Economic Weekly Wrap
01 November 2022 - 04 November 2022
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01 Nov 2022
Sell off in the global currency and bond market was seen ahead of Fed’s policy decision, where a 75bps rate hike is expected. However, as underlying macro indicators in the US remained benign, market is expecting a pivot from Fed on policy front. Elsewhere in the Eurozone, inflation hit a record new high for the 12th consecutive month, inching up to 10.7% (est.: 10.2%) in Oct’22 from 9.9% in Sep’22. Reserve Bank of Australia went for another rate hike of 25bps and hinted at more rate hikes in future. The central bank further expects inflation to peak around 8% later this year against its earlier expectation of 7.75%. It further lowered its growth forecast to 3% and 1.5% in CY23 and CY24 respectively. On domestic front, MPC meeting is scheduled but no rate call is expected.
Global stocks ended mixed. US stocks fell as investors await the upcoming Fed policy and jobs report. Stocks in China also edged lower as official PMIs showed further moderation in economic activity. On the other hand, Nikkei rose by 1.8% as Japan’s retail sales rose more than expected. Sensex edged up by 1.3% led by gains in auto and technology stocks. It is trading further higher today, in line with other Asian stocks.
Fig 1 – Stock markets
28-10-2022 31-10-2022 % change Dow Jones 32,862 32,733 (0.4) S & P 500 3,901 3,872 (0.7) FTSE 7,048 7,095 0.7 Nikkei 27,105 27,587 1.8 Hang Seng 14,863 14,687 (1.2) Shanghai Comp 2,916 2,893 (0.8) Sensex 59,960 60,747 1.3 Nifty 17,787 18,012 1.3 Source: Bloomberg, Bank of Baroda Research
Global currencies fell against the dollar. DXY rose by 0.7% as investors brace for another 75bps increase in Fed policy rate. EUR fell by 0.8% as GDP growth moderated sharply in Q3CY22. CNY fell by 0.7% as both manufacturing and services PMI slumped in Oct’22. INR too depreciated by 0.4%. However it is trading stronger today, while other Asian currencies are trading mixed.
Fig 2 – Currencies
28-10-2022 31-10-2022 % change EUR/USD 0.9965 0.9882 (0.8) GBP/USD 1.1615 1.1469 (1.3) USD/JPY 147.60 148.71 (0.7) USD/INR 82.47 82.79 (0.4) USD/CNY 7.2524 7.3050 (0.7) Source: Bloomberg, Bank of Baroda Research
Except Japan (stable) and China (lower), global yields closed higher. US, UK and Germany’s 10Y yield rose by 4bps each. Fed’s upcoming policy decision, higher than expected inflation print in the Eurozone, better retail sales print in Germany, all contributed to sell off. India’s 10Y yield rose by 3bps (7.45%) ahead of the off cycle MPC meet. It is trading lower at 7.43% today.
Fig 3 – Bond 10Y yield
28-10-2022 31-10-2022 change in bps US 4.01 4.05 4 UK 3.48 3.52 4 Germany 2.10 2.14 4 Japan 0.25 0.25 0 China 2.68 2.65 (3) India 7.42 7.45 3 Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
28-10-2022 31-10-2022 change in bps Tbill-91 days 6.42 6.42 0 Tbill-182 days 6.72 6.70 (2) Tbill-364 days 6.91 6.87 (4) G-Sec 2Y 6.97 7.01 4 SONIA int rate benchmark 2.19 2.19 0 US SOFR 3.04 3.05 1 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 28-10-2022 31-10-2022 change (Rs tn) Net Liquidity (-Surplus/+deficit) 0.6 0.2 (0.4) Reverse repo 0.1 0.1 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
27-10-2022 28-10-2022 change (US$ mn/Rs cr) FII (US$ mn) 470.6 (49.4) (519.9) Debt 45.9 (240.8) (286.7) Equity 424.7 191.5 (233.2) Mutual funds (Rs cr) (203.0) 2,262.9 2,465.9 Debt (1,576.2) 977.5 2,553.8 Equity 1,373.2 1,285.4 (87.9) Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022
Crude oil prices fell by 1% amidst fear of muted demand tracking China’s zero Covid policy.
Fig 7 – Commodities
28-10-2022 31-10-2022 % change Brent crude (US$/bbl) 95.8 94.8 (1.0) Gold (US$/ Troy Ounce) 1,644.9 1,633.6 (0.7) Copper (US$/ MT) 7,619.0 7,522.0 (1.3) Zinc (US$/MT) 2,855.9 2,735.5 (4.2) Aluminium (US$/MT) 2,211.5 2,222.0 0.5 Source: Bloomberg, Bank of Baroda Research
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02 Nov 2022
Markets are in a cautious mood ahead of the Fed policy decision. While a 75bps rate hike is expected as per the CME Fed watch tool data, money market is not ruling out a slower pace of rate hike of 50bps as well. Former US treasury Secretary said that Fed should stay on course with regard to its rate hike plan in order to avoid any misguided signals. In the US, slew of macro data points pointed to some revival. Job openings rose more than expected, indicating buoyant labour market conditions. ISM manufacturing data also firmed up to 50.2 against expectation of 50. In UK as well, manufacturing data was better than estimated at 46.2 (est.: 45.8). Inflation still remained a concern. In South Korea, CPI print was at 5.7% in Oct’22 against 5.6% in Sep’22. On domestic front, markets remain steadfast eyeing the MPC meeting.
Barring US, other global indices ended higher ahead of Fed's rate decision. Investors are expected to scrutinize Fed Chair comments in order to gauge any signals for future rate hike. Hang Seng (5.2%) gained the most followed by Shanghai Comp (2.6%) amidst news report of China possibly overthrowing Covid-zero policy. Sensex ended in green led by gains in power and IT stocks. It is trading lower today while other Asian stocks are trading higher.
Fig 1 – Stock markets
31-10-2022 1-11-2022 % change Dow Jones 32,733 32,653 (0.2) S & P 500 3,872 3,856 (0.4) FTSE 7,095 7,186 1.3 Nikkei 27,587 27,679 0.3 Hang Seng 14,687 15,455 5.2 Shanghai Comp 2,893 2,969 2.6 Sensex 60,747 61,121 0.6 Nifty 18,012 18,145 0.7 Source: Bloomberg, Bank of Baroda Research
Except Euro, other global currencies ended higher. DXY ended flat as investors turned their focus towards Fed's rate decision with the likelihood of 75bps rate hike. Yen gained by 0.3% as BoJ minutes highlighted continuing with its ultra- loose monetary policy. INR appreciated by 0.1%. It is trading stronger today while other Asian currencies are trading mixed.
Fig 2 – Currencies
31-10-2022 1-11-2022 % change EUR/USD 0.9882 0.9877 (0.1) GBP/USD 1.1469 1.1484 0.1 USD/JPY 148.71 148.27 0.3 USD/INR 82.79 82.71 0.1 USD/CNY 7.3050 7.2775 0.4 Source: Bloomberg, Bank of Baroda Research
Except Japan and China (higher), global yields closed lower. UK’s 10Y yield fell by 5bps ahead of BoE policy decision where a 75bps rate hike is expected and then a slower pace of rate hike of 50bps in its Dec’22 meeting is anticipated. Both US and Germany’s 10Y yield inched up by 1bps each, eyeing Fed policy. India’s 10Y yield fell by 5bps (7.40%). It is trading at 7.41% today.
Fig 3 – Bond 10Y yield
31-10-2022 1-11-2022 change in bps US 4.05 4.04 (1) UK 3.52 3.47 (5) Germany 2.14 2.13 (1) Japan 0.25 0.26 1 China 2.65 2.67 2 India 7.45 7.40 (5) Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
31-10-2022 1-11-2022 change in bps Tbill-91 days 6.42 6.44 2 Tbill-182 days 6.70 6.64 (6) Tbill-364 days 6.87 6.90 3 G-Sec 2Y 7.01 7.01 0 SONIA int rate benchmark 2.19 2.18 0 US SOFR 3.05 3.05 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 31-10-2022 1-11-2022 change (Rs tn) Net Liquidity (-Surplus/+deficit) 0.2 (0.2) (0.4) Reverse repo 0.1 0 (0.1) Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
28-10-2022 31-10-2022 change (US$ mn/Rs cr) FII (US$ mn) (49.4) 593.4 642.8 Debt (240.8) (246.1) (5.2) Equity 191.5 839.4 648.0 Mutual funds (Rs cr) (203.0) 2,262.9 2,465.9 Debt (1,576.2) 977.5 2,553.8 Equity 1,373.2 1,285.4 (87.9) Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022
Crude oil prices fell by 0.2% to US$ 94.7/bbl, despite surprise drawdown in US inventory.
Fig 7 – Commodities
31-10-2022 1-11-2022 % change Brent crude (US$/bbl) 94.8 94.7 (0.2) Gold (US$/ Troy Ounce) 1,633.6 1,648.0 0.9 Copper (US$/ MT) 7,522.0 7,717.0 2.6 Zinc (US$/MT) 2,735.5 2,770.0 1.3 Aluminium (US$/MT) 2,222.0 2,242.5 0.9 Source: Bloomberg, Bank of Baroda Research
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03 Nov 2022
US Fed in its recent policy raised rate by another 75bps for the fourth time in a row, taking the Federal fund rate to 3.75-4%, highest since CY08. Fed Governor clearly flagged risks from premature pausing. Further, the policy statement added statement like ‘ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time’. This led US stocks close lower. Even US 10Y yield (+6bps) firmed up. The private payroll data of ADP also showed buoyant labour demand. In Germany, again strains on growth were visible in the exports data which fell by 0.5% on SA MoM basis (est.: +0.5% increase). Imports also fell by 2.3% (est.: -0.6% decline). In China, health official reiterated that Covid zero policy is likely to stay. The Caixin services PMI print came in lower than expected at 48.4 (est.: 49).
Except Shanghai Comp and Hang Seng, other global stocks ended lower. Investors monitored Fed Chair’s comments which were perceived as more hawkish than expected. US stocks led the decline followed by FTSE. Sensex too fell by 0.4% following global cues. Real estate and technology stocks fell the most. It is trading further lower today in line with other Asian stocks.
Fig 1 – Stock markets
1-11-2022 2-11-2022 % change Dow Jones 32,653 32,148 (1.5) S & P 500 3,856 3,760 (2.5) FTSE 7,186 7,144 (0.6) Nikkei 27,679 27,663 (0.1) Hang Seng 15,455 15,827 2.4 Shanghai Comp 2,969 3,003 1.2 Sensex 61,121 60,906 (0.4) Nifty 18,145 18,083 (0.3) Source: Bloomberg, Bank of Baroda Research
Except JPY, other global currencies depreciated against the dollar. DXY ended marginally lower amidst mixed signals from the Fed about future rate hikes and terminal fund rates. GBP fell by 0.8% even as investors expect a 75bps rate hike by BoE today. INR fell by 0.1% as oil prices firmed up. However it is trading weaker today, in line with other Asian currencies.
Fig 2 – Currencies
1-11-2022 2-11-2022 % change EUR/USD 0.9877 0.9818 (0.6) GBP/USD 1.1484 1.1392 (0.8) USD/JPY 148.27 147.90 0.3 USD/INR 82.71 82.79 (0.1) USD/CNY 7.2775 7.2900 (0.2) Source: Bloomberg, Bank of Baroda Research
Global yields closed mixed. US 10Y yield rose by 6bps as Fed Governor remained fairly hawkish in its recent policy. UK’s 10Y yield fell by 7bps ahead of BoE’s policy decision where a 75bps rate hike is expected. India’s 10Y yield closed stable at 7.4%. It is trading higher at 7.44% today.
Fig 3 – Bond 10Y yield
1-11-2022 2-11-2022 change in bps US 4.04 4.10 6 UK 3.47 3.40 (7) Germany 2.13 2.14 1 Japan 0.26 0.25 0 China 2.67 2.69 2 India 7.40 7.40 0 Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
1-11-2022 2-11-2022 change in bps Tbill-91 days 6.44 6.46 2 Tbill-182 days 6.64 6.76 12 Tbill-364 days 6.90 6.94 4 G-Sec 2Y 7.01 7.07 6 SONIA int rate benchmark 2.18 2.19 0 US SOFR 3.05 3.05 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 1-11-2022 2-11-2022 change (Rs tn) Net Liquidity (-Surplus/+deficit) (0.2) (0.9) (0.7) Reverse repo 0.1 0.1 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
31-10-2022 1-11-2022 change (US$ mn/Rs cr) FII (US$ mn) 593.4 737.6 144.2 Debt (246.1) (11.2) 234.9 Equity 839.4 748.8 (90.7) Mutual funds (Rs cr) (203.0) 2,262.9 2,465.9 Debt (1,576.2) 977.5 2,553.8 Equity 1,373.2 1,285.4 (87.9) Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022
Crude oil prices rose by 1.6% following decline in US crude inventories.
Fig 7 – Commodities
31-10-2022 1-11-2022 % change Brent crude (US$/bbl) 94.7 96.2 1.6 Gold (US$/ Troy Ounce) 1,648.0 1,635.2 (0.8) Copper (US$/ MT) 7,717.0 7,663.3 (0.7) Zinc (US$/MT) 2,770.0 2,765.0 (0.2) Aluminium (US$/MT) 2,242.5 2,251.0 0.4 Source: Bloomberg, Bank of Baroda Research
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04 Nov 2022
Global equity and bond markets witnessed a sell-off and currencies depreciated. This was on account of BoE’s declaration that UK might exhibit the deepest downturn; the longest recession since 1920. Even Fed Governor a day earlier flagged significant risks to soft landing. BoE’s inflation projection also remained fairly high at 11% in Q4CY22. Hence growth inflation trade off would continue to remain a cause of dilemma for central banks in the near term. In the US, 2Y and 10Y paper exhibited sharpest inversion since early 1980s when Fed Chair was Paul Volcker. It further signalled incipient risks of recession. In the US, markets are monitoring the payroll data where 195k additions in non-farm payroll is expected in Oct-22. In China, Covid cases rose at the sharpest pace since May’22, aggravating demand concerns.
Except FTSE, other global stocks ended lower. Fears of a global recession resurfaced as central banks continue to tighten monetary policy. BoE warned of a “very challenging” outlook and stated the economy may remain in a recession for the next 2 years. Hang Seng fell the most, followed by S$P 500. Sensex fell by 0.1% led by losses in power stocks. It is trading further lower today, while other Asian markets are trading higher.
Fig 1 – Stock markets
2-11-2022 3-11-2022 % change Dow Jones 32,148 32,001 (0.5) S & P 500 3,760 3,720 (1.1) FTSE 7,144 7,189 0.6 Nikkei 27,679 27,663 (0.1) Hang Seng 15,827 15,339 (3.1) Shanghai Comp 3,003 2,998 (0.2) Sensex 60,906 60,836 (0.1) Nifty 18,083 18,053 (0.2) Source: Bloomberg, Bank of Baroda Research
Global currencies edged down. DXY rose by 1.4% amidst expectations of higher terminal Fed fund rates. GBP depreciated sharply by 2% as BoE painted a grim picture of the economic outlook. EUR too declined by 0.7%. INR too depreciated by 0.1%. However it is trading stronger today, in line with its Asian peers.
Fig 2 – Currencies
2-11-2022 3-11-2022 % change EUR/USD 0.9818 0.9749 (0.7) GBP/USD 1.1392 1.1160 (2.0) USD/JPY 147.90 148.26 (0.2) USD/INR 82.79 82.89 (0.1) USD/CNY 7.2900 7.3015 (0.2) Source: Bloomberg, Bank of Baroda Research
Except Japan (stable) and China (lower), global yields closed higher. UK’s 10Y yield rose the most by 12bps followed by Germany (+10bps) and US (+5bps). Aggravated concerns of inflation, kept borrowing cost elevated despite underlying risks of recession. India’s 10Y yield rose by 8bps (7.48%) tracking BoE’s policy decision of 75bps rate hike. It is trading at 7.49% today.
Fig 3 – Bond 10Y yield
2-11-2022 3-11-2022 change in bps US 4.10 4.15 5 UK 3.40 3.52 12 Germany 2.14 2.25 10 Japan 0.25 0.25 0 China 2.69 2.68 (1) India 7.40 7.48 8 Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
2-11-2022 3-11-2022 change in bps Tbill-91 days 6.46 6.44 (2) Tbill-182 days 6.76 6.77 1 Tbill-364 days 6.94 6.96 2 G-Sec 2Y 7.07 7.14 7 SONIA int rate benchmark 2.19 2.19 0 US SOFR 3.05 3.05 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 2-11-2022 3-11-2022 change (Rs tn) Net Liquidity (-Surplus/+deficit) (0.9) (0.9) 0 Reverse repo 0.1 0.1 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
1-11-2022 2-11-2022 change (US$ mn/Rs cr) FII (US$ mn) 737.6 120.5 (617.1) Debt (11.2) (47.6) (36.5) Equity 748.8 168.1 (580.6) Mutual funds (Rs cr) (203.0) 2,262.9 2,465.9 Debt (1,576.2) 977.5 2,553.8 Equity 1,373.2 1,285.4 (87.9) Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022
Crude oil prices fell by 1.5% amidst concerns of muted demand.
Fig 7 – Commodities
2-11-2022 3-11-2022 % change Brent crude (US$/bbl) 96.2 94.7 (1.5) Gold (US$/ Troy Ounce) 1,635.2 1,629.5 (0.4) Copper (US$/ MT) 7,663.3 7,596.0 (0.9) Zinc (US$/MT) 2,765.0 2,737.3 (1.0) Aluminium (US$/MT) 2,251.0 2,264.0 0.6 Source: Bloomberg, Bank of Baroda Research
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