Economics Weekly Wrap
17th - 19th August 2022
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17 Aug 2022
Construction of US housing starts dropped to its lowest level since Feb’21 to 1.44mn units in Jul’22 from 1.55mn units in Jun’22, signalling the impact of the soaring mortgage rates. However, US industrial output surprised positively with manufacturing output rebounding by 0.7% in Jul’22 (0.4% in Jun’22). Capacity utilization also rebounded to 80.3% in Jul’22. On the other hand, China’s subdued data print kept global investors on the edge with yuan weakening after surprise rate cut by PBOC. As a result, global demand took a hit with oil prices plummeting by 2.9%. Going ahead, investors will closely monitor US retail sales data print (scheduled on Friday) and Fed minutes scheduled later today.
Except Hang Seng, other global indices ended higher. Dow Jones gained by 0.7% on the back of strong corporate earnings report. Also investors remained optimistic about Fed achieving a soft landing for the economy even as it continues to tighten rates. Sensex (0.6%) too ended in green led by strong gains in auto and real estate stocks. It is trading higher today in line with other Asian stocks.
Fig 1 – Stock markets
15-08-2022 16-08-2022 % change Dow Jones 33,912 34,152 0.7 S & P 500 4,297 4,305 0.2 FTSE 7,509 7,536 0.4 Nikkei 28,872 28,869 0 Hang Seng 20,041 19,831 (1.0) Shanghai Comp 3,276 3,278 0.1 Sensex 59,463 59,842 0.6 Nifty 17,698 17,825 0.7 Source: Bloomberg, Bank of Baroda Research
Global currencies ended mixed. DXY remained steady ahead of the key data releases including US retail sales and Fed minutes. Euro gained by 0.1% after falling previously on the back of subdued data print from Germany (investor sentiment). Yuan dropped by 0.2% after PBOC surprised with a rate cut. INR ended flat. It opened weaker today tracking lower oil prices. Other Asian currencies are trading mixed.
Fig 2 – Currencies
15-08-2022 16-08-2022 % change EUR/USD 1.0160 1.0171 0.1 GBP/USD 1.2055 1.2096 0.3 USD/JPY 133.32 134.22 (0.7) USD/INR 79.64 79.66 0 USD/CNY 6.7735 6.7882 (0.2) Source: Bloomberg, Bank of Baroda Research
Barring Japan and China (lower), other global yields closed higher. Concerns over global growth outlook pushed 10 Y yields higher. UK and Germany 10Y yields were up by 11bps and 7bps respectively. US 10Y yields also edged higher ahead of the Fed minutes. India’s 10Y yield was up by 2bps. However, it is trading lower today.
Fig 3 – Bond 10Y yield
15-08-2022 16-08-2022 change in bps US 2.79 2.80 2 UK 2.02 2.13 11 Germany 0.90 0.97 7 Japan 0.19 0.17 (2) China 2.67 2.64 (3) India 7.27 7.29 2 Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
11-08-2022 12-08-2022 change in bps Tbill-91 days 5.52 5.55 3 Tbill-182 days 5.92 5.93 1 Tbill-364 days 6.23 6.22 (1) G-Sec 2Y 6.40 6.43 3 SONIA int rate benchmark 1.69 1.69 0 US SOFR 2.28 2.28 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 11-08-2022 12-08-2022 change (Rs tn) Net Liquidity (-Surplus/+deficit) (1.5) (0.7) 0.8 Reverse repo 0.6 0.5 (0.1) Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
10-08-2022 11-08-2022 change (US$ mn/Rs cr) FII (US$ mn) 398.3 302.8 (95.5) Debt 89.5 19.9 (69.7) Equity 308.8 282.9 (25.9) Mutual funds (Rs cr) 3,513.3 1,017.8 (2,495.5) Debt 2,873.7 904.3 (1,969.4) Equity 639.7 113.5 (526.2) Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022
Crude oil prices declined by 2.9% led by concerns over global economic slowdown denting global demand. Gold prices fell by 0.2% as investors awaited the release of Fed minutes.
Fig 7 – Commodities
15-08-2022 16-08-2022 % change Brent crude (US$/bbl) 95.1 92.3 (2.9) Gold (US$/ Troy Ounce) 1,779.7 1,775.7 (0.2) Copper (US$/ MT) 7,972.0 7,975.0 0 Zinc (US$/MT) 3,643.5 3,755.0 3.1 Aluminium (US$/MT) 2,390.0 2,392.0 0.1 Source: Bloomberg, Bank of Baroda Research
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18 Aug 2022
Investors monitored US Fed minutes which signalled that Fed will continue to tighten monetary policy in order to rein in inflation. However, the pace of rate hike will be less aggressive than was initially anticipated. Analyst have now factored a much higher probability of 50bps rate hike in Sep meeting than the 75bps hike, as expected earlier. UK’s inflation print soared to 40-year high, raising bets of more rate hikes by BoE. Global treasury yields rose as a result. On currency front, DXY firmed up again. INR strengthened as oil prices gained.
Global indices ended mixed as investors monitored the Fed minutes which highlighted, Fed remains committed to raising rates, the pace might be less aggressive than was anticipated. FTSE dropped by 0.3% after UK inflation climbed much higher than expected (10.1% in Jul’22 from 9.4% in Jun’22). On the other hand, Sensex (0.7%) ended in green led by strong gains in consumer durable and technology stocks. However, it is trading lower today in line with other Asian stocks.
Fig 1 – Stock markets
16-08-2022 17-08-2022 % change Dow Jones 34,152 33,980 (0.5) S & P 500 4,305 4,274 (0.7) FTSE 7,536 7,516 (0.3) Nikkei 28,869 29,223 1.2 Hang Seng 19,831 19,922 0.5 Shanghai Comp 3,278 3,293 0.4 Sensex 59,842 60,260 0.7 Nifty 17,825 17,944 0.7 Source: Bloomberg, Bank of Baroda Research
Global currencies ended mixed. DXY firmed up again and rose by 0.1%. Fed minutes was interpreted as slightly dovish by some analyst with slower pace of rate hike. GBP dropped by 0.4% and remained under pressure due to double digit inflation print. INR appreciated by 0.3% as oil prices urged. It opened weaker today while other Asian currencies are trading mixed.
Fig 2 – Currencies
16-08-2022 17-08-2022 % change EUR/USD 1.0171 1.0180 0.1 GBP/USD 1.2096 1.2048 (0.4) USD/JPY 134.22 135.05 (0.6) USD/INR 79.66 79.45 0.3 USD/CNY 6.7882 6.7811 0.1 Source: Bloomberg, Bank of Baroda Research
Barring India (lower), other global yields closed higher as concerns over global economic slowdown impacted investors. US 10Y yields gained by 9bps. UK’s 10Y yields climbed up by 16bps led double digit inflation print (highest since 1982) and fuelling bets of aggressive rate hike by BoE. India’s 10Y yieldslipped by 10bps led by global cues and drop in oil prices during the day (touching US$91.5/bbl mark), before surging back. However, it is trading higher today.
Fig 3 – Bond 10Y yield
16-08-2022 17-08-2022 change in bps US 2.80 2.90 9 UK 2.13 2.29 16 Germany 0.97 1.08 11 Japan 0.17 0.19 2 China 2.64 2.64 0 India 7.29 7.19 (10) Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
16-08-2022 17-08-2022 change in bps Tbill-91 days 5.52 5.55 3 Tbill-182 days 5.92 5.90 (2) Tbill-364 days 6.23 6.19 (4) G-Sec 2Y 6.40 6.43 3 SONIA int rate benchmark 1.69 1.69 0 US SOFR 2.28 2.28 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 16-08-2022 17-08-2022 change (Rs tn) Net Liquidity (-Surplus/+deficit) (1.3) (1.0) 0.3 Reverse repo 0.7 0.7 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
11-08-2022 12-08-2022 change (US$ mn/Rs cr) FII (US$ mn) 302.8 1,767.5 1,464.7 Debt 19.9 (22.1) (42.0) Equity 282.9 1,789.6 1,506.7 Mutual funds (Rs cr) 3,513.3 1,017.8 (2,495.5) Debt 2,873.7 904.3 (1,969.4) Equity 639.7 113.5 (526.2) Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022
Crude oil prices gained by 1.4% as steeper drawdown in US crude outweighed worries over Russian output. Gold prices fell by 0.8% as DXY strengthened.
Fig 7 – Commodities
15-08-2022 16-08-2022 % change Brent crude (US$/bbl) 92.3 93.7 1.4 Gold (US$/ Troy Ounce) 1,775.7 1,761.8 (0.8) Copper (US$/ MT) 7,975.0 7,925.3 (0.6) Zinc (US$/MT) 3,755.0 3,578.5 (4.7) Aluminium (US$/MT) 2,392.0 2,411.0 0.8 Source: Bloomberg, Bank of Baroda Research
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19 Aug 2022
Led by uncertainty over the pace of future rate hike by Fed, kept the investors on the edge as they looked for further cues. A confirmed inflation print for the Euro zone at 8.9% in Jul’22 (highest since-1999) added to the growing calls of more rate hikes by ECB. On currency front, DXY strengthened and rose to a fresh one-month high. Investors will closely monitor the upcoming Fed’s annual Jackson hole meeting and other key data releases including jobless claims to guide the market. In India, RBI’s bulletin highlighted domestic economy is showing signs of broadening with signs of improvement seen in demand side indicators.
Global indices ended mixed as investors continued to monitor the Fed minutes and awaited the release of key data prints including jobless claims and homes sales scheduled to release later. Nikkei (1%) dropped the most followed by Hang Seng (0.8%). US indices ended a tad higher. Sensex (0.1%) too ended in green supported by gains in real estate and power stocks. It is trading higher today while other Asian stocks are trading mixed.
Fig 1 – Stock markets
17-08-2022 18-08-2022 % change Dow Jones 33,980 33,999 0.1 S & P 500 4,274 4,284 0.2 FTSE 7,516 7,542 0.3 Nikkei 29,223 28,942 (1.0) Hang Seng 19,922 19,764 (0.8) Shanghai Comp 3,293 3,278 (0.5) Sensex 60,260 60,298 0.1 Nifty 17,944 17,957 0.1 Source: Bloomberg, Bank of Baroda Research
Global currencies ended lower. DXY climbed to one-month high with focus shifting towards the upcoming Jackson Hole meeting to provide some guidance on rate hike. Euro slid by 0.9% as concerns over gloomier economic outlook added to the growing concerns. GBP declined by 1% with subdued data print adding to more pressure (lower GDP and soaring inflation). INR depreciated by 0.3%. It opened stronger today while other Asian currencies are trading mixed.
Fig 2 – Currencies
17-08-2022 18-08-2022 % change EUR/USD 1.0180 1.0087 (0.9) GBP/USD 1.2048 1.1930 (1.0) USD/JPY 135.05 135.89 (0.6) USD/INR 79.45 79.68 (0.3) USD/CNY 6.7811 6.7863 (0.1) Source: Bloomberg, Bank of Baroda Research
Barring China and US (lower), other global yields closed higher as investors continued to assess Fed minutes and pace of rate hike in the coming months. US 10Y yields was down by 1bps. On the other hand, UK’s and Germany’s 10Y yields were up 2bps each. India’s 10Y yield gained by 6bps as crude prices surged. It is trading higher today.
Fig 3 – Bond 10Y yield
16-08-2022 17-08-2022 change in bps US 2.80 2.90 9 UK 2.13 2.29 16 Germany 0.97 1.08 11 Japan 0.17 0.19 2 China 2.64 2.64 0 India 7.29 7.19 (10) Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
17-08-2022 18-08-2022 change in bps Tbill-91 days 5.52 5.60 8 Tbill-182 days 5.92 6.00 8 Tbill-364 days 6.23 6.17 (6) G-Sec 2Y 6.40 6.43 3 SONIA int rate benchmark 1.69 1.69 0 US SOFR 2.28 2.28 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 17-08-2022 18-08-2022 change (Rs tn) Net Liquidity (-Surplus/+deficit) (1.0) (1.3) (0.3) Reverse repo 0.7 0.7 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
16-08-2022 17-08-2022 change (US$ mn/Rs cr) FII (US$ mn) 1,767.5 544.1 (1,223.4) Debt (22.1) 1.7 23.8 Equity 1,789.6 542.4 (1,247.3) Mutual funds (Rs cr) 3,513.3 1,017.8 (2,495.5) Debt 2,873.7 904.3 (1,969.4) Equity 639.7 113.5 (526.2) Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022
Crude oil prices rose by 3.1% led by improved fuel demand from European nations. Gold prices continued to decline further (0.2%) as DXY strengthened.
Fig 7 – Commodities
17-08-2022 18-08-2022 % change Brent crude (US$/bbl) 93.7 96.6 3.1 Gold (US$/ Troy Ounce) 1,761.8 1,758.6 (0.2) Copper (US$/ MT) 7,925.3 8,045.3 1.5 Zinc (US$/MT) 3,578.5 3,533.0 (1.3) Aluminium (US$/MT) 2,411.0 2,403.0 (0.3) Source: Bloomberg, Bank of Baroda Research
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