Economic Weekly Wrap
20 March 2023 - 24 March 2023
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20 Mar 2023
Showing the impact of tight monetary policy conditions, industrial production in the US stagnated in Feb’23 (0%), coming below estimated 0.2% increase and down from 0.3% in Jan’23. University of Michigan’s Mar’23 consumer sentiment index also fell to 63.4 (est.: 67) from 67 in Feb’23. Markets now await Fed’s rate decision due this week (est.: +25bps hike). With banking stocks under pressure, equity indices fell in US and UK and investors chased sovereign bonds, leading to decline in yields. In Asia, China announced surprise RRR cut (-25bps) in an effort to boost liquidity. This is the 5th cut in the cycle and follows previous cuts in Apr’22 and Dec’22, and was taken in the wake of uneven recovery. Analysts expect limited effects of the decision.
Barring markets in US and UK (lower), other global indices ended higher. Despite pledges of liquidity support for Credit Suisse and First Republic Bank, depositors’ confidence is still considered to be fragile. Investors also await Fed rate decision and are evaluating the impact of continuous policy tightening. Domestic markets ended in green, led by realty, metal and banking stocks. However, it is trading lower today, in line with other Asian stocks.
Fig 1 – Stock markets
16-03-2023 17-03-2023 % change Dow Jones 32,247 31,862 (1.2) S & P 500 3,960 3,917 (1.1) FTSE 7,410 7,335 (1.0) Nikkei 27,011 27,334 1.2 Hang Seng 19,204 19,519 1.6 Shanghai Comp 3,227 3,251 0.7 Sensex 57,635 57,990 0.6 Nifty 16,986 17,100 0.7 Source: Bloomberg, Bank of Baroda Research
Global currencies rose against the dollar. DXY fell by 0.7% as investors dialled back expectations of aggressive rate hikes by Fed, with some even pricing in a rate cut this year. JPY gained the most by 1.4% on safe-haven demand. INR appreciated by 0.2% as oil prices dipped. It is trading higher today, while other Asian currencies are trading mixed.
Fig 2 – Currencies
16-03-2023 17-03-2023 % change EUR/USD (1 EUR / USD) 1.0610 1.0670 0.6 GBP/USD (1 GBP / USD) 1.2109 1.2173 0.5 USD/JPY (JPY / 1 USD) 133.74 131.85 1.4 USD/INR (INR / 1 USD) 82.74 82.55 0.2 USD/CNY (CNY / 1 USD) 6.8980 6.8867 0.2 Source: Bloomberg, Bank of Baroda Research
Except India and China (flat), other global yields fell. 10Y yields in US, UK and Germany plunged sharply as investor sentiment remained downbeat amidst ongoing banking crisis in US and Europe. Investors now await the US Fed policy announcement scheduled this week. Despite lower oil prices, India’s 10Y yield closed unchanged at 7.34%. Following global cues, it is trading lower at 7.32% today.
Fig 3 – Bond 10Y yield
16-03-2023 17-03-2023 change in bps US 3.58 3.43 (15) UK 3.43 3.28 (14) Germany 2.29 2.11 (18) Japan 0.32 0.29 (3) China 2.87 2.87 0 India 7.34 7.34 0 Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
16-03-2023 17-03-2023 change in bps Tbill-91 days 6.76 6.75 (1) Tbill-182 days 7.23 7.23 0 Tbill-364 days 7.25 7.21 (4) G-Sec 2Y 7.19 7.22 3 SONIA int rate benchmark 3.93 3.93 0 US SOFR 4.58 4.57 (1) Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 16-03-2023 17-03-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) 1.1 1.2 0.1 Reverse repo 0 0 0 Repo 0.8 0.8 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
15-03-2023 16-03-2023 change (US$ mn/Rs cr) FII (US$ mn) (136.4) 14.8 151.2 Debt 14.7 (5.4) (20.1) Equity (151.1) 20.2 171.3 Mutual funds (Rs cr) 1,029.5 203.1 (826.4) Debt 1,105.4 (148.5) (1,253.8) Equity (75.9) 351.6 427.5 Source: Bloomberg, Bank of Baroda Research │Note: Mutual funds data as of 28 Feb 2023 and 1 Mar 2023
Global oil prices fell by 2.3%, owing to concerns of weakness in financial sector. Gold (+3.6%) proved to be a preferred choice over oil in terms of safe haven.
Fig 7 – Commodities
16-03-2023 17-03-2023 % change Brent crude (US$/bbl) 74.7 73.0 (2.3) Gold (US$/ Troy Ounce) 1,919.5 1,989.3 3.6 Copper (US$/ MT) 8,508.8 8,573.3 0.8 Zinc (US$/MT) 2,871.0 2,931.0 2.1 Aluminium (US$/MT) 2,267.5 2,274.0 0.3 Source: Bloomberg, Bank of Baroda Research
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21 Mar 2023
Financial markets were relieved as UBS announced its acquisition of Credit Suisse, and global central banks (Fed, BoE, BoJ, ECB, Bank of Canada and Swiss National Bank) announced a joint liquidity operation. As a part of this, “to improve the effectiveness of existing swap lines” central banks will now hold 7-day maturity operations on a daily basis compared with weekly basis earlier. According to Fed, this is expected to go on atleast till end of Apr’23. Investors now await Fed’s policy rate decision due tomorrow. In Asia, Taiwan’s export orders fell for the 6th consecutive month in Feb’23 by -18.3% (est.: -15% YoY) as weakness in global demand, led by China, continued. Even in Mar’23, the decline is expected to worsen further (-20% to -23%).
Barring US and UK markets, other global indices ended mixed with the focus shifting towards Fed's meet. Investors monitored developments around Credit Suisse. Banking stocks in UK reversed their losses and ended in green. US indices too followed suit as investors gained more confidence in the financial system. On the other hand, Sensex ended in red led by losses in metal and real estate stocks. Though, it is trading higher today in line with other Asian stocks.
Fig 1 – Stock markets
17-03-2023 20-03-2023 % change Dow Jones 31,862 32,245 1.2 S & P 500 3,917 3,952 0.9 FTSE 7,335 7,404 0.9 Nikkei 27,334 26,946 (1.4) Hang Seng 19,519 19,001 (2.7) Shanghai Comp 3,251 3,235 (0.5) Sensex 57,990 57,629 (0.6) Nifty 17,100 16,988 (0.7) Source: Bloomberg, Bank of Baroda Research
Except INR, other global currencies climbed higher against the dollar. DXY declined by 0.4% ahead of Fed's rate decision with 26% chance of a pause and 74% chance of a 25bps hike. JPY continued to edge upwards over demand of safe heaven. INR depreciated by 0.1% as oil prices moved up. It is trading higher today while other Asian currencies are trading mixed.
Fig 2 – Currencies
17-03-2023 20-03-2023 % change EUR/USD (1 EUR / USD) 1.0670 1.0721 0.5 GBP/USD (1 GBP / USD) 1.2173 1.2278 0.9 USD/JPY (JPY / 1 USD) 131.85 131.32 0.4 USD/INR (INR / 1 USD) 82.55 82.64 (0.1) USD/CNY (CNY / 1 USD) 6.8867 6.8770 0.1 Source: Bloomberg, Bank of Baroda Research
Except yields in Asia (lower), other global yields rose. 10Y yields in US and UK gained the most. Investor sentiment was supported by the news of rescue deal of Credit Suisse and announcement of joint liquidity operations by major global central banks. India’s 10Y yield closed lower at 7.33%. It is trading a tad higher at 7.34%, following global cues and increase in oil prices.
Fig 3 – Bond 10Y yield
17-03-2023 20-03-2023 change in bps US 3.43 3.48 6 UK 3.28 3.31 3 Germany 2.11 2.13 2 Japan 0.29 0.25 (4) China 2.87 2.86 (2) India 7.34 7.33 (1) Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
17-03-2023 20-03-2023 change in bps Tbill-91 days 6.75 6.73 (2) Tbill-182 days 7.23 7.21 (2) Tbill-364 days 7.21 7.20 (1) G-Sec 2Y 7.22 7.18 (3) SONIA int rate benchmark 3.93 3.93 0 US SOFR 4.57 4.55 (2) Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 17-03-2023 20-03-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) 1.2 0.8 (0.4) Reverse repo 0 0 0 Repo 0.8 0.8 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
16-03-2023 17-03-2023 change (US$ mn/Rs cr) FII (US$ mn) 14.8 (119.8) (134.5) Debt (5.4) 86.2 91.6 Equity 20.2 (206.0) (226.1) Mutual funds (Rs cr) 1,029.5 203.1 (826.4) Debt 1,105.4 (148.5) (1,253.8) Equity (75.9) 351.6 427.5 Source: Bloomberg, Bank of Baroda Research │Note: Mutual funds data as of 28 Feb 2023 and 1 Mar 2023
Global oil prices rose by 1.1%, as news of acquisition of Credit Suisse by UBS eased some concerns and improved appetite for oil.
Fig 7 – Commodities
17-03-2023 20-03-2023 % change Brent crude (US$/bbl) 73.0 73.8 1.1 Gold (US$/ Troy Ounce) 1,989.3 1,978.8 (0.5) Copper (US$/ MT) 8,573.3 8,701.3 1.5 Zinc (US$/MT) 2,931.0 2,912.5 (0.6) Aluminium (US$/MT) 2,274.0 2,274.5 0 Source: Bloomberg, Bank of Baroda Research
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23 Mar 2023
In line with market expectations, US Fed delivered a 25bps rate hike pushing the key policy rate to 4.75-5%. It reiterated its commitment to bringing inflation down to 2% in the long-run and added that “some additional policy firming may be appropriate” to achieve that target. For CY23, projection for real GDP was revised down to 0.4% (0.5% as per Dec’22 projections) and for PCE inflation it was revised up to 3.3% from 3.1% earlier. Investor sentiment was also dampened by Treasury Secretary Yellen’s comment that “blanket insurance” for depositors has not been considered as yet. In UK, CPI in Feb’23 surprised positively (10.4% versus est.: 9.9% and 10.1% in Jan’23) as investors await BoE’s policy decision due today.
Barring US indices, other global indices ended higher as investors monitored shift in Fed's outlook as it hiked rates by 25bps and hinted at nearing tightening cycle. On the other hand, Hang Seng climbed up by 1.7% with their monetary authority pointing to low exposure in the ongoing crisis. Sensex too ended in green led by marginal gains in auto and power stocks. However, it is trading lower today while other Asian stocks are trading mixed.
Fig 1 – Stock markets
21-03-2023 22-03-2023 % change Dow Jones 32,561 32,030 (1.6) S & P 500 4,003 3,937 (1.6) FTSE 7,536 7,567 0.4 Nikkei 26,946 27,467 1.9 Hang Seng 19,259 19,591 1.7 Shanghai Comp 3,256 3,266 0.3 Sensex 58,075 58,215 0.2 Nifty 17,108 17,152 0.3 Source: Bloomberg, Bank of Baroda Research
Global currencies ended higher against the dollar. Weakness in dollar was evident (0.9%) as Fed signalled a less hawkish policy amidst the ongoing banking turmoil. Euro rose by 0.8% after ECB chief commented that inflation is still 'too high' given the uncertain environment. INR is trading higher today while other Asian currencies are trading mixed.
Fig 2 – Currencies
21-03-2023 22-03-2023 % change EUR/USD (1 EUR / USD) 1.0768 1.0856 0.8 GBP/USD (1 GBP / USD) 1.2217 1.2268 0.4 USD/JPY (JPY / 1 USD) 132.51 131.44 0.8 USD/INR (INR / 1 USD) 82.64 82.67 0 USD/CNY (CNY / 1 USD) 6.8793 6.8700 0.1 Source: Bloomberg, Bank of Baroda Research
Except yields in China (flat) and US (lower), other global yields rose. 10Y yields in US fell sharply following Fed’s rate decision and remarks by treasury secretary Yellen suggesting that “blanket insurance” for US banking deposits has not been discussed yet. In the UK, surprise jump in Feb’23 CPI (10.4% versus est.: 9.9%) just before BoE’s rate decision today impacted the 10Y yield. Following global cues, India’s 10Y yield is trading lower at 7.30% today.
Fig 3 – Bond 10Y yield
21-03-2023 22-03-2023 change in bps US 3.61 3.43 (18) UK 3.37 3.45 8 Germany 2.29 2.33 4 Japan 0.25 0.33 8 China 2.87 2.86 0 India 7.33 7.33 1 Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
20-03-2023 21-03-2023 change in bps Tbill-91 days 6.73 6.78 5 Tbill-182 days 7.21 7.20 (1) Tbill-364 days 7.20 7.22 2 G-Sec 2Y 7.18 7.21 3 SONIA int rate benchmark 3.93 3.93 0 US SOFR 4.55 4.55 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 20-03-2023 21-03-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) 0.8 1.1 0.3 Reverse repo 0 0 0 Repo 0.8 0.8 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
17-03-2023 20-03-2023 change (US$ mn/Rs cr) FII (US$ mn) (119.8) (204.4) (119.8) Debt 86.2 26.6 86.2 Equity (206.0) (231.0) (206.0) Mutual funds (Rs cr) 1,029.5 203.1 (826.4) Debt 1,105.4 (148.5) (1,253.8) Equity (75.9) 351.6 427.5 Source: Bloomberg, Bank of Baroda Research │Note: Mutual funds data as of 9 Mar 2023 and 10 Mar 2023
Global oil prices rose by 1.8%, as Fed’s rate decision pushed DXY to near 6- week low.
Fig 7 – Commodities
21-03-2023 22-03-2023 % change Brent crude (US$/bbl) 75.3 76.7 1.8 Gold (US$/ Troy Ounce) 1,940.1 1,970.1 1.5 Copper (US$/ MT) 8,761.0 8,900.5 1.6 Zinc (US$/MT) 2,888.0 2,892.3 0.1 Aluminium (US$/MT) 2,266.5 2,286.5 0.9 Source: Bloomberg, Bank of Baroda Research
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24 Mar 2023
In line with market expectations, BoE raised its key policy rate by 25bps and reiterated that MPC members believe that there is no urgent need to maintain a faster pace of rate hikes. The bank was also more upbeat about the economic outlook and now expects inflation to come down significantly in Q2CY23, supported by government measures. GDP is also expected to rise slightly in in Q2 compared with (-) 0.4% decline anticipated in Feb’23. Separately, Swiss National Bank also raised its key policy rate by 50bps to counter re-emergence of inflationary pressures. In the US, labour market still remains tight (1k decline in weekly jobless claims) and housing sector is seen rebounding in Feb’23 with new home sales making a modest recovery (+640k units versus 633k units in Jan’23).
Global indices ended mixed as investors monitored the developments around various Central Banks hiking rates in line with US Fed. FTSE dropped the most with banking sector dragging down the indices further, followed by losses in construction and oil and gas stocks. Sensex too ended in red amidst mixed global cues. Real estate and banking stocks declined the most. It is trading flat today while Asian indices are trading lower today.
Fig 1 – Stock markets
22-03-2023 23-03-2023 % change Dow Jones 32,030 32,105 0.2 S & P 500 3,937 3,949 0.3 FTSE 7,567 7,500 (0.9) Nikkei 27,467 27,420 (0.2) Hang Seng 19,591 20,050 2.3 Shanghai Comp 3,266 3,287 0.6 Sensex 58,215 57,925 (0.5) Nifty 17,152 17,077 (0.4) Source: Bloomberg, Bank of Baroda Research
Barring EUR, other global currencies ended higher against the dollar. DXY was back in green after falling for 6-straight session with positive data from US (Decline in weekly jobless claims and improvement in new single-family homes). INR appreciated by 0.5% as oil prices declined. It is trading higher today while other Asian currencies are trading mixed.
Fig 2 – Currencies
22-03-2023 23-03-2023 % change EUR/USD (1 EUR / USD) 1.0856 1.0831 (0.2) GBP/USD (1 GBP / USD) 1.2268 1.2287 0.2 USD/JPY (JPY / 1 USD) 131.44 130.85 0.5 USD/INR (INR / 1 USD) 82.67 82.26 0.5 USD/CNY (CNY / 1 USD) 6.8700 6.8232 0.7 Source: Bloomberg, Bank of Baroda Research
Except yields in China (higher), other global yields fell. 10Y yields in Germany (- 13bps) and UK (-9bps) declined the most, followed by US. Global yields reacted to Fed’s statement signalling that it may opt for a pause soon. Further, BoE also reaffirmed that inflation is on track to come down sharply in Q2CY23. Following global cues, India’s 10Y yield declined a tad by 1bps to 7.33%. It is trading further lower at 7.32% today.
Fig 3 – Bond 10Y yield
22-03-2023 23-03-2023 change in bps US 3.43 3.43 (1) UK 3.45 3.36 (9) Germany 2.33 2.20 (13) Japan 0.33 0.32 (1) China 2.86 2.87 1 India 7.33 7.33 (1) Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
21-03-2023 23-03-2023 change in bps Tbill-91 days 6.78 6.71 (7) Tbill-182 days 7.20 7.20 0 Tbill-364 days 7.22 7.22 0 G-Sec 2Y 7.21 7.19 (2) SONIA int rate benchmark 3.93 3.93 0 US SOFR 4.55 4.55 0 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 21-03-2023 23-03-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) 1.1 0.4 (0.7) Reverse repo 0 0 0 Repo 0.8 0.8 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
20-03-2023 21-03-2023 change (US$ mn/Rs cr) FII (US$ mn) (204.4) 102.9 307.3 Debt 26.6 229.2 202.6 Equity (231.0) (126.3) 104.7 Mutual funds (Rs cr) 1,029.5 203.1 (826.4) Debt 1,105.4 (148.5) (1,253.8) Equity (75.9) 351.6 427.5 Source: Bloomberg, Bank of Baroda Research │Note: Mutual funds data as of 9 Mar 2023 and 10 Mar 2023
Global oil prices fell by 1%, following the news that US is in no rush to refill its strategic oil reserves, and it may take years to do so.
Fig 7 – Commodities
22-03-2023 23-03-2023 % change Brent crude (US$/bbl) 76.7 75.9 (1.0) Gold (US$/ Troy Ounce) 1,970.1 1,993.4 1.2 Copper (US$/ MT) 8,900.5 9,033.0 1.5 Zinc (US$/MT) 2,892.3 2,936.0 1.5 Aluminium (US$/MT) 2,286.5 2,326.0 1.7 Source: Bloomberg, Bank of Baroda Research
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