Economic Weekly Wrap
03 March 2025 - 07 March 2025

Bets of Fed rate cuts increased after US inflation and macro data. Core PCE inflation eased to 2.6% in Jan’25 (2.9% in Dec’24, YoY). Amidst uncertainty over President Trump’s tariff policies, consumer spending declined, trade deficit inched up, flash services PMI slipped into contraction and consumers’ inflation expectations inched up. China’s official PMIs rose in Jan’25. While the manufacturing PMI rose to a 3- month high of 50.2 (from 49.1), non-manufacturing PMI was also higher at 50.4 versus 50.2 in Dec’24. In India, GDP growth bounced back to 6.2% in Q3 (5.4% in Q2FY25). Core sector output expanded by 4.6% in Jan’25, versus 4.2% in Jan’24. Investors will continue to monitor developments on US tariff stance, as the deadline for tariffs on Mexico and Canada approaches. US jobs data, ECB policy decision and China’s NPC meeting also remain in focus.

Global markets ended mixed. Tariff turmoil intensified as US Treasury Secretary urged Canada and Mexico to match US tariff hikes on China. US stocks were supported by better-than-expected financial results. Hang Seng fell the most amidst uncertainty over tariffs. Sensex also fell considerably, led by technology stocks. It is trading higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Barring CNY, other global currencies depreciated. DXY rose tracking developments around US tariffs and Russia-Ukraine war. JPY depreciated by 0.5%, as inflation in Tokyo eased more than expected. INR fell by 0.3%. It is trading stronger today, in line with Asian peers.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Figures in brackets indicate depreciation against the dollar

US 10Y yield softened as Atlanta Fed’s GDP nowcast results showed softening of economic growth in the US. Frontloading of demand for sovereign securities is visible amidst looming deadline of US tariffs on a few countries (4 Mar 2025). India’s 10Y inched up by 2bps as liquidity conditions remain tight. It is trading flat at 6.73% 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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 24 Feb and 25 Feb 2025

Oil prices softened as tariff fears weighed on global demand prospects.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets ended in upheaval as the US President moved forward with 25% tariffs on Canada and Mexico, while tariffs on China were hiked by 10%. With all three nations vowing retaliatory measures, the fears of a global trade war have resurfaced. In addition, US military aid to Ukraine was also withdrawn. These measures come on heels of weak macro data and raise concerns over its impact on US growth and inflation. Recent data showed a moderation in US ISM manufacturing PMI, led by a sharp decline in new orders. Input prices rose to a more than 2-year high amidst escalating trade tensions, which is likely to weigh on the sector. In Japan and Eurozone, manufacturing PMI rose but remained below the expansion mark. India’s manufacturing PMI printed at 56.3 in Feb’25 from 57.7 in Jan’25, even though the pace of expansion remained well above historical trends.

Global markets ended mixed as investors remain wary of retaliatory tariff measures. US stocks closed lower as ISM data softened. Stocks in China also moderated on tariff woes. Nikkei inched up as interest rate differential with the US remains in focus. Sensex fell by 0.2%, led by losses in oil and gas stocks. It is trading further weaker today, in line with Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except CNY, other global currencies appreciated. DXY fell as US macro data underlined signs of weakness in the economy. Amongst major currencies, EUR rose the most by 1.1%, followed by GBP. INR appreciated by 0.2%, in line with global cues. However, it is trading weaker today, in line with its Asian peers.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Figures in brackets indicate depreciation against the dollar

US 10Y yield softened amidst risk-off sentiment. Fed official’s statement suggesting that inflation is getting aligned to the targeted level also supported sentiment. Germany’s 10Y yield stiffened considerably as tariff fears raised inflationary concerns. India’s 10Y yield inched up a tad. It is trading lower at 6.72% 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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 24 Feb and 25 Feb 2025

Oil prices declined on OPEC+ decision to increase output and tariff concerns.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US 10Y yield softened amidst risk-off sentiment. Fed official’s statement suggesting that inflation is getting aligned to the targeted level also supported sentiment. Germany’s 10Y yield stiffened considerably as tariff fears raised inflationary concerns. India’s 10Y yield inched up a tad. It is trading lower at 6.72% today.

Global markets broadly ended lower amidst escalated tariff fears. China retaliated with 10-15% additional tariff on a few US imports from 10 Mar. Dow Jones fell the most. Stocks in China were supported eyeing its annual legislative session where growth target of 5% has been set for CY25. Sensex fell by 0.1%, led by auto stocks. It is trading higher today; Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

DXY declined further by 0.9% as macro indicators pointed to a slowdown in US growth. Other currencies gained. EUR rose the most by 1.3% as hopes of increased spending in Germany boosted growth prospects. INR appreciated marginally. It is trading stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Figures in brackets indicate depreciation against the dollar

US 10Y yield stiffened as tariff fears stoked inflationary concerns. New York Fed President also iterated the same. UK’s 10Y yield was largely capped as BRC shop price index (proxy of retail sales) softened. India’s 10Y yield inched up a tad; as RBI measures are largely keeping yields range bound. It is trading lower at 6.74% 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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 24 Feb and 25 Feb 2025

Oil prices fell to a 6-month low on higher OPEC+ output and growth concerns.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US President exempted automakers from the 25% tariff imposed on Canada and Mexico for a month. Other exemptions are also being considered, possibly signalling a softer stance on tariffs. A smaller than expected increase in private payrolls in the US once again stoked fears of a slowdown, even as services PMI inched up. Separately, both China and Germany are considering greater fiscal support to boost growth and counter the impact of an escalation in trade tensions with the US. In India, services PMI jumped to 59.0 in Feb’25 from a 26-month low in Jan’25, led by a surge in new orders. To manage anticipated liquidity crunch due to financial year end related outflows, RBI announced OMO purchase of Rs. 1 lakh crores and USD/INR buy/sell swap auction of US$ 10bn (36 months). These measures are expected to infuse additional liquidity of ~Rs. 1.8-1.9 lakh crores.

Global markets ended higher driven by US decision to delay auto tariffs on Canada and Mexico. Hang Seng firmed up, led by technology stocks. Further, equity market sentiments were bolstered as China set an unchanged growth target for three straight years, despite ongoing volatility. Sensex inched up, led by power stocks. It is trading lower today; Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies appreciated. DXY fell by 1.4% as US private payrolls rose less than expected. EUR jumped led by anticipation of higher borrowing limits. INR appreciated by 0.3%, supported by positive global cues. It is trading further stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Figures in brackets indicate depreciation against the dollar

The sell-off in global bonds ramped up, led by Germany which rose by 30bps (highest since 1 Nov 2023). This was on account of anticipation of debt overhaul under the new administration. UK’s 10Y yield firmed up as BoE Governor hinted that inflation is likely to peak later in CY25, driven by hike in payroll tax. India’s 10Y yield fell, led by improving liquidity situation. It is trading further lower 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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 24 Feb and 25 Feb 2025

Oil prices fell led by demand concerns and higher US inventories.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets found some reprieve as US tariffs on Canada and Mexico were delayed by another month. In response, Canada also postponed reciprocal tariffs on US. Separately, US jobless claims dipped 21,000 to 221,000 (est. 235,000). Focus now shifts to US jobs report due later in the day. Uncertainty over government policies is likely to weigh on the Fed, with Atlanta Fed President suggesting a prolonged pause until late spring or summer. Echoing similar views, the ECB hinted at a pause in future monetary easing, even as it reduced its policy rate by 25bps to 2.5%. In Japan as well, expectations of a pause in Mar’25 meeting have increased, with the next rate hike now expected in Q3 2025. China’s export growth in JanFeb’25 was recorded at 2.3%, much lower than expected 5% increase. Imports contracted sharply by 8.4% (est. -1%), led by weak domestic consumption demand.

Global markets ended mixed. FTSE was restrained as BoE officials hinted at restrictive policy amidst risks to inflation. Stocks in China were supported by Finance Minister’s comments over ample fiscal tools. This has supported Hang Seng’s rally, as well. Sensex inched up, led by metal stocks. It is trading lower today; Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Figures in brackets indicate depreciation against the dollar

Japan’s 10Y yield rose to its highest since 11 Jun 2009, as investors are wary of the interest rate differential with the US. Germany’s rally also continued as EU also favoured easing fiscal rules amongst other member nations. UK’s 10Y yield exhibited some correction. India’s 10Y yield was supported by RBI’s liquidity measures. It is trading at 6.69% 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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 24 Feb and 25 Feb 2025

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research