Market Analysis: Crude drops to 18-year lows

Crude prices fell to their lowest levels in 18 years yesterday as markets fear the world may run out of storage space. There is massive inventory build-up as demand has taken a hit while Saudi and Russia disagreement over production cuts has kept supply intact.

The crude market is trading in what is called a super contango. The spread between the May contract and the November contract was the highest on record.

There is still stress in the funding market in the US. The; LIBOR is still elevated despite humongous liquidity injection by the US Fed. The stress is not being reflected in the FX markets as of now but is certainly something to keep an eye on.

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The tremendous liquidity injection by central banks is seeming to keep global equities afloat. The Dow ended the session 3.2% higher yesterday. SGX is indicating a 100pt gain for Nifty on open. The Rupee is likely to open flat around 75.40. Likely range 75.15-75.65. Asian currencies are trading stronger against the USD.

The RBI received 2.4 times the bid to cover yesterday’s TLTRO auction of Rs 25000cr. It has also announced the second tranche of Rs 25000cr to be conducted on 3rd April. The RBI announced FAR (fully accessible route) for non-residents to invest in Gsec.

Investment by FPI in securities in this category would be beside their usual limit in G-secs. This is one more step towards bond index inclusion. The RBI has also increased the FPI limit in corporate bonds to 15%.

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