Economic Weekly Wrap
16 September 2024 - 20 September 2024

Global markets remained cautious as host of policy decisions are scheduled (US, UK, Japan, Brazil and South Africa). Market has already priced in a Sep cut by Fed; however, the quantum would be crucial. Elsewhere, ECB official after delivering a rate cut again hinted at softer policy on the back of inflation aligning to its target. In China, weak high frequency data has raised anticipation of policy intervention. PBOC also hinted at stimulus to buttress growth. Amongst major macro releases, US consumer sentiment improved for the second consecutive month. Inflation expectations of the region for 1 year ahead moderated. Industrial production in both the Euro Area and EU softened. On domestic front, India’s 10Y dipped below the 6.8% mark and resistance level will be further tested in the Fed policy week.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

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 5th and 6th Sep 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Momentum got built around in the global market over beginning of rate cut cycle by Fed. Bets intensified over half a percentage cut by Fed as visible in the 1month OIS rates and CME data. Any deviation from the expected outcome might lead to volatility. Even US government official confirmed that inflation is nearing its normal levels and lower borrowing cost would be supportive, at the current juncture. Adjustments among major asset class continued with gold trading near record high benefitting from a weaker dollar. DXY softened by 0.3%, that comforted major EM currencies. In a data light trading day, it was mainly sentiment driven movement. A lot also hinges on BoJ Governor’s future guidance to shed light on the quantum of policy divergence with the US. On domestic front, India’s 10Y yield shied just away from the 6.75% mark and the resistance level below it will be tested based on Fed’s rhetoric.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research. Note: Markets in Japan and China were closed on 16 Sep 2024.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda. Note: Markets in Japan and China were closed on 16 Sep 2024.

Fig 3 – Bond 10Y Yield

Source: Bloomberg, Bank of Baroda Research. Note: Markets in Japan and China were closed on 16 Sep 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: Data for Mutual Funds as of 10th and 11th Sep 2024.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research.

Fed delivered an outsized rate cut of 50bps. The rationale was to prevent the economy from a downturn. Fed’s projections have been dovish. It estimated terminal Fed rate for CY24 at 4.4% and 3.4% for CY25, with gradual convergence to 2.9%. Unemployment rate projections have been revised higher for CY24 by 40bps, growth a tad lower by 10bps at 2%, Core PCE lower by 20bps. This would shape movement of major market variables, going ahead. Dollar is expected to soften. US 10Y yield would also witness buying momentum. Other asset class such as Gold would also nudge higher supported by weaker dollar. Oil prices would be more contingent on weaker demand from China and the supply side tinkering. Reverberation of lower policy rates will also be felt in major AEs and EMs. In a separate news, Hong Kong Monetary authority also lowered its base interest rate, post Fed decision. On domestic front, the southward bound of 10Y yield will persist.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research. Note: Markets in Hong Kong were closed on 18 Sep 2024.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda. Note: Markets in India were closed on 18 Sep 2024.

Fig 3 – Bond 10Y Yield

Source: Bloomberg, Bank of Baroda Research. Note: Markets in India were closed on 18 Sep 2024.

Fig 4 – Short Term Rates

Source: Bloomberg, Bank of Baroda Research.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research.

Global markets showed the impact of outsized rate cut by Fed followed by a dovish guidance. Equity markets were supported by easing liquidity concerns. Amongst major asset class, gold prices firmed up. Oil continued its rally due to hopes of revival in demand from softer global interest rate. However, US$ witnessed some correction. On macro front, US jobless claims also reiterated Fed’s concern on softening job market with the print dipping to its lowest since May’24. BoJ kept policy rate unchanged. However, it has revised up its assessment of private consumption, signalling optimism on growth. To add to this, even CPI data remained sticky. Thus, future policy response of BoJ remains doubtful which could add some volatility. BoE kept rates unchanged and signalled no hurry in future response. On domestic front, domestic yield softened, and currency got support from central bank intervention.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research. Note: Hang Seng was closed on 19 Sep 2024.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda.

Fig 3 – Bond 10Y Yields

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 12th and 13th Sep 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research