Economic Weekly Wrap
10 March 2025 - 13 March 2025

China’s CPI slipped in to deflation for the first time since Jan’24 down to 0.7% in Feb’25 against an increase of 0.5% in Jan’25. This was largely attributable to declining prices of food, tobacco and alcohol products. Core inflation too dropped down to 0.1% in Feb’25 (first drop since Jan’21). Analysts expect further contraction this year given the escalating trade dispute between US and China which is likely to have an impact on domestic consumption. Recently, the government has also lowered his annual inflation target for 2025 from 3% to 2% (lowest in 2-decades). In the coming week, investors will closely track the upcoming CPI report from US that might offer some guidance on Fed’s rate expectations, even as global markets continue to grapple the impact of fresh tariff implementations.

Global markets ended mixed. Nikkei was down by more than 2% to a 6-month low given a sharp fall in technology stocks. On the other hand, US indices ended in green amidst commentary by Fed Chair Powell that the economy was ‘in good shape’, even as uncertainty pertains. Sensex closed flat. It is trading higher today while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY fell by (-) 0.2%, while EUR gained (0.4%) the most. Signs of significant policy changes in Germany boosted equity markets and inflows. In the US, weaker than expected labour market readings impacted investor sentiments. INR also rose by 0.3%, tracking global cues. However, it is trading weaker 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

Global yields closed mixed. US 10Y yield rose by 2bps as Fed Chair signalled that Fed may pause for some time and seek clarity on fiscal announcements before cutting rates. China’s yield rose the most, as PBOC Governor hinted that rates cuts are not imminent and will be data dependent. India’s 10Y yield rose a tad by 1bps, tracking higher oil prices, and is trading at similar levels 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 rose on hopes of possible reversal in production decision by OPEC+.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Escalated concerns over the ongoing the tariff war along with fears of possible Federal government shutdown in the US, resulted in mounting anxieties over a risk of possible recession. Comments by US president Trump about ‘period of transition’ exacerbated the woes further. JPY rose to a 5-month high as the demand for safehaven accelerated. Separately in Japan, the GDP growth for Q4CY24 was revised downwards to 2.2% on an annualized basis against an initial estimate of 2.8% amidst weakness in domestic demand. Despite this, analysts expect BoJ could still be discussing another rate hike in the upcoming policy meet given the growing inflationary pressure from higher wages and elevated food prices. Two more rate hikes are expected this year with terminal rates likely at 1% mark.

Barring Nikkei, other global indices ended lower. Global markets were rattled triggering a sell-off as fears of possible slowdown in US economy weighed in on investor sentiments. Led by subdued global cues, Sensex closed in red with losses in oil & gas and capital good stocks. It is trading lower today in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except JPY and EUR, other global currencies ended lower. DXY rose by 0.1%, driven by safe haven demand. Yen (5-month high) also benefitted from risk averse sentiments, and hopes of BoJ rate hikes. INR and GBP depreciated the most. INR fell by 0.5%. News reports indicate high U$ demand by importers. However, 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

Barring US and Germany, other global yields closed higher. US 10Y yield fell by 9bps, driven by recession fears in the US. German investors are closely tracking prospective new government’s spending plans. In Japan, investors have raised bets on more BoJ hikes amidst steady price rise. India’s 10Y yield rose a tad, despite lower oil prices. However it is trading slightly 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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Oil prices eased, as concerns regarding global growth (US, China) resurfaced.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Trade tensions rose to an all-time high amidst tariff jitters and conflicting news which added to the volatility in the global markets. US President Trump had previously pledged double tariffs on aluminium and steel from Canada to 50%. This came after the announcement of the reciprocal tariffs by Canada for 25% surcharge on electricity. However, the double tariff plan was halted by the US with only 25% tariff now expected to take in to effect from this week, given that Canada has also rescinded on the 25% charges on electricity to the US states. Markets will closely monitor US inflation print. In India, investors await CPI (our estimate: 4.1%) and industrial production (our estimate: 3%) data scheduled later today.

Global indices ended mixed. US indices extended the losses as trade tension worsened between US and Canada amidst tariffs news. Furthermore, risk of economic slowdown in the world’s largest economy added to the woes. FTSE declined to a near 2-month low with losses in travel and leisure stocks. Sensex ended flat. It is trading lower today while other Asian stocks are trading higher.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except JPY (lower), other global currencies ended higher. DXY fell by 0.5%, driven by continuous decline in equity markets. EUR and GBP gained the most. EUR’s strength was led by optimism around Germany’s defence deal to boost spending. INR rose by 0.1%, tracking global cues. It is trading broadly stable today, while other Asian currencies are trading lower.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Figures in brackets indicate depreciation against the dollar

Global yields closed mixed. US 10Y yield rose the most by 7bps, as investors await US CPI data and track recovery in JOLTS data. In Japan, lower than expected Japan GDP in Q4 has increased uncertainty around the timing of BoJ rate hike. China’s fiscal stimulus plans pushed its yield higher (7bps). India’s 10Y yield was broadly stable, and is trading a tad 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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 6 Mar and 7 Mar 2025

Oil prices rose, supported by weaker US$

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US inflation cooled down to 2.8% (4-month low) in Feb’25 against an increase of 3% in Jan’25. This was largely led by lower aviation and gasoline prices amidst weaker demand. Core inflation too moderated to 3.1% (lowest in over 4-years) in Feb’25 against 3.3% increase in Jan’25. Slower than expected inflation has reinforced expectations of Fed rate cut (pricing in 2-cuts this year). Separately, Bank of Canada reduced rates by 25bps to 2.75% noting the expected economic slowdown given the ‘heightened trade tensions and tariffs imposed by the US’. In India, CPI inflation softened to 3.6% in Feb’25 (4.3% in Jan’25) and industrial production accelerated to 5% in Jan’25.

Global equity indices ended mixed. Investors monitored cooler than expected US CPI data and the growing developments surrounding tariffs and retaliatory measures. Sensex ended in red with losses in IT and 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

Except GBP and INR, other global currencies ended lower. DXY rose by 0.2%, supported by higher bond yields. Market volatility remains significantly high amidst Trump administration’s tariff plans. Softer than expected US inflation print for Feb’25 also did not quell safe haven demand. INR ended flat, but is trading slightly 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

Global yields closed mixed. 10Y yields in UK and US rose the most, as investors deal with uncertainty around US’ tariff measures and renewed focus on European imports. Further BoE is expected to keep rates on hold next week, amidst rising inflation. India’s 10Y yield eased a tad, even as oil prices inched up. It is trading at the same level (6.68%) even 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 6 Mar and 7 Mar 2025

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research