Economic Weekly Wrap
10 February 2025 - 14 February 2025

Concerns around possible trade war escalated as US president Donald Trump warned of possible tariff imposition of 25% on steel and aluminium imports. In retaliatory move, German Chancellor also warned of additional tariffs on US goods. Furthermore,China’s tariff imposition will also come in to place this week. These tariff wars are expected to have inflationary impact and could possibly limit the easing cycle given the strong payrolls report. Markets will closely track testimonyof Fed chair scheduled this week. As per the University of Michigan survey, the consumer sentiment index moderated to a 7-month low while the inflation expectation surged given the impact of the tariff war. Separately, China’s CPI accelerated to a 5-month high to 0.5% in Jan’25 from 0.1% in Dec’24. On the other hand, China’s PPI remained in the deflation zone, declining by 2.3% in Jan’25 (- 2.3% in Dec’24).

Barring Hang Seng and Shanghai Comp, other global indices closed lower. Investors monitored rate decision by global central banks and concerns of global tariff war. Sensex too ended in red with losses in oil and gas and capital good stocks. It is trading lower today while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except JPY (flat) and INR (higher), other global currencies depreciated as investors monitored US President’s comments on tariffs. DXY rose by 0.3%. EUR and GBP fell the most. INR appreciated, supported by rise in yield. However, it is trading at an all-time low today, in line with other Asian

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed. US 10Y yield rose the most by 6bps, following rise in wages and inflation expectations. In addition, threat of tariff on US imports has also raised fears of inflationary pressures. Weakness in industrial activity in Germany kept yields lower. India’s 10Y yield rose by 5bps, tracking RBI’s policy announcements. It is trading further higher today at 6.72%, tracking global cues .

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 rose, as US steps up pressure on Iran and announced new sanctions.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global market signalled some resilience given the evolving conditions around the ongoing announcements of new tariffs on steel and aluminium, which will kick off in Mar’25. The impact of these tariffs can put upside pressure on inflation. Fed chair’s upcoming testimony might offer some guidance on all these fronts. Amidst such uncertainty, gold prices hit an all-time high with countries rushing to buy physical gold before the announcement of any new tariffs. Separately, Eurozone Sentix investor confidence index improved to -12.7 in Feb’25 (from -17.7 in Jan’25). The pickup in investor morale is highest since Jul’24 with an improvement in outlook for Germany, ahead of the key Federal election. Markets will closely track US CPI, growth forecast of UK and quarterly GDP estimates for Europe this week.

Barring domestic market, other global indices closed higher shrugging off any possible concerns surrounding the tariff wars. Amongst other indices, Hang Seng advanced the most followed by FTSE and supported by gains in precious metal stocks. Sensex continued to remain under pressure amidst FII outflows, sharp losses were noted in real estate and consumer durable stocks. It is trading lower today while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Major global currencies depreciated against the US$. DXY rose by another 0.3%. JPY, GBP and EUR fell the most as US imposed 25% tariff on all its steel and aluminium imports. Japan and Germany are some of the major suppliers of steel to the US. INR depreciated as oil prices inched up. However, it is trading much higher today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed. US 10Y yield remained unchanged, while in UK and Germany it declined. In Asia, yields inched up. Analysts monitored US President’s announcement of 25% tariff on steel and aluminium imports. India’s 10Y yield rose by 1bps, tracking rise in oil prices. However, following global cues, it is trading lower 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

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 05 Feb and 06 Feb 2025

Oil prices rose, tracking sanctions on Iran and supplies to China.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

In his first hearing since the new President took office, US Fed Chair Powell in his remarks at the Senate reiterated there is no rush for rate cuts. He stated the focus remains on lowering down inflation and overall the economy remains strong. He further noted that the Fed is attentive to the risk of the dual mandate that is maximum employment and stable inflation. Furthermore, the policy is ‘well positioned to deal with the risk and uncertainties’. With this, investors have lowered down their projection with only one rate cut in the second half. The testimony comes ahead of the key CPI print scheduled to release later today which might offer more guidance on Fed’s future rate path.

Global indices closed mixed. Investors monitored comments by Fed Chair Powell in his testimony as he signalled of a patient path for rate cuts. Following global cues, Sensex continued its downward trajectory and ended lower by 1.3% with sharp losses noted in real estate and cap good stocks. It is trading further lower today while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Japanese markets were shut on 11.2.2024

Barring JPY (closed) and CNY (flat), other global currencies appreciated against the US$. DXY fell by (-) 0.3%. INR gained the most. GBP and EUR also strengthened, supported by higher yields. INR rose by 0.7%-strongest gain since Nov’22. News reports indicate that RBI intervention helped this rally. It is trading even higher today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Japanese markets were shut on 11.2.2024

Except China and India, yields closed higher elsewhere. German 10Y yield rose the most, followed by UK and US. European Commission has confirmed that retaliatory measured on US imports will be announced soon. This has revived concerns regarding inflation and growth in Europe. India’s 10Y yield fell by 1bps and is trading flat today (6.70%), even as oil prices have inched up.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Japanese markets were shut on 11.2.2024

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 06 Feb and 07 Feb 2025

Oil prices rose further, due to renewed geo-political tensions in the Middle East.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Hotter than expected US inflation has underscored Fed Chair’s recent testimony on being ‘patient with rate cuts’. This has dashed rate cut expectation to only one cut in H2CY25. US CPI surged to a near 1.5 year high to 3% with core inflation at 3.3% in Jan’25, with seasonality as one of the major factor. On the domestic front, CPI moderated down to its lowest level since Aug’24 to 4.3% in Jan’25 (5.2% in Dec’24). This was supported by correction in food inflation which was down by 6% in Jan’25 (8.4% in Dec’24). Despite this moderation, there are some upside risk emanating due to global uncertainty on currency, liquidity and monetary policy. On the growth front, IIP moderated down due to sluggish growth in manufacturing sector.

Apart from US and domestic indices, other global indices closed higher. Investors monitored US inflation which dimmed hopes of any possible rate cuts in the coming months. FTSE continued to climb higher for the 3rd straight session ahead of the key GDP estimates. Sensex ended in red with losses in real estate stocks. However, it is trading higher today while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Japanese markets were shut on 11.2.2024

Barring EUR (higher), other global currencies closed flat/lower against the US$. DXY remained unchanged (0%). EUR strengthened as yields inched up and investors await retaliatory measures by EU against US tariffs. INR declined by 0.1% even as oil prices fell. However, it is trading higher today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Japanese markets were shut on 11.2.2024

Except India (flat), yields rose sharply elsewhere. US 10Y yield jumped the most (9bps), followed by Germany and UK 10Y yields. Upside surprise in US CPI for Jan’25 has led to investors dialling back on US Fed rate cut expectations. India’s 10Y yield closed flat as cooling inflation has improved bond demand. It is trading at the same level today, also supported by lower oil prices.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Japanese markets were shut on 11.2.2024

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 07 Feb and 10 Feb 2025

Oil prices fell, as investors monitor talks between US and Russia.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

UK’s GDP expanded at a much faster pace than anticipated at 0.1% in Q4 against an estimate of (-) 0.1% contraction. The expansion was supported by better than expected performance of service and construction sector which advanced by 0.2% and 0.5% respectively in the same period. Separately, Singapore economy rose at it fastest pace since CY21 by 4.4% in CY24 much higher than expectation. Investors continue to monitor ongoing developments on global tariff front. US PPI inched up by 3.5% in Jan’25 against 3.3% increase in Dec’24, while core PPI climbed up to 3.6%. According to the Fedwatch tool, investors are now pricing in a quarter point increase in rate by the end of the year. On the domestic front, the Finance Minister tabled the new Income Tax bill, 2025 which focusses on tax reforms in a simplified way.

Global indices closed mixed. Investors continued to track tariff news and macro print form across the globe including US PPI and UK’s GDP. Amongst other indices, S&P 500 gained the most while FTSE registered the biggest fall. Sensex ended flat with metal stocks turning out to be the biggest gainers. It is trading higher today in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Barring INR (flat), other global currencies closed higher against the US$. DXY fell by (-) 0.6%, following steep decline in treasury yields. JPY and GBP strengthened the most. JPY gained on the back of rising yields (higher confidence that BoJ will deliver a rate hike in H2). INR remained steady. However, it is trading higher today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed. US 10Y yield fell the most (-9bps), followed by Germany and UK. Investors in the US are hoping for a weaker PCE print, based on Jan’25 PPI data. In UK, despite upside surprise in GDP, analysts are worried about weak household consumption, exports and investment. India’s 10Y yield fell by 1bps, and is trading even lower today (6.70%) tracking global cues.

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 10 Feb and 11 Feb 2025

Oil prices fell, amidst news of potential peace deal between Russia and Ukraine.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research