrative reinforces the market's anticipation that Fed is still leaning towards three rate cuts this year over just two. Though, the upcoming non-farm payroll data remains crucial for further adjustments in these expectations.

In the broader currency markets risk-on sentiment seems to prevail, more evident in the commodity markets than in equities. Australian dollar leads as the strongest currency for the week so far, fueled by significant rally in commodities like Copper. New Zealand dollar follows as the second strongest. Japanese Yen languishes as the weakest, with Swiss Franc and Dollar also underperforming.

Euro, Sterling, and Canadian Dollar occupy the middle ground in the currency spectrum, with Euro slightly edging out after surviving lower-than-expected Eurozone CPI data yesterday. Attention now shifts to release of ECB minutes today. But it is unlikely that they will offer any groundbreaking revelations given ECB officials' clear communication regarding the consensus for June first rate cut.

Technically, it now looks like EUR/USD's fall from 1.0980 has completed with three waves down to 1.0723, ahead of 1.0694 support. Further rally would be mildly in favor as long as 55 4H EMA (now at 1.0805) holds, for 1.0941/80 resistance zone. But sustained break of the EMA will argue that rise from 1.0723 is merely a brief recovery and bring retest of 1.0694/0723 support zone instead. Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_1

Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_1

In Asia, at the time of writing, Nikkei is up 1.27%. Japan 10-year JGB yield is up 0.0114 at 0.778. Singapore Strait Times is up 0.61%. Hong Kong and China are on holiday. Overnight, DOW fell -0.11%. S&P 500 rose 0.11%. NASDAQ rose 0.23%. 10-year yield fell -0.010 to 4.355.

Fed Powell downplays significance of recent strong labor market and inflation data

Fed Chair Jerome Powell downplayed the significance of recent labor market and inflation data that surpassed expectations, he noted that these developments do not significantly alter the Fed's overall economic outlook.

"Recent readings on both job gains and inflation have come in higher than expected," Powell said at a forum at Stanford University overnight. However, he was quick to clarify that these developments do not fundamentally shift the broader economic narrative, which he described as "one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path."

In discussing the Federal Reserve's approach to monetary policy easing, Powell affirmed the "meeting by meeting" decision-making process and acknowledged that rate cuts are "likely to be appropriate at some point this year."

Yet, he stressed the prerequisite of having "greater confidence" in inflation's downward path towards 2% target before any interest rate red reduction would be considered.

"Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," he remarked.

Fed's Kugler expects rate cut this year amid cooling demand

Fed Governor Adriana Kugler said overnight that if the disinflation process and labor market conditions evolve in line with her current expectations, a policy rate reduction within the year could be warranted.

"With demand growth cooling, given the backdrop of solid supply, my baseline expectation is that further disinflation can be accomplished without a significant rise in unemployment," Kugler stated

"If disinflation and labor market conditions proceed as I am currently expecting, then some lowering of the policy rate this year would be appropriate," she remarked.

Copper hits yearly high on global growth optimism

Copper soars to the highest levels in over a year this year, driven by renewed optimism regarding global economic growth and expectations of monetary easing from the world's major central banks. This surge reflects growing confidence among investors that the downturn in manufacturing, including even China, may have past its worst. The prospect of interest rate cuts this year further fuels this positive mood for commodities like copper.

Technically, Copper's rally from 3.5021 resumed this week and it's now on track to 161.8% projection of 3.5021 to 3.9346 from 3.6324 at 4.3322, which is close to 4.3556 (2023 high). In any case, outlook will stay bullish as long as 3.9380 support holds. The bigger question is whether Copper is indeed resuming the rise from 3.1314 (2022 low) too. Let's see. Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_2

Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_2

Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_3

Looking ahead

Swiss CPI, Eurozone PMI services final and PPI, UK PMI services final will be released in European session. But more focus would likely be on ECB minutes.

Later in the day, US and Canada will release trade balance while US will also publish jobless claims.

AUD/USD Daily Report

AUD/USD's strong break of 55 D EMA suggests that fail from 0.6666 has completed with three waves down to 0.6480. Rise from there is now seen as the third leg of the corrective pattern from 0.6442. Intraday bias is back on the upside for 0.6633 resistance first. Break there will target 0.6666 and above. On the downside, though, below 0.6559 minor support will turn intraday bias neutral first. Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_4

Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_4

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which might still be in progress. Overall, sideway trading could continue in range of 0.6169/7156 for some more time. But as long as 0.7156 holds, an eventual downside breakout would be mildly in favor. Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_5

Fed Powell and Soft Data Dampen Dollar, While Commodity Boom Propels Aussie_5

Source: ActionForex

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Alex

Economic

Commodity

Two senior US treasury officials are in India to urge New Delhi to maintain the implementation of the oil price cap aimed at limiting profits to Russia, while also promoting stable global energy markets, according to an official announcement.

Acting Assistant Secretary for Terrorist Financing Anna Morris and PDO Assistant Secretary for Economic Policy Eric Van Nostrand are travelling to New Delhi and Mumbai from April 2-5 to meet with government and private sector counterparts, the Treasury said in a statement on Wednesday.

"They will discuss key bilateral issues, including cooperation on anti-money laundering and countering the financing of terrorism, other illicit finance issues, and continued implementation of the price cap, which seeks to further limit the profits Russia receives to fund its illegal invasion while promoting stable global energy markets," it said.

Following Russia's February 2022 invasion of Ukraine, the G7 nations, the European Union, and Australia jointly implemented a price cap. This cap prohibits the utilisation of Western maritime services, including insurance, flagging, and transportation, for tankers transporting Russian oil priced at or above USD 60 per barrel.

In 2023, Russia had emerged as India's top oil supplier. India has strong economic and defence ties with Russia and has refrained from criticising Moscow over its war with Ukraine.

Morris and Nostrand will deliver remarks on the price cap and participate in a Q&A hosted by the Ananta Aspen Centre in New Delhi on Thursday.

As Morris and Nostrand noted in a blog post last month, the second phase of the price cap continues to achieve its twin goals: restricting Russia's oil profits, while supporting energy market stability, the statement said.

"The price at which Russia sells its oil has declined markedly since the second phase began; the shift reflects the effects of reduced oil prices globally over this period, but also a significant widening in the discount Russia earns relative to other global oil suppliers," it said.

Energy market participants, analysts, and even Russian President Vladimir Putin's own oil czar have linked the rising discount on Russian oil to the Coalition's increased enforcement activities reflected in the second phase of the price cap - clear evidence that this second phase is working, the statement said.

"The price cap is helping maintain a steady supply of energy to global consumers and businesses, and providing key importers like India with more leverage to drive steeper bargains. At the same time, the price cap, along with key sanctions enforcement measures, is reducing Putin's profits from selling that oil," it said.

Source：Reuters

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Thomas

Commodity

Market Overview

Oil prices have climbed to five-month peaks due to increasing geopolitical tensions in the Middle East, suggesting potential supply disruptions. The ongoing conflict between Israel and Hamas, coupled with threats of Iranian retaliation, has heightened market uncertainty.

Concurrently, disruptions in Russian oil supplies, resulting from Ukrainian drone strikes on refineries, exacerbate these concerns. The OPEC’s decision to maintain production cuts further tightens the crude market.

While Chinese economic recovery signals rising demand, mixed U.S. inventory reports and robust domestic production moderate these bullish factors, impacting both oil and natural gas forecasts.

Natural Gas Price Forecast

Natural Gas and Oil Forecast: Russian Cuts & Middle East Unrest Push Prices Higher_1

Natural Gas (NG) price slightly rose to $1.9270, a 0.26% increase. The technical outlook identifies a pivot point at $1.91280, with resistance levels at $1.94680, $1.98020, and $2.01250, suggesting potential upward momentum. Immediate support is found at $1.87970, with further levels at $1.85030 and $1.82140, indicating areas of buying interest.

The 50-day and 200-day EMAs at $1.8571 and $1.8834, respectively, imply a bullish trend. However, a drop below the pivot point could signal a shift to a bearish market. Natural Gas remains buoyant above $1.91280, but vulnerabilities persist below this threshold.

WTI Oil Price Forecast

Natural Gas and Oil Forecast: Russian Cuts & Middle East Unrest Push Prices Higher_2

The USOIL market on April 4 shows modest gains, trading at $85.62, a slight increase of 0.08%. The technical analysis reveals a pivot point at $85.01, indicating a bullish sentiment above this mark.

Resistance levels are identified at $86.10, $86.83, and $87.81, suggesting potential price ceilings. Support can be found at $84.09, $82.98, and $81.84, acting as critical junctures for potential downturns.

The 50-day and 200-day EMAs, at $83.28 and $80.26 respectively, reinforce the bullish outlook. However, falling below the pivot point of $85.01 could trigger a notable downtrend.

Brent Oil Price Forecast

Natural Gas and Oil Forecast: Russian Cuts & Middle East Unrest Push Prices Higher_3

On April 4, UKOIL edged higher to $89.57, marking a 0.11% increase. The pivot point is at $89.30, with resistance levels at $89.91, $90.65, and $91.26, suggesting upward pressure.

Support lies at $88.64, $88.08, and $87.31, marking potential retracement zones. The 50 EMA at $87.28 and the 200 EMA at $84.60 support a bullish trend, yet a breakout above the pivot suggests continued upside potential.

However, a drop below $89.30 could lead to a significant downtrend, placing UKOIL in a critical position for determining its next market phase.