Economic Weekly Wrap
11 November 2024 - 15 November 2024

Global markets remained watchful ahead of the key data releases in the current week (inflation reading in US and Eurozone, growth print in UK and Japan and retail sales and industrial production in China). DXY continued to remain sticky, however, US 10Y yield softened as inflation expectation data remained well anchored. Among major macro release was the softening CPI data in China which showed that growth is still on a weaker footing. To add to this, China’s new stimulus of US$ 1.4tn has been directed at defusing debt risk of local government, albeit refraining from a direct fiscal boost to spur consumption. Analysts expect a wait and watch prudent response from policymakers following US move. On domestic front, FM announced that the Rs 100 crore credit guarantee scheme of MSMEs will be soon placed before the Cabinet for approval, to provide sector specific support.

Global indices ended mixed. Stocks in the US continued to advance buoyed by US election results and anticipation of a softer stance by the Fed. Both Dow Jones and S&P 500 scaled a new record high. Asian markets were subdued as China’s stimulus measures failed to impress investors. Sensex too ended lower, with real estate and oil and gas stocks witnessing a sharp sell-off. It is trading further lower today in line with other Asian indices

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR and JPY, global currencies depreciated. DXY rose by 0.5% as investors anticipate a less aggressive rate cut from Fed. Political uncertainty in Germany weighed on EUR which declined by 0.8%. INR traded near a lifetime low. It is trading flat today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields softened. Germany’s 10Y yield edged down the most over political uncertainty of the region. Even UK’s 10Y yield fell by 6bps following BoE’s rate decision. India’s 10Y yield moderated a tad but upside risks emanate from a sticky inflation reading, scheduled tomorrow. It is trading at 6.82% 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: MF data as of 5th and 6th Nov 2024

Oil prices moderated weighed down by weaker growth prospects in China.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets continued to weigh in a stronger dollar and protectionist policy, post US Presidential Election results. DXY firmed up to its highest since Jul’24. The impact was felt across other asset class such as gold which showed downward correction due to deterrence following stronger dollar. As per reports, US Presidentelect selection of two key officials in the administration (Mark Rubio and Mike Waltz) might hint at some exceptionalism on China in the near term. Elsewhere, in China, reports suggested that policymakers are considering cutting the deed tax to revive the ailing housing market. Separately in Japan, FM has targeted on sector specific fiscal support, announcing a package of US$ 65bn for semiconductor and AI sector. On domestic front, all eyes will be on IIP (BoB est.: 2.1%) and CPI data (BoB est.: 5.7%) releases. Any upside surprise in the latter will have a bearing on yield.

Except Hang Seng and Indian markets, other indices ended higher. US indices closed at record high, supported by stocks that are expected to benefit from Trump’s policy changes. Sensex ended flat as gains made by tech and banking stocks were countered by decline in metal, oil & gas and auto stocks. However, it is trading higher today, while Asian indices are trading lower.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Barring INR, other major currencies ended lower. DXY strengthened by 0.5% to hit its highest level since early Jul’24. Renewed uncertainty regarding global growth as President-elect Trump is set to announce tariffs early in his presidency, played on investor sentiments. INR was flat amidst a drop in oil prices. It is trading slightly lower today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields softened. Germany’s 10Y yield continued to edge down amidst higher frontloading following likely political impasse. UK’s 10Y yield also edged a tad ahead of earnings data where some stickiness is expected. India’s 10Y yield rose slightly. Any upside surprise in CPI reading will push yields higher. It is trading at 6.83% today

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: US market was closed on 11 Nov

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: MF data as of 5th and 6th Nov 2024

Oil prices fell, dragged by stronger US$ and China’s muted fiscal measures.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

A stronger dollar weighed on currency indices. Equity lost steam in anticipation of heightened tariff risks under newly elected US President and risk of political uncertainty in Germany. The selection of key administrative positions in the US is also giving forward signalling on future policy approach. On macro front, NY Fed 1 year inflation expectation remained well anchored. US CPI is scheduled to be release today. Any divergence from expected print may further delay rate action. Fed officials in their recent commentaries also spoke of the same. In Germany, ZEW index lost momentum and CPI remained sticky. In UK, unemployment rate firmed up and earnings data picked pace. On domestic front, both growth and inflation surprised on the upside hinting at delayed response from RBI.

The rally in global indices paused as investor assessed the impact of proposed government policies on growth and inflation. After climbing to record highs, stocks in US ended lower on profit taking and awaiting US CPI report. Stocks in China and Hong Kong plunged sharply amid expectations of higher US tariffs. In India, Sensex fell by 1% led by losses in power and capital goods stocks. It is trading further lower today, in line with other Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR, other major currencies ended weaker. DXY rose by 0.5%. This was led by expectations that the policies by the new government are likely to stoke inflation, and hence reduce the possibility of rate cuts significantly. GBP fell the most, led by an increase in UK’s unemployment rate. INR closed flat. It is however trading weaker today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

US 10Y yield rose the most amidst apprehension of inflationary policies under the new administration. Yields in UK and Germany also picked up. This was further supported by a sticky earnings data in the former and higher inflation data in the latter. India’s 10Y yield rose a tad. It is trading at 6.84% 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: MF data as of 7th and 8th Nov 2024

Oil prices inched up albeit a cut in demand forecast by OPEC+ .

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US CPI remained in line with estimates, albeit pace of disinflation slowed. On MoM and YoY basis, it has risen by 0.2% and 2.6%, respectively, while core rose at a stickier pace by 0.3% and 3.3%. CME Fed watch tool is now attaching a higher probability of 82.8% for a 25bps rate cut in Dec’24 (1 day earlier-it was 58.7%). Fed officials also reiterated the need to dial back restrictiveness in monetary policy, however, expressing uncertainty over trajectory of inflation. In UK, house price survey showed momentum, increasing at the strongest pace in past two years. Elsewhere, German Chancellor’s advisors have pared back growth projections to 0.4% (1.1% earlier), calling need for public investment. On domestic front, maturity of Rs 650.8bn GSec is due today, which will support domestic liquidity.

Global indices ended mixed as investors assessed US inflation data. Political developments in the US and Germany, as well as impact of China’s stimulus measures also weighed on investor sentiments. Nikkei declined the most as an increase in Japan’s PPI led to speculation over BoJ’s rate hike. Sensex declined further, with real estate and capital goods stocks continuing to falter. It is however trading higher today, while other Asian indices are trading lower.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Except INR and CNY, other major currencies ended weaker against the dollar. DXY rose to a 1-year high as US inflation data bolstered the case for a shallow rate cut cycle. EUR fell the most, led by apprehension over proposed US tariffs and political uncertainty in Germany. INR continued to trade in a narrow range. It is trading a tad weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Global yields firmed up as some stickiness in core CPI data is observed. This coupled with Fed official comments, continued strengthening of dollar and uncertainty under new administration in the US, have kept yields elevated. India’s 10Y yield rose a tad. It is trading higher at 6.86% 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: MF data as of 8th and 11th Nov 2024

• Oil prices edged up marginally despite a stronger dollar.

Oil prices edged up marginally despite a stronger dollar.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research