Economic Weekly Wrap
13 November 2023 - 17 November 2023

Hawkish comments from Fed Chair on the trajectory of inflation has again spurred some bit of selling in the bond market. The upcoming CPI inflation data is crucial for market to get some cues. In a separate release, University of Michigan’s, both 1 and 5Year inflation expectation firmed up signalling some un-anchoring. In UK, Q3 provisional estimate of GDP remained flat better than anticipated contraction of 0.1%. Equity market rally in the US was driven by tech stocks. However Asian stocks remained cautious eyeing US-China talks. On domestic front, all eyes will be on CPI data release (market expectation: 4.8%, BoB estimate: 4.7%).

Global stocks closed mixed. A host of factors starting from hawkish comments of Fed Chair on inflation trajectory to earnings report and also macro data releases (inflation expectation data in the US and GDP print in UK), impacted market sentiments. S& P 500 rose the most followed by Dow Jones, pulled up mostly by tech stocks. Asian stocks were trading lower. Sensex rose by 0.1%. It has further risen by 0.5% in the Muhurat trading session. It is trading lower today, while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies closed mixed. DXY remained flat as cautiousness prevailed before the release of US CPI data. EUR appreciated by 0.2% awaiting comments from ECB Vice President. JPY depreciated by 0.1% tracking comments from BoJ Governor who said that some distance is yet to cover before reaching 2% inflation target sustainably. INR also depreciated by 0.1% due to FII outflows. It is trading higher today, in line with other Asian currencies.

Fig 2 – Currencies

Except China (flat), global yields closed higher. Hawkish comments from Fed Chair has spurred selling spree in the market once again. UK’s 10Y yield rose the most by 6bps as GDP data showed some momentum in economic activity. US 10Y yield rose by 3bps as inflation expectation remained firm. India’s 10Y yield rose by 2bps, ahead of CPI data. It is trading at the same level 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

Oil prices rose amidst reports of Iraq voicing for more output cut.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Softening CPI print in the US (flat sequential increase against 0.4% increase in Sep’23) provided some degree of comfort to markets. Even CPI excl. food and energy also moderated to 0.2% from 0.3%. On YoY basis, CPI and core came in at 3.2 and 4% respectively. This has raised bets for Fed fund rate to be on the same level as of now in the next meeting (94.5% probability against 85.5% a day before). Separately, in China, major high frequency macro indicators showed some momentum. Industrial production rose by 4.6% against expectation of 4.5% in Oct’23, on YoY basis. Retail sales rose by 7.6% (est.: 7%). In Japan, sharp contraction is visible in Q3 provisional GDP estimate as private consumption demand flat lined. On domestic front, WPI remained in deflation territory for 7th consecutive month.

Barring Hang Seng, other global indices closed higher. Major rally in US and Europe was supported by cooler than expected US CPI print for Oct’23. With this, it is widely anticipated that Fed’s rate hiking cycle has come to an end. Markets in India were closed for Diwali. Today, Sensex has opened higher in line with other Asian markets. Better than expected China’s macro data (retail sales, industrial production) has also boosted investor sentiments.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR (closed), other global currencies ended higher. DXY fell by 1.5%, driven by sharp drop in US sovereign yields, as inflation softened more than estimated. Further, supported by improvement in risk sentiment, Asian currencies, including INR, are trading higher today.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed lower. Moderation in CPI print in the US raised bets that Fed is done with the rate hike cycle. US 10Y yield fell at the sharpest pace followed by UK and Germany. Even a comforting Zew sentiment data in Germany could not arrest the fall in its yield. India’s 10Y yield fell by 2bps. It is trading flat today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research, Indian markets were closed on 14 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, Mutual fund data as of 8 and 9 Nov 2023

Oil prices were broadly stable, as investors weigh supply side concerns.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US economy continued to show some softening. Following moderation in CPI data, advance retail sales also fell by 0.1% on MoM basis from 0.7% increase seen in Sep’23. PPI declined by 0.5% against 0.5% increase in Sep’23. Core PPI remained flat. Thus all indicators are pointed towards the fact that Fed rate hike cycle has already peaked. Even in UK, inflation dropped to its lowest level in 2 years, retail price index also moderated. House price index of the region fell by 0.1% in Sep’23 against 0.8% increase in Aug’23. In China as well, new home prices fell by 0.4% on MoM basis. In Japan, exports growth have moderated to 1.6% from 4.3%, while imports fell at a softer pace by 12.5% from 16.3% decline in Sep’23. On domestic front, exports edged up by 6.2%, led by non-oil exports. Imports also have risen sharply by 12.3%.

Global indices closed higher, with Hang Seng and Nikkei registering maximum gains. Signs of slowdown in US economy (PPI at 2 year low) increased speculations around possibility of Fed rate cuts next year. Sensex too ended in green, led by realty, tech and auto stocks. However, it is trading lower today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR and CNY (higher), other global currencies ended lower. DXY rose by 0.3% following mixed macro data points from the US (decline in PPI, increase in mortgage applications). GBP fell, despite UK CPI slowing to 2-year low in Oct’23. INR was up by 0.2%, owing to continued drop in oil prices. However, it is trading lower today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed as investors are looking for direction amidst host of macro data releases. Despite softening of major macro data points, US 10Y yield rose by 8bps due to some correction in last session’s steep fall. Similar thing was noticed for UK and Germany’s 10Y yield. India’s 10Y yield fell by 6bps, tracking US CPI data. It is trading flat today

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research, Indian markets were closed on 14 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, Mutual fund data as of 8 and 9 Nov 2023

Oil prices fell, due to more than expected increase in US crude inventories.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

A slew of economic data in the US pointed towards the fact that US Fed fund rate has already peaked. US jobless claims rose to a 3month high for the week ending 11 Nov. Even industrial production data of the region remained downbeat due to labour disputes in the auto sector. CME Fed watch tool is pricing in a 99.8% probability of status quo in rate compared with 85.4% probability attached a week earlier. Fed officials such as Lisa Cook and Loretta J. Mester have also warned of risks to an unnecessarily sharp slump in activity due to excessive tightening. In another news, US President Joe Biden has said that talks with China have been constructive. On domestic front, RBI came in with a directive to increase risk weightage for certain categories of personal loans and also for consumer credit exposure of NBFCs.

Global stocks ended mixed. Investors monitored soft macro data in the US (jobless claims and industrial production) as well as US-China talks. Equity markets in China and Hang Seng fell, led by a rout in tech stocks. In India, Sensex rose by 0.5%, led by gains in technology and consumer durable stocks. However, it is trading lower today, in line with other Asian stocks

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except JPY which was higher by 0.4%, other global currencies traded in narrow ranges. DXY was marginally lower as weak macro data has strengthened the case for rate cuts. INR depreciated by 0.1% as India’s trade deficit touched a record high in Oct’23. It is trading further lower today, while other Asian currencies are trading mostly stronger.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except India, global yields closed lower. A host of factors such as weaker economic data in US, Eurozone and China hinted at slowdown in global growth and this has increased appetite for sovereign securities. Fed officials and ECB President all are hinting at risks of overtightening. India’s 10Y yield rose by 2bps, ahead of the weekly auction. It is trading at 7.23% 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 │Mutual funds data as of 8 and 9 Nov 2023

Oil prices fell sharply amidst demand concerns after weak macro data from US.

Fig 7 – Commodities