Market Analysis: Fed announces unlimited QE, corporate bond purchases

The US Dollar has weakened across the board after the Fed unleashed a slew of unprecedented measures. The Fed said it would buy an unlimited amount of treasury securities and would purchase corporate bonds under both the primary market corporate credit facility (PMCCF) and the secondary market corporate credit facility (SMCCF).

Under PMCCF, the Fed would effectively buy bonds directly from issuers, thereby lending them directly. The US Dollar has weakened across the board post this announcement.

The US Congress too is getting closer to approving a USD 2 trillion dollar stimulus package, which is seeing delays in the light of the day as Democrats believe the package is skewed towards helping corporates and support Wall Street rather than benefiting people and the health care industry.

Italy saw the new Coronavirus cases rise by the lowest number in 5 days. Global equity indices have bounced back sharply. Indian assets could, however, underperform as there is considerable uncertainty around the extent of spread and the effectiveness of containment measures.

SGX is indicating a 1% higher open for Nifty. The rupee is likely to open around 76.25. Likely range 76.00-76.50. Yesterday there was a 30p arbitrage between 1m exchange-traded futures and 1m OTC with futures trading higher. 3m ATMF volumes in Rupee yesterday shot up to 11.4%. The 36-country REER has come off to 114, indicating that Rupee overvaluation has got corrected.

SDL and corporate bond spreads have shot through the roof. There is panic in the credit markets and the RBI must take measures to address this. The spread in yesterday’s state loan auctions was 165bps over corresponding tenor Gsec yields. USDINR Forwards too got paid yesterday.

Eur 1.0808, Gbp 1.1650, Aud 0.5935, Jpy 110.23, Cnh 7.09, WTI 24.60, Gold 1580, US 10y 0.79%, US 2y 0.32%, Dow -582pts, Dow futures +629pts, DXY 101.64.