Economic Weekly Wrap
09 September 2024 - 13 September 2024

US labour market data was unable to provide cues on quantum of rate cut by Fed later this month. On one hand, while non-farm payroll increased (142k) less than estimated (165k) in Aug’24, on the other hand, unemployment rate declined (4.2% in Aug’24 versus 4.3% in Jul’24). Wage growth inched up (0.4% versus 0.2%). Investors continue to expect 25bps cut this month, and similar reduction in Nov and Dec meetings as well. In Europe, economic conditions remain bleak with Germany and France industrial production in Jul’24 coming in much lower than expected. Eurozone’s Q2CY24 GDP was also revised lower to 0.2% (QoQ) from 0.3% predicted earlier and 0.3% in Q1. In Japan as well, Q2 GDP estimate was lowered, to 0.7% from 0.8% estimated earlier and 0.8% in Q1. In China, PPI fell (-1.8%) in Aug’24, sharper than expected (-1.5%) and was also lower compared to last month (-0.8%). CPI inched up (0.6% versus 0.5%), but at a slower pace (est.: 0.7%).

Global equity markets witnessed a broad-based sell off. Stocks in the US led the decline as US jobs report painted a mixed picture of the labour market. Investors remain divided over the quantum of rate cuts. In Japan, stronger Yen weighed on the equity market. Sensex declined by 1.2%, led by oil and gas and banking stocks. It is trading further lower today in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research | Note: Markets in Hong Kong were closed on 6 Sep 2024

 Global currencies ended mixed. DXY rose despite weaker than expected jobs data. EUR depreciated by 0.2%, amid disappointing macro data. On the other hand, JPY rose led by increased bets of more rate hikes. INR appreciated a tad but is trading weaker today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Except India (flat), other global 10Y yields closed lower. Mixed signals from US labour market, left markets undecided on the possible quantum of rate cut by Fed this month. Weakness in industrial output of Germany and France also flagged deteriorating economic conditions. India’s 10Y yield closed stable as oil prices eased. Following global cues, it is trading a tad lower today at 6.85%

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: Data for Mutual Funds as of 30 Aug and 2 Sep 2024

Oil prices fell, owing to demand concerns led by economic weakness in the US

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

As US labour market data aligns more with the possibility of a 25bps rate cut by Fed later this month, investors await CPI data for more cues to bet if Fed will lower rates by a higher quantum. US CPI is expected to come in unchanged from the previous month at 0.2% (MoM). In contrast, expectations of BoJ hiking rates in Oct’24 meeting have increased, as final GDP estimates showed consumption continues to hold ground, despite marginal downward revision. Elsewhere in China, exports rose by 8.7% in Aug’24 (est.: 6.5%) following 7% increase in Jul’24. Exports remain a bright spot, supported by demand from US, EU and ASEAN economies. Imports on the other hand came in weaker (0.5%) than expected (2%), highlighting weakness in domestic demand conditions. Imports from EU and Russia took a beating. This is also expected to weigh on international oil prices. On the domestic front, Kharif sowing was up by 2.2% as of 9 Sep and rainfall is 8% above LPA.

Global indices ended mixed. US stocks rose as focus shifted to the CPI report and the presidential debate. In Asia, market sentiments were muted amid weak data from China. Sensex bucked the weakness in Asian markets and rose by 0.5%. Banking and consumer durables stocks rose the most. It is trading further higher, while other Asian stocks are trading mixed.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research | Note: Markets in Hong Kong were closed on 6 Sep 2024

Global currencies ended broadly weaker. DXY rose by 0.4% as investor scaled back expectations of a 50bps rate cut in Sep’24. Focus now remains on the CPI report. JPY depreciated the most as Japan’s Q2 GDP was revised lower. INR is trading weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Global 10Y yields closed mixed. Yields in UK and US fell, while it rose considerably in Japan. Investors await US CPI data for cues on quantum of Fed’s rate cut. Despite marginal downgrade to Japan’s GDP, analysts expect BoJ to hike rates in Oct’24. India’s 10Y yield closed stable. It is trading flat even today at 6.85%, despite increase in oil prices.

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: Data for Mutual Funds as of 4 Sep and 5 Sep 2024

Oil prices rose as supply concerns offset weak demand worries.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets keenly await the release of US CPI data, due later today. A hotter than expected print will dent prospects of 100-110bps decline in policy rates this year, while a lower than expected print may signal deepening slowdown in the economy. Investors will also assess the impact of the 1st Presidential debate between Trump and Harris, where both highlighted their views on tariffs on China and fiscal policy. Separately in Europe, Germany’s HICP inflation for Aug’24 eased to 2% from 2.6% in Jul’24, driven by 5.1% decline in energy prices. This is likely to make it easier for ECB to lower its policy rates by 25bps tomorrow. Inflation may weaken further going forward as commodity prices remain low. International oil prices have fallen below US$ 70/bbl mark, to its lowest level since Dec’21. Other commodity prices have also taken a hit. Significant weakness in China’s import data has revived fears of sluggish global demand.

Global stocks ended mixed. Focus remains on US inflation report to assess the future course of Fed policy. In US, S&P 500 gained, led by tech stocks. FTSE declined by 0.8% as healthcare and energy stocks dipped. Asian stocks were mostly higher, barring Nikkei. Sensex rose by 0.4% led by real estate and technology stocks. It is however trading lower today in line with its Asian peers.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY shored up further gains awaiting key US inflation report. EUR depreciated ahead of ECB meeting with a 25bps rate cut priced in. Despite a sharp slump in oil prices, INR continued to trade near its record low. It is however trading stronger today, in line with Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Global 10Y yields closed lower/flat. Yields in US and Europe fell, while they were flat elsewhere. Investors will also assess the outcome of 1 st Presidential debate between Harris and Trump and await CPI data for cues on Fed’s rate cut trajectory. India’s 10Y yield closed stable. However, it is trading a tad lower today at 6.84%, tracking decline in oil prices

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: Data for Mutual Funds as of 5 Sep and 6 Sep 2024

Oil prices fell sharply, owing to signs of sluggish demand prospects from China.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Much awaited US CPI report came broadly in line with market expectations with headline CPI rising by 0.2% (MoM) in Aug’24, unchanged from last month. However, core CPI sprung a surprise as it rose by 0.3% in Aug’24 (est.: 0.2%), up from 0.2% in Jul’24. Within this, services (less energy services) inflation rose by 0.4% in Aug’24 (0.3% last month), fastest since Apr’24. Markets are now worried that trend of disinflation might not be continuous. This supports the view that Fed may deliver a smaller rate cut in its meeting next week. In UK, worries around growth have resurfaced with monthly GDP showing flat growth in Jul’24, lower than 0.2% growth expected by analysts. This has reaffirmed views that the BoE may lower rates in its Nov’24 meeting. In India, cabinet announced key decisions-Ayushman Bharat scheme will be available to all above 70 years of age; implementation of PM Gram Sadak Yojna from FY25-29; PM- E drive scheme.

Barring US, stocks elsewhere ended lower. A rally in tech stocks drove US markets higher even as hopes of a 50bps rate cut faded after the inflation report. Nikkei fell for the 7th straight session as a stronger Yen weighed on sentiments. Sensex too declined by 0.1% led by a sharp fall in oil and gas stocks. It is however trading higher today, in line with other Asian markets.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Barring US (higher), other major global 10Y yields closed lower. Yields in US reacted to US CPI data release. Rise in core CPI has lowered the chances of a supersized rate cut by Fed next week. Muted GDP growth in the UK also impacted investor sentiments. India’s 10Y yield fell by 2bps, tracking global cues. It is trading flat today, awaiting domestic CPI data, due 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: Data for Mutual Funds as of 5 Sep and 6 Sep 2024

Oil prices rose, tracking news of a drop in US inventories and supply concerns.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

In line with market expectations, ECB lowered its policy rates by 25bps, bringing the deposit rate down to 3.5% and refinancing rate to 3.65% (60bps decline). However, ECB dampened hopes of a rate cut in Oct’24, as it flagged elevated wage growth and services inflation as key risks. Its core CPI estimate was also revised higher to 2.8% (CY24) from 2.7% estimated in Jun’24. In US, mixed macro data continues to keep investors guessing about the quantum of rate cut by Fed next week. On one hand, while initial jobless claims for the week ending 7 Sep 2024 rose to 230k from 228k in the previous week, on the other hand, PPI inflation inched up. PPI was up by 0.2% (MoM) in Aug’24 versus est.: 0.1% and 0% in Jul’24. It was led by services sector (+0.4% versus -0.3%). India’s CPI rose a tad to 3.7% in Aug’24 from 3.5% in Jul’24. Sequentially, food prices have seen considerable decline, which is positive for CPI in the coming months. IIP growth was steady at 4.8%.

Barring China, stocks elsewhere ended in green. Investors monitored the rise in US jobless claims and PPI inflation, which has increased the possibility of a 50bps rate cut in Sep’24. Nikkei rose sharply by 3.4%. Sensex also rose by 1.8% led by global cues, with technology and power stocks rising the most. However, it is trading lower today, in line with other Asian markets.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Except CNY and INR, other global currencies ended higher. DXY fell by 0.3% amid mixed US data. EUR gained as ECB President refrained from committing to future rate cuts. JPY too appreciated led by hawkish comments from BoJ’s Board member. INR is trading stronger today, in line with its Asian peers.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Barring China and India (lower), other major global 10Y yields closed higher. Yields in US reacted to higher than expected PPI print. Europe noted rise in yields as ECB President flagged concerns about elevated wage growth and services inflation and dampened rate cut hopes in Oct’24. India’s 10Y yield fell by 2bps. It is trading even lower today, tracking muted CPI print.

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

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research