04/10/2018
_*Why Sensex crashed 850 points: Rupee, oil and three other factors*_
*Rupee at record low*: A falling rupee weighed heavy on investor sentiment. The local currency plunged to its fresh record low of 73.77 against the dollar early Thursday. The Indian unit on Wednesday crashed below the 73 mark against the dollar for the first time ever. The dollar index stood tall against other currencies, boosted by a spike in Treasury yields following upbeat US data and comments from Federal Reserve Chairman Jerome Powell that were seen as hawkish.
“Dollar dominated the last 24 hours as the rupee collapsed to a fresh all-time low on spot. Policymakers tried everything, monetary intervention, and verbal steroids and even tried to circulate rumours about an "oil window". Nothing worked. The RBI added fuel to fire by denying any attempts to introduce special dollar window for the oil marketing companies. Oil was on the boil, local equity and bond markets were under the hammer. If that was not enough, rising Italian credit spreads whacked the euro, further pressuring the rupee,” Kotak Securities said in a report.
*Boiling oil*: Brent crude was trading over $86 per barrel in morning deals while WTI crude was above $76 per barrel. Sajal Gupta, Head Forex and Rates, Edelweiss Securities, said, “Market has not reacted positively to steps taken by the government for stability in the rupee as they were perhaps not strong enough to address the key issue of short term demand. Most of the Asian and emerging currencies are calmer in past one month. Market is reacting strongly to Brent crude movements and with the current pace, 75 can likely be seen if crude touches 88-90 levels.”
*Rising bond yields*: Hardening bond yields are creating waves of panic in the domestic equity market. India’s 10-year bond yield was hovering above 8.18 per cent on Thursday against previous close of 8.11 per cent. Bond yields have spiked 84 basis points on a year-to-date basis.
*Foreign capital outflows*: Investors remained concerned over sustained foreign money outflows as Foreign Portfolio investors offloaded shares worth Rs 455.02 crore in October so far. They sold shares worth Rs 1,488.96 crore in September. However, their net investment stood at Rs 262.72 crore in August, as per data available with depository NSDL.
According to the data released by the NSE, FIIs were net sellers of Rs 2,056.87 crore in index futures and options segments, according to Wednesday’s data. FIIs were net sellers of index futures to the tune of Rs 699.54 crore and net sellers of index options worth Rs 1357.33 crore.
*US Treasury yields* reached multi-year peaks, with the 10-year note's yield at its highest since 2014 and maturities at the short end of the curve at decade highs after economic data on Wednesday bolstered expectations for the Federal Reserve to raise rates in December and beyond.
*Weak Asian* cues: Subdued Asian markets spoiled market sentiment too. Japan's Nikkei edged lower in choppy trade on Thursday morning as investors took profit from its recent rally to a 27-year high while automakers and technology heavyweights took limelight on news of technology tie-ups for self-driving cars. Nikkei225 was trading 0.46 per cent down at 23,999 while Hang Seng came down over 1.50 per cent at 26,628.64
