Economic Weekly Wrap
07 August 2023 - 11 August 2023
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07 Aug 2023
US jobs report showed some degree of softening as it rose by 187k (slowest pace since Dec’20) and less than expectation of 200K. This led DXY and US 10Y yield close lower. Even the CME Fed watch tool is now pricing in a pause with 85% probability attached to it which was 78% before the release of the data. Elsewhere in Germany, factory orders rose more than expected by 7% (est.: -2%). BoJ in its recent summary of opinions expressed biasedness towards a flexible YCC policy on the backdrop of rising pressure on prices and wages. In China, officials are in favour of ample favourable liquidity conditions to support the economy. On domestic front, Kharif sowing improved and cumulative rainfall is 3% above LPA.
Except US, other global equity markets ended higher. Stocks in US ended lower after jobs report. Stocks in UK and Asia advanced. Shanghai Comp rose by 0.2% led by real estate stocks amidst expectations of more stimulus. Sensex snapped its 4-day losing streak and ended 0.7% higher. Technology, banking and capital goods stocks led the gains. It is trading further higher today, while other Asian stocks are trading lower.
Fig 1 – Stock markets
03-08-2023 04-08-2023 % change Dow Jones 35,216 35,066 (0.4) S & P 500 4,502 4,478 (0.5) FTSE 7,529 7,564 0.5 Nikkei 32,159 32,193 0.1 Hang Seng 19,421 19,539 0.6 Shanghai Comp 3,280 3,288 0.2 Sensex 65,241 65,721 0.7 Nifty 19,382 19,517 0.7 Source: Bloomberg, Bank of Baroda Research
Barring INR (lower), other global currencies advanced against the dollar. DXY fell by 0.5% as US payroll additions rose less than expected in Jul’23. EUR rose by 0.5% as Germany’s factory orders increased unexpectedly in Jun’23. INR depreciated further, weighed down by higher oil prices and FPI outflows. It is trading higher today while other Asian currencies are trading lower.
Fig 2 – Currencies
03-08-2023 04-08-2023 % change EUR/USD (1 EUR / USD) 1.0949 1.1006 0.5 GBP/USD (1 GBP / USD) 1.2709 1.2749 0.3 USD/JPY (JPY / 1 USD) 142.58 141.76 0.6 USD/INR (INR / 1 USD) 82.73 82.84 (0.1) USD/CNY (CNY / 1 USD) 7.1697 7.1729 0 Source: Bloomberg, Bank of Baroda Research
Global 10Y yields softened, following moderation in US jobs data. This raised hopes of a pause in the coming days by US Fed. Thus US 10Y yield fell the most by 14bps followed by UK’s (-9bps). The fall in India’s 10Y yield was capped to a certain extent by rising oil prices and worries over inflation. It is trading lower at 7.17% today, as demand in the auction remained firm.
Fig 3 – Bond 10Y yield
03-08-2023 04-08-2023 change in bps US 4.18 4.03 (14) UK 4.47 4.38 (9) Germany 2.61 2.56 (4) Japan 0.65 0.65 0 China 2.66 2.66 0 India 7.20 7.19 (1) Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
03-08-2023 04-08-2023 change in bps Tbill-91 days 6.71 6.76 5 Tbill-182 days 6.88 6.86 (2) Tbill-364 days 6.92 6.94 2 G-Sec 2Y 7.05 7.07 2 India OIS-2M 6.64 6.63 (1) India OIS-9M 6.84 6.85 1 SONIA int rate benchmark 4.93 5.18 25 US SOFR 5.30 5.30 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 03-08-2023 04-08-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) (2.8) (2.6) 0.2 Reverse repo 0.9 0.9 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
02-08-2023 03-08-2023 change (US$ mn/Rs cr) FII (US$ mn) (180.1) 6.1 186.3 Debt 1.8 (20.1) (21.9) Equity (182.0) 26.2 208.2 Mutual funds (Rs cr) 1,001.9 563.4 (438.5) Debt 291.1 75.9 (215.2) Equity 710.8 487.5 (223.3) Source: Bloomberg, Bank of Baroda Research
Oil prices rose by 1.3% to ~4-month high amidst tightening supply.
Fig 7 – Commodities
03-08-2023 04-08-2023 % change Brent crude (US$/bbl) 85.1 86.2 1.3 Gold (US$/ Troy Ounce) 1,934.1 1,942.9 0.5 Copper (US$/ MT) 8,570.5 8,523.3 (0.6) Zinc (US$/MT) 2,489.3 2,506.5 0.7 Aluminium (US$/MT) 2,230.0 2,232.5 0.1 Source: Bloomberg, Bank of Baroda Research
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08 Aug 2023
macro indicators showed some degree of softening. China’s exports fell at the sharpest pace since CY20 by 14.5% in Jul’23 (est.: -13.2% and against previous month’s decline of 12.4%). Even imports fell by 12.4% (est.: -5.6%) compared to 6.8% decline in Jun’23. In Japan, household spending fell by 4.2% (est.: -3.8%) in Jun’23 and even labour cash earnings showed moderation signalling that inflation still poses downside risks. In Germany, industrial production fell more than expected by 1.5% (est.: -0.5%) on SA MoM basis in Jun’23. On domestic front, RBI’s policy is scheduled in the current week, where a hawkish pause with some upward revision in inflation trajectory is anticipated.
Global stocks ended mixed. US indices ended higher ahead of key inflation report to assess the future rate path of the Fed. Dow Jones rose by 1.2%, and S&P 500 rose by 0.9%. In Asia, Shanghai Comp fell by 0.6%. On the other hand, Sensex rose by 0.4%. Technology and real estate stocks advanced the most. However it is trading lower today, in line with other Asian stocks.
Fig 1 – Stock markets
04-08-2023
07-08-2023
% change
Dow Jones
35,066
35,473
1.2
S & P 500
4,478
4,518
0.9
FTSE
7,564
7,554
(0.1)
Nikkei
32,193
32,255
0.2
Hang Seng
19,539
19,538
0
Shanghai Comp
3,288
3,269
(0.6)
Sensex
65,721
65,953
0.4
Nifty
19,517
19,597
0.4
Source: Bloomberg, Bank of Baroda Research
Global currencies ended mixed. DXY closed flat even as Fed officials reiterated the need for higher rates. JPY depreciated the most by 0.5% amidst widening policy divergence between BoJ and Fed. After depreciating for 4-straight sessions, INR appreciated by 0.1% as oil prices eased. However, it is trading weaker today, in line with other Asian currencies.
Fig 2 – Currencies
04-08-2023
07-08-2023
% change
EUR/USD (1 EUR / USD)
1.1006
1.1002
0
GBP/USD (1 GBP / USD)
1.2749
1.2784
0.3
USD/JPY (JPY / 1 USD)
141.76
142.50
(0.5)
USD/INR (INR / 1 USD)
82.84
82.75
0.1
USD/CNY (CNY / 1 USD)
7.1729
7.1931
(0.3)
Source: Bloomberg, Bank of Baroda Research
Global 10Y yields closed mixed. UK’s 10Y yield rose by 8bps as BoE Chief Economist pointed out that food inflation is unlikely to come down. Japan’s 10Y yield fell by 2bps eyeing the household spending data. India’s 10Y yield rose a tad by 1bps as markets have already priced in some hawkish comments from RBI. It is trading lower at 7.18% today.
Fig 3 – Bond 10Y yield
04-08-2023
07-08-2023
change in bps
US
4.03
4.09
5
UK
4.38
4.46
8
Germany
2.56
2.60
4
Japan
0.65
0.63
(2)
China
2.66
2.65
(1)
India
7.19
7.20
1
Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
04-08-2023
07-08-2023
change in bps
Tbill-91 days
6.76
6.72
(4)
Tbill-182 days
6.86
6.88
2
Tbill-364 days
6.94
6.93
(1)
G-Sec 2Y
7.07
7.08
1
India OIS-2M
6.63
6.64
1
India OIS-9M
6.85
6.87
2
SONIA int rate benchmark
5.18
5.18
0
US SOFR
5.30
5.30
-
Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn
04-08-2023
07-08-2023
change (Rs tn)
Net Liquidity (-Surplus/+deficit)
(2.6)
(2.5)
0.1
Reverse repo
0.9
0.9
0
Repo
0
0
0
Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
03-08-2023
04-08-2023
change (US$ mn/Rs
cr)
FII (US$ mn)
6.1
43.0
36.8
Debt
(20.1)
34.9
55.0
Equity
26.2
8.0
(18.2)
Mutual funds (Rs cr)
1,001.9
563.4
(438.5)
Debt
291.1
75.9
(215.2)
Equity
710.8
487.5
(223.3)
Source: Bloomberg, Bank of Baroda Research
Oil prices fell amidst demand concerns as Fed officials supported higher rates.
Fig 7 – Commodities
04-08-2023
07-08-2023
% change
Brent crude (US$/bbl)
86.2
85.3
(1.0)
Gold (US$/ Troy Ounce)
1,942.9
1,936.6
(0.3)
Copper (US$/ MT)
8,523.3
8,436.1
(1.0)
Zinc (US$/MT)
2,506.5
2,510.0
0.1
Aluminium (US$/MT)
2,232.5
2,230.0
(0.1)
Source: Bloomberg, Bank of Baroda Research
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09 Aug 2023
Adding to further woes, China’s inflation data softened considerably in Jul’23. CPI fell by 0.3% on YoY basis, sharpest drop since Feb’21. Even factory prices fell at a much sharper pace by 4.4%; registering 10th consecutive month of decline. Notably, for the first time since Nov’20, both CPI and PPI entered into deflation at the same time. Elsewhere, in UK, BRC sales index picked up at a less than sharper pace in Jul’23, signalling some softening in demand. The final estimate of Germany shows 0.3% sequential increase in CPI, remaining in line with expectations. Elsewhere, Fed officials gave mixed signals. While Philadelphia Fed President spoke of a pause in CY23 and then a rate cut next year, Atlanta Fed President remained hawkish. On domestic front, markets will closely monitor RBI’s policy for any future guidance.
Barring Nikkei (higher), other global stocks ended lower. Investor sentiments were impacted by Moody’s rating downgrade of several US banks and dismal trade data from China. Stocks in Hong Kong fell the most by 1.8%. Markets now await US inflation report due later this week. In India, Sensex fell by 0.2% as inflation concerns weighed. Maximum decline was recorded in metal and power stocks. It is trading further lower today, in line with other Asian stocks.
Fig 1 – Stock markets
07-08-2023 08-08-2023 % change Dow Jones 35,473 35,314 (0.4) S & P 500 4,518 4,499 (0.4) FTSE 7,554 7,527 (0.4) Nikkei 32,255 32,377 0.4 Hang Seng 19,538 19,184 (1.8) Shanghai Comp 3,269 3,261 (0.3) Sensex 65,953 65,847 (0.2) Nifty 19,597 19,571 (0.1) Source: Bloomberg, Bank of Baroda Research
Global currencies fell against a resurgent dollar. DXY rose by 0.5% amidst a global risk-off sentiment. JPY depreciated by 0.6%, amidst weak macro data. CNY too fell as China’s trade data disappointed. A precipitous moderation in UK’s retail sales weighed on GBP. INR ended weaker as oil prices climbed up again. However, it is trading stronger today, in line with its Asian peers.
Fig 2 – Currencies
07-08-2023 08-08-2023 % change EUR/USD (1 EUR / USD) 1.1002 1.0956 (0.4) GBP/USD (1 GBP / USD) 1.2784 1.2748 (0.3) USD/JPY (JPY / 1 USD) 142.50 143.38 (0.6) USD/INR (INR / 1 USD) 82.75 82.83 (0.1) USD/CNY (CNY / 1 USD) 7.1931 7.2186 (0.4) Source: Bloomberg, Bank of Baroda Research
Barring China (stable), global 10Y yields closed lower. Softening activity in China raised concerns about outlook of global growth, thus increasing demand for sovereign securities. Germany’s 10Y yield fell the most by 13bps followed by UK (-8bps) and US (-7bps). Thus India’s 10Y yield fell by 4bps. It is trading at the same level today.
Fig 3 – Bond 10Y yield
07-08-2023 08-08-2023 change in bps US 4.09 4.02 (7) UK 4.46 4.39 (8) Germany 2.60 2.47 (13) Japan 0.63 0.61 (2) China 2.65 2.65 0 India 7.20 7.16 (4) Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
07-08-2023 08-08-2023 change in bps Tbill-91 days 6.72 6.76 4 Tbill-182 days 6.88 6.84 (4) Tbill-364 days 6.93 6.92 (1) G-Sec 2Y 7.08 7.06 (1) India OIS-2M 6.64 6.64 0 India OIS-9M 6.87 6.85 (2) SONIA int rate benchmark 5.18 5.18 0 US SOFR 5.30 5.30 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 07-08-2023 08-08-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) (2.5) (1.9) 0.6 Reverse repo 0.9 0.9 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
04-08-2023 07-08-2023 change (US$ mn/Rs cr) FII (US$ mn) 43.0 265.2 222.2 Debt 34.9 (7.0) (41.9) Equity 8.0 272.2 264.1 Mutual funds (Rs cr) 1,001.9 563.4 (438.5) Debt 291.1 75.9 (215.2) Equity 710.8 487.5 (223.3) Source: Bloomberg, Bank of Baroda Research
Oil prices rose as EIA upgraded US growth forecast for CY23.
Fig 7 – Commodities
07-08-2023 08-08-2023 % change Brent crude (US$/bbl) 85.3 86.2 1.0 Gold (US$/ Troy Ounce) 1,936.6 1,925.2 (0.6) Copper (US$/ MT) 8,436.1 8,303.0 (1.6) Zinc (US$/MT) 2,510.0 2,486.3 (0.9) Aluminium (US$/MT) 2,230.0 2,200.5 (1.3) Source: Bloomberg, Bank of Baroda Research
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11 Aug 2023
US CPI data remained comforting. On YoY basis, it rose less than expected by 3.2% (est.: 3.3%) and compared to 3% in Jun’23. The sequential pickup was as expected by 0.2%. Core rose by 4.7% (YoY) and sequentially by 0.2% (on expected lines). CME Fed Watch tool is only pricing in a 10% probability for a rate hike in Sep. However, San Francisco Fed President remained slightly uncertain of trajectory of inflation. Elsewhere, Reserve Bank of Australia’s Governor said that monetary policy has now entered a ‘recalibration phase’, where minor adjustments are required in line with evolving data. On domestic front, RBI’s undertone was hawkish and even a rate hike could not be ruled out. The surprise move was asking banks to hold incremental CRR, where some friction in short end yields may be visible.
Global indices closed mixed. Cooler than expected inflation in the US and corporate earnings results of European companies supported gains made by Dow Jones and FTSE. Nikkei ended higher, led by manufacturing, transport, railways & bus sector stocks. Sensex ended in red, dragged by banking (following RBI announcement) and capital good stocks. It is trading further lower today, while other Asian stocks are trading mixed.
Fig 1 – Stock markets
09-08-2023 10-08-2023 % change Dow Jones 35,123 35,176 0.2 S & P 500 4,468 4,469 0 FTSE 7,587 7,619 0.4 Nikkei 32,204 32,474 0.8 Hang Seng 19,246 19,248 0 Shanghai Comp 3,244 3,255 0.3 Sensex 65,996 65,688 (0.5) Nifty 19,633 19,543 (0.5) Source: Bloomberg, Bank of Baroda Research
Except EUR and INR (higher), other global currencies fell against US$. DXY ended flat. JPY and GBP fell the most. Easing labour market and softening inflation has raised concerns over impending soft landing for the US economy. Latest possibility of Fed rate cut is priced in for Mar’24. INR rose by 0.1%, as oil prices fell. However, it is trading lower today in line with other Asian currencies.
Fig 2 – Currencies
09-08-2023 10-08-2023 % change EUR/USD (1 EUR / USD) 1.0974 1.0981 0.1 GBP/USD (1 GBP / USD) 1.2719 1.2676 (0.3) USD/JPY (JPY / 1 USD) 143.73 144.75 (0.7) USD/INR (INR / 1 USD) 82.82 82.72 0.1 USD/CNY (CNY / 1 USD) 7.2107 7.2188 (0.1) Source: Bloomberg, Bank of Baroda Research
Global 10Y yields closed mixed. US 10Y yield rose by 10bps following hawkish comments from Fed official. UK, Japan and China’s 10Y yield closed flat, in absence of fresh cues. India’s 10Y yield fell by 2bps as markets have already priced in hawkish pause by RBI. It is trading higher at 7.19% today.
Fig 3 – Bond 10Y yield
09-08-2023 10-08-2023 change in bps US 4.01 4.11 10 UK 4.37 4.36 0 Germany 2.50 2.53 3 Japan 0.58 0.58 0 China 2.66 2.66 0 India 7.17 7.15 (2) Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
08-08-2023 09-08-2023 change in bps Tbill-91 days 6.76 6.74 (2) Tbill-182 days 6.84 6.90 6 Tbill-364 days 6.92 6.95 3 G-Sec 2Y 7.06 7.09 3 India OIS-2M 6.64 6.65 1 India OIS-9M 6.85 6.86 1 SONIA int rate benchmark 5.18 5.18 0 US SOFR 5.30 5.30 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 08-08-2023 09-08-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) (2.1) (2.6) (0.5) Reverse repo 0.9 0.9 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
08-08-2023 09-08-2023 change (US$ mn/Rs cr) FII (US$ mn) (3.8) 264.2 268.1 Debt 3.2 143.9 140.6 Equity (7.1) 120.4 127.4 Mutual funds (Rs cr) 1,001.9 563.4 (438.5) Debt 291.1 75.9 (215.2) Equity 710.8 487.5 (223.3) Source: Bloomberg, Bank of Baroda Research
Oil prices fell by 1.3% as demand concerns from China (as it entered deflation and PPI also continues to decline) linger.
Fig 7 – Commodities
09-08-2023 10-08-2023 % change Brent crude (US$/bbl) 87.6 86.4 (1.3) Gold (US$/ Troy Ounce) 1,914.5 1,912.5 (0.1) Copper (US$/ MT) 8,363.3 8,348.7 (0.2) Zinc (US$/MT) 2,516.0 2,484.5 (1.3) Aluminium (US$/MT) 2,195.0 2,204.0 0.4 Source: Bloomberg, Bank of Baroda Research
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