Economic Weekly Wrap
17 February 2025 - 21 February 2025

Global markets remained watchful of the latest developments on global tariff front. Among the latest one has been some communication from US President hinting at imposing reciprocal tariffs on country-by-country basis, targeting to incorporate even non-tariff barriers. This is expected to be as early as Apr’25. Sector wise, new tariffs are also targeted on auto sector and is expected to begin around this same time. Separately, ECB official spoke of headwinds emerging from geopolitical fragmentation and rising protectionism. Fed official also warned of being cautious in its future policy response. On macro front, US retail sales data softened (-0.9%, MoM against est.: -0.2%). Eurozone GDP picked pace on QoQ basis (0.1% against est.: 0%). On domestic front, RBI ramped up OMO purchase to Rs 40,000 crore against earlier Rs 20,000 crore in the wake of persistent deficit of durable liquidity

Except China and Hong Kong, stocks elsewhere closed lower. US markets ended broadly weaker led by a sharp drop in retail sales. Investors also monitored further developments on tariffs. Renewed optimism over AI led to a rally in tech stocks in China and Hong Kong. Sensex ended lower, marking an 8-day losing streak. Capital goods and power stocks declined the most. It is trading further lower today in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies appreciated against the dollar. DXY fell by 0.6% to its weakest since Dec’24 on the back of weak US retail sales data. Better than expected GDP estimates lifted EUR. INR also appreciated by 0.1% following global cues. It is trading stronger today, in line with other Asian currencies

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

US 10Y yield moderated as retail sales softened showing lack of momentum of demand. China’s 10Y yield inched up by 2bps as market sentiments centred around ongoing tariff turmoil. China’s Foreign minister iterated that any unilateral US sanctions will attract similar response. India’s 10Y closed stable tracking ongoing liquidity measures by RBI. It is trading 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 11 Feb and 12 Feb 2025

Oil prices declined amidst an increase in US inventories.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

A host of central bank officials hinted at cautious approach amidst intensification of protectionism. Fed Officials (Governor Waller and Bowman) both favoured a pause and being watchful of the transient bump in inflation. However, it has been pointed out to not being overly cautious as some degree of “policy paralysis” might emanate. Elsewhere, BoE official (Governor Bailey) also signalled data dependent approach as all attention has now pivoted to ongoing tariff turmoil. Elsewhere, Reserve Bank of Australia has cut its key policy rate for the first time in 4 years to 4.1% on the back of softening of inflation. Markets got some breather and risk alignment in favour of equity market. This was led by technology stocks surrounding optimism over AI. On domestic front, exports softened, and imports picked up (higher non-oil non-gold imports) leading to a widening trade deficit of US $ 23bn in Jan’25.

Global markets broadly closed higher amidst optimism over Russia-Ukraine peace deal. Stocks in China ended higher led by tech shares, on anticipation of more government support after China’s President met with tech leaders. US markets were closed. In India, Sensex broke its losing streak to end marginally higher. Consumer durables and power stocks rose the most. However, it is trading weaker today, while other Asian stocks are trading higher.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research, US markets were closed on 17 Feb

Global currencies ended mixed. JPY appreciated by 0.5% supported by betterthan-expected GDP growth in Q4 2024. EUR dipped, as focus remained on German elections later in the week. INR depreciated by 0.1%. It is trading further weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields hardened as some optimism over staggered pace of tariff and counter tariff led to risk alignment of portfolios. Germany’s 10Y yield rose the most as ECB official hinted at careful approach and not immediate easing. China’s yield rose by 4bps ahead of President’s meet with entrepreneurs to spur private sector investment. India’s 10Y inched lower and is trading flat today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research, US markets were closed on 17 Feb

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 12 Feb and 13 Feb 2025

Oil prices rose on reports of drone strike on a Russian pipeline.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

The risk-off sentiments continued to dominate global markets. US President spoke of imposing 25% tariff on sectors such as auto, pharma and semi-conductors beginning on 2 Apr 2025. However, he hinted at opening the doors of conversation with China. Apart from the tariff crescendo, lacklustre corporate earnings also impacted traders’ sentiments. On macro front, US home sales data showed some softening. In UK, CPI rose more than expected thus, traders have trimmed down their expectation of rate cut. In other news, Fed minutes hinted at cautious approach amid policy uncertainty. Fed officials (Vice Chair and Atlanta Fed President) said in their recent commentaries of being watchful of future economic policies. On domestic front, RBI’s state of the economy report nowcast GDP at 6.6% for Q4FY25.

Global markets ended mixed. US markets closed higher as investors assessed Fed minutes. S&P 500 rose by 0.2% to end at a record high. Barring China, other Asian stocks ended in red. A tech rally driven by optimism over AI continued to push Chinese stocks higher. On the other hand, Sensex ended marginally weaker, as losses in tech stocks offset gains in other sub-indices. It is trading further weaker today, in line with other Asian markets.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies depreciated broadly. Both JPY and DXY rose on safe-haven demand as investors assessed the impact of President Trump’s latest tariff plans. INR depreciated by 0.1% amidst persistent FPI outflows. However, it is trading stronger today, in line with its Asian peers.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: INR was closed on 19 Feb 2025, (-) indicates depreciation

Germany’s 10Y yield rose significantly as ECB official spoke of a cautious wait and watch approach. Even UK’s 10Y yield stiffened led by hotter than expected CPI data which raised doubt about the quantum of monetary easing, going ahead. China’s yield softened ahead of policy decision where rates were maintained. India’s 10Y inched lower and is trading at 6.68% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: India’s 10Y trading was closed on 19 Feb 2025

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 13 Feb and 14 Feb 2025

Oil prices rose tracking ongoing negotiation between Ukraine and Russia.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets sentiments hovered around ongoing tariff turmoil and anticipation of elevated borrowing costs. Equity indices were broadly weighed down albeit upbeat corporate earnings. Fed Officials (Governor Adriana Kugler and St. Louis Fed President Alberto Musalem) hinted at inflationary risks and hence uncertain policy outlook. In separate news, US Treasury Secretary’s comments on keeping share of long-term securities in check, might lend support to yields due to restrained supply. On macro front, US jobless claims softened, UK’s CBI total order books data showed some pick up, Germany’s PPI data continued to show sequential decline and CPI in Japan remained sticky especially core. On domestic front, RBI’s liquidity infusion measures continued with long term VRR (45 days announced). This will keep both long and short end yields stable.

Global markets ended weaker monitoring President Trump’s latest tariff threats and lack of progress in resolution of the Russia-Ukraine conflict. Nikkei slid by 1.2% weighed down by a stronger yen. Stocks in China closed stable as PBOC kept rates on hold. Sensex fell by 0.3%, led by losses in banking stocks. It is trading further weaker today, while other Asian stocks are trading mostly higher.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies appreciated, tracking a weaker dollar. JPY rose to a ~2-month high buoyed by safe-haven demand. EUR also appreciated led by an uptick in consumer confidence index. INR ended stronger, led by positive global cues. It is trading further stronger today, in line with other Asian peers.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: INR was closed on 19 Feb 2025, (-) indicates depreciation

Global yields closed mixed. US 10Y yield softened monitoring a weaker dollar. German’s 10Y yield inched down as PPI data inched down. Japan’s 10Y yield was supported by BoJ Governor’s comments on bond buying. China’s 10Y yield stiffened as monetary policy actions fell short of expectations. India’s 10Y inched up by 2bps and is trading at the same level today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: India’s 10Y trading was closed on 19 Feb 2025

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 13 Feb and 14 Feb 2025

Oil prices rose tracking drawdown in US inventories.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research