Economic Weekly Wrap
03 February 2025 - 07 February 2025

Global markets have started the week on a tumultuous note, as threats of a global trade war have increased. Over the weekend, US tariffs on Canada, Mexico and China took effect. Both Canada and Mexico have vowed retaliatory tariffs, increasing the odds of a broader trade war which can have a negative impact on global growth and inflation. Asian markets are trading sharply lower today, and currencies including INR, are trading at multi-year lows. Market volatility is likely to be heightened amidst uncertainty over US policies. On macro front, manufacturing PMI in both China and Japan weakened. In India, investors monitored the Budget announcements. Fiscal consolidation, along with continued focus on capital expenditure, consumption, exports and investment are likely to be positive for growth. This should support domestic markets despite unfavourable global cues

Global stocks closed mixed as tariff threat loomed. Investors are now expecting increased retaliatory measures by few economies. US stocks ended lower as firm core PCE data dented hopes of monetary easing. Stocks in Japan were supported by buoyant macro data (industrial production). Sensex closed flat. It is trading lower today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China remain closed since 28 Jan 2025

For India, data as of 1 Feb 2025

Global currencies depreciated as the threat of US tariffs loomed. DXY rose by 0.5%. EUR fell as retail sales in Germany declined unexpectedly in Dec’24. JPY also depreciated even as a higher-than-expected CPI print in Tokyo raised the likelihood of higher rates. INR ended flat. However, it is tracking sharply lower at a record low today. Asian currencies are also trading weaker.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China remain closed since 28 Jan 2025

Global yields closed mixed. Germany’s 10Y yield fell the most supported by a softening CPI print. Further, ECB officials also spoke of focussing on growth as inflation is losing steam. US 10Y yield firmed up tracking core PCE data. India’s 10Y yield inched up by 2bps. However, it is trading lower today, supported by government’s adherence to fiscal consolidation.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China remain closed since 28 Jan 2025

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 28 Jan and 29 Jan 2025

Oil prices were broadly steady tracking US tariff policies.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Continued uncertainty over US tariff policies kept global markets on edge. US President announced a 30-day pause on his plans to impose 25% tariff on Canada and Mexico. This came after Canada and Mexico agreed to co-operate with the US on the critical border issues such as migration and drug trafficking. Tariffs on China remain on course, even as the two countries agreed on a dialogue, raising the likelihood of a lower tariff rate. Given the softer US tariff stance, some respite is expected for global markets. On macro front, US ISM manufacturing PMI rose to 50.9 in Jan’25, crossing the crucial 50-mark for the first time since Sep’22. Separately, inflation in the Euro Zone inflation rose to 2.5% in Jan’25 from 2.4% in Dec’24, but remained in line with ECB’s projected course, paving the way for further rate cuts. In India, manufacturing PMI rose to 57.7 in Jan’25 from 56.4 in Dec’24, led by a sharp increase in new export orders.

Global stocks closed lower amidst risk-off sentiment surrounding developments on tariff. Nikkei fell the most, tracking interest rate differential with the US. FTSE also declined considerably despite growing expectations of rate cut by BoE. Sensex edged down, led by capital goods stocks. It is trading higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China remain closed since 28 Jan 2025

Global currencies ended mixed. DXY rose by 0.5% tracking an uptick in US ISM manufacturing PMI. JPY rose by 0.3% led by hopes of further monetary tightening. INR slumped to a fresh record low, due to adverse global cues. However, it is trading stronger today in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China remain closed since 28 Jan 2025

Global yields closed mixed. Germany’s 10Y yield fell as ongoing geopolitical developments have raised hopes of monetary easing by ECB. UK’s 10Y yield also moderated as markets are expecting a 25bps rate cut by BoE. US 10Y yield firmed up tracking higher US PMI. India’s 10Y yield moderated, led by government’s fiscal consolidation. It is trading at 6.68% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China remain closed since 28 Jan 2025

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 29 Jan and 30 Jan 2025

Oil prices declined amidst continued uncertainty over US tariff policies.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Fears of a trade-war between the World’s largest economies, US and China continued to weigh on investors’ sentiments. China announced retaliatory tariffs of 10%-15% on a few US imports such as coal and LNG. While US tariffs have already took effect, China’s tariff will kick in from Monday. However, global markets are seeking relief in the fact that the tariffs announced so far by both the nations are not as vengeful as feared and leaves the room open for dialogue. Separately, US JOLTS job openings eased in Dec’24, providing first signs of a slowdown in the labour market. In China, Caixin services PMI dipped to 51 in Jan’25 from 52.2 in Dec’24, mirroring the trend seen in the official PMI. In Japan, real wage growth accelerated further, boosting the case for more rate hikes.

Apart from FTSE, global indices closed higher. Investors are realigning expectations amidst ongoing trade spats. On one hand, tariffs on Canada and Mexico by US were reprieved, China was prompt in retaliating back. Hang Seng rose the most, led by technology stocks. Sensex inched up, led by capital goods stocks. It is trading lower today, in line with Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China were closed between 28 Jan 2025 to 4 Feb 2025

Global currencies ended higher against the dollar. DXY fell by 0.9% tracking a drop in US job openings (JOLTS data). EUR rose by 0.3% despite looming threats of higher tariffs by the US. JPY also appreciated as further rate hikes are expected. INR appreciated marginally tracking a rebound in domestic equities. However, it is trading weaker today in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China were closed between 28 Jan 2025 to 4 Feb 2025

Global yields closed mixed. US 10Y yield fell by 4bps marked by softening labour market data (JOLTS data). UK’s 10Y yield firmed up tracking ongoing tariff turmoil. Japan’s 10Y yield also r led by heightened expectations of faster pace of tightening by BoJ. India’s 10Y yield inched up marginally, and is trading at 6.66% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China were closed between 28 Jan 2025 to 4 Feb 2025

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 31 Jan and 01 Feb 2025

Oil prices firmed up amidst anticipation of sanctions on Iranian exports by US.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets continued to track evolving dynamics of US policies. With the tariff war likely in check for the time being, focus shifted to US economic data. Global composite PMI decelerated to a 12-month low, led by a slowdown in services activity, even as manufacturing sector showed signs of a rebound. In the US, while private payrolls (ADP) rose, ISM services PMI edged down. Federal Reserve Vice Chair suggested keeping rates at current levels due to uncertainty over impact of government policies. In contrast, BoJ’s Board member sees policy rates increasing to 1% from 0.5% currently, due to a build-up in inflationary pressures. In India, services PMI stood at 56.5 in Jan’25 compared with 59.3 in Dec’24, remaining steadily above the historical average. While higher competition impinged on growth prospects, this was offset by an uptick in international orders.

Global indices closed mixed. Investors remained cautious tracking ongoing developments around global tariffs and lacklustre corporate earnings. US stocks ended higher, while Asian stocks (barring Nikkei) were impacted by China’s retaliatory tariff response. Sensex edged down on account of fall in real estate stocks. It is trading lower today, while Asian stocks are trading higher.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY fell by 0.4% tracking a dip in US treasury yields and mixed macro data. JPY rose, supported by hawkish comments from BoJ’s Board member. INR depreciated by 0.4% to a fresh record low. It is trading further weaker today, while Asian currencies are trading higher.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except Japan (tad higher), global yields closed lower. US 10Y yield fell sharply as ISM services PMI moderated. UK’s 10Y yield also fell at a similar pace as a 25bps rate cut by BoE has been priced in. Japan’s 10Y yield was impacted by expectations of faster pace of rate hikes as pointed by a BoJ Board member. India’s 10Y fell marginally, and is trading further lower at 6.65% today

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 01 Feb and 03 Feb 2025

Oil prices softened amidst large build-up in US crude inventories.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Labour market in the US showed further signs of softening with jobless claims increasing to 219,000 (est. 213,000). Focus now shifts to US jobs report due later in the day. Market estimates US payrolls increasing at a softer pace of 170,000, after increasing 256,000 last month. The data is likely to play a key role in shaping the US monetary policy, even as Fed officials have reiterated the need for keeping rates at current levels amidst uncertainty over fiscal policies. In contrast, BoE cut its policy rate by 25bps to 4.5% with a 4-2 vote. The two dissenting members voted for a larger 50bps cut. Growth forecast for 2025 was revised sharply downwards to 0.75% from 1.5% earlier, while inflation was estimated to remain elevated and peak to 3.7% in Q3 2025. Analysts expect BoE to cut rates further by at least 2-3 times this year. In India, focus is on RBI’s monetary policy with expectations of a 25bps rate cut.

Except Dow Jones, global indices closed higher. Investors monitored flurry of corporate earnings and BoE’s rate decision. Hang Seng rose to its highest since Nov’24 buoyed by technology stocks. Dow Jones edged down, as investors remained cautious ahead of US payrolls data. Sensex moderated, led by real estate stocks. It is trading lower today and Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except JPY, other global currencies depreciated against the dollar. GBP declined the most after BoE delivered another rate cut. On the other hand, expectations of a tighter monetary policy buoyed JPY to a ~2-month high. INR slipped to a new historic low amidst persisting selling pressure from FPIs. It is trading marginally stronger today, in line with Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed. US 10Y yield inched up as unit labour cost data firmed up, reflecting stickiness in wages. UK’s 10Y yield rose the most, despite BoE’s rate cut, as future trajectory remains data dependent. China’s 10Y yield softened as a few growth indicators continue to showed signs of strain. India’s 10Y fell marginally and is trading at 6.65% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 03 Feb and 04 Feb 2025

Oil prices fell as the US President reiterated his stance on higher US supplies

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research