Ind-Ra: Central Bank Meetings to Keep Market Cautious

Debt and currency markets will focus on the slew of global data and on the outcomes of major central bank policy meetings. The 10-year G-sec yield could trade at 6.75%-6.85% (6.79% at close on 28 October 2016). The rupee is likely to trade at 66.55/USD-67.25/USD (66.78/USD at close on 28 October 2016).

Central Banks to Set Tone: A host of meetings of major central banks will set the market tone and determine investors' risk appetite. The Bank of Japan kept its monetary policy unchanged. Global markets now await the US Federal Open Market Committee's decision on 2 November 2016. Markets are pricing in only a remote possibility of rate movement this week (implied probability from federal funds futures rate probability at around 6%). The Bank of England meets for its monetary policy decision on 3 November 2016.

Bond Markets to Remain Range-bound: In the absence of any surprises on the global developments front, the domestic bond market will trade with a consolidation bias. Domestic investors are unlikely to heavily churn their portfolio ahead of global risks and may adopt a wait-and-watch approach. Foreign investors, on the other hand, have exhibited limited appetite for local bonds.

Risk Appetite to Drive Rupee Movement: The global risk appetite along with the market's ability to tide over FCNR (foreign currency non-resident) redemptions will have a deterministic impact on the rupee trajectory going forward. The near-term outlook for the rupee, against the backdrop of global developments, indicates potential volatility as investors reassess their outlooks. A clear indication by the Fed over its imminent rate hike could rein in any major appreciating bias of the rupee against USD.

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