Key highlights:
- Globally inflationary pressures have eased, and growth concerns have risen.
- 10Y UST yields fell ~50bps from a 16-year high due to a less hawkish Fed, moderate Q4 bond issuance plan and emerging signs of softness in the U.S. economy.
- Markets do not expect Fed to hike rates further and anticipate first rate cut sooner (in May 2024 vs previously expected June 2024).
- Markets expect ECB and Fed to cut rates by 100 bps in 2024 and BoE to cut by 75bps. BoJ is expected to increase rates by 30bps in 2024.
- We expect 10Y UST yields to moderate further once Fed signals policy rate has peaked. We expect RBI to cut rates later than Fed in H1FY25.
- INR is likely to benefit from favorable yield differentials.
- Deterioration in India’s goods trade balance in October is unlikely to sustain as festive demand fades.
- OPEC+ meeting in November and geopolitical tensions will remain key monitorables in the near-term.
- We expect USD/INR to trade between 82.75-83.50 in the near-term, gradually moving towards the lower bound of the range. RBI is likely to mitigate any rupee volatility.
