General market tone: Slight risk off.
Risk sentiment will remain fragile on Tuesday, although bargain hunting in Asia may lift stocks after a tech-inspired rally on Wall Street.
Governor Patel’s sudden exit from the Reserve Bank of India intensifies market uncertainty and is negative for the Indian rupee (INR). The USD/INR is just shy of our end-year 71.50 forecast (spot 71.3). We continue to see the pair re-testing the 73 level within the next three-to-six months
We noted in our ‘Asia week ahead’ note last Friday that investors would stay clear of Indian markets ahead of polling results for the five state elections to be announced today. And we have more reasons to think so now, following the news yesterday about Reserve Bank of India’s governor resigning ahead of the forthcoming RBI board meeting later this week (14 December).
Urjit Patel’s resignation for ‘personal reasons’, well before the expiry of his term in September 2019, in fact, goes to reinforce the widened rift between the central bank and the government. Clearly, central bank independence is compromised, and the government indeed now has greater control of the central bank and its reserves, which are required to plug the widening fiscal deficit in the election year.
India's Central Bank chief resigns, opening up the coffers for state plunder. Brexit purgatory continues, will someone make it stop! And it's not all going well across the channel in France either, as Macron tries to buy his way out of trouble - this sounds like it will stretch France's fiscal deficit (Italy take note...)