Economic Weekly Wrap
26 August 2024 - 30 August 2024

In one of the most anticipated speech by Fed chair, there has been clarity on the imminent rate cuts as he stated ‘the time has come’. The uncertainty now remains on the quantum of cuts, with the possibility of 3-consective 25bps cuts in the upcoming 3 meetings. Separately, PBoC has kept the medium term lending rate unchanged at 2.3% (1-year).The bank has also decided to inject additional liquidity. On the domestic front, Cabinet approved the UPS (Unified Pension Scheme) which is expected to benefit over 23 lakh central government employees. The scheme will provide the subscribers with assured pension, benefit of inflation indexation and family pension. Markets will closely track US PCE, GDP (Q2CY24), durable goods order, pending home sales data, along with flash inflation reading for EU and India’s GDP data for Q1FY25.

Barring Hang Seng (lower) and Sensex (flat), other global indices ended higher. The dovish signal of lower rates boosted the US indices. A surge in new home sales data also supported the market. Nikkei advanced by 0.4% led by gains in pharma stocks. Sensex is trading higher today, while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended higher against the US$. DXY fell steeply by (-) 0.8%, tracking comments from Fed Chair Powell. JPY and GBP gained the most, with JPY supported by the continued divergence in BoJ and Fed’s policy stances. BoJ Governor Ueda remains hawkish. INR ended stronger and is trading steeply higher even today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Barring Asian economies, other global 10Y yields declined, with the yields in the US and UK falling the most. Fed Chair Powell’s comments indicating that the central bank is ready to cut rates helped ease yields, increasing bets for a 50bps cut in Sep’24. India’s 10Y yield rose by 1bps following the release of RBI minutes. However, in line with global cues, it is trading slightly lower today at 6.85%.

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 19 Aug and 20 Aug 2024

Oil prices rose due to escalated geopolitical tensions in the Middle East.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

In the US, new orders for durable goods surged by 9.9% in Jul’24 (highest in 4- years) on a MoM basis after declining by (-) 6.9% in Jun’24. This was largely attributed to jump in transportation equipment (up by 34.8%). Excluding the transportation sector, the new orders were up by 0.2% in Jul’24 (0.1% in Jun’24). Notably the core-capital goods orders declined at a much slower pace (-0.1% from - 0.4%). Separately, China’s industrial profits rose at a much faster pace by 4.1% in Jul’24 period from 3.6% in Jun’24 period. For the period between Jan-Jul’24, profits expanded by 3.6% (from 3.5%) to 4.1tn Yuan (US$ 751bn) led by high–tech manufacturing sector and the making of lithium ion batteries and semiconductors

Global indices ended mixed. The S&P 500 finished in the red ahead of key inflation data and earnings reports. Out of 11 indices, 6 declined, with sharp losses noted in the IT and consumer sectors. The Nikkei was down by 0.7%, while the Hang Seng jumped by 1.1%. The Sensex climbed up by 0.8%, led by gains in metal and real estate stocks. It is trading higher today, while other Asian stocks are trading lower.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research
Note: UK markets were closed on 26.8.24

Global currencies ended lower or flat against the US$. The DXY rose by 0.1%, as the latest US macro data dampened hopes of a large rate cut by the Fed in Sep’24. The EUR and JPY depreciated the most, with continuously weakening economic sentiment in Germany (IFO) remaining a concern for the Euro. The INR ended flat, tracking the rise in oil prices, and is trading lower today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda
Note: UK markets were closed on 26.8.24

Global yields closed mixed. 10Y yields in US and Germany rose by 2bps each, while it fell in Japan and India. Surprise jump in US durable goods orders, along with risks to oil prices due to escalated tensions in the Middle East, impacted investor sentiments. India’s 10Y yield fell by 1bps. However, following global cues, it is trading slightly higher today at 6.86%.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research
Note: UK markets were closed on 26.8.24

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 20 Aug and 21 Aug 2024

Oil prices rose amidst ongoing geopolitical tensions and Libya’s threat to halt output.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research
Note: UK markets were closed on 26.8.24

According to the Conference Board, consumer confidence index in the US scaled up to 103.3 in Aug’24 (highest level in 6-months) from 101.9 in Jul’24. The better than expected reading reflected consumers’ optimism about the current condition and future economic outlook, with the survey suggesting that the odds of recession continue to fall. However, consumers were relatively less confident about the job market with the labour market differential dropping down to 16.4 in Aug’24. Separately, inflation in Australia eased to 3.5% in Jul’24 (lowest since Mar’24) from 3.8% in Jun’24. The moderation was led by housing (6.9% from 7.1%), transport (3.4% form 4.2%).In Japan, Deputy Governor of BoJ noted that they will closely monitor financial market and continue with raising rates given inflation stayed on course.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research
Note: UK markets were closed on 26.8.24

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda
Note: UK markets were closed on 26.8.24

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research
Note: UK markets were closed on 26.8.24

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 21 Aug and 22 Aug 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research
Note: UK markets were closed on 26.8.24

The US Fed official Bostic, in his remarks noted that its ‘time to move’ on rate cuts, however he was cautious and stated he will closely monitor the upcoming jobs and inflation reports before moving ahead with any decision. Separately, business confidence in New Zealand accelerated to a decade high to 50.6 in Aug’24 from 27.1 in Jul’24. The activity index also jumped to 7-year high to 37.1 (previously 16.3). In Israel, the Central Bank maintained status quo on rates for the 5th straight month at 4.5%. Investors will await US GDP print, weekly jobless claims data, along with PCE data. Additionally, inflation reading from Eurozone will offer more guidance on interest rate outlook

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 23 Aug and 26 Aug 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US economy rose at a much faster pace than anticipated with the GDP growth for Q2 revised upwards to 3% (previously 2.8%) from 1.4% in Q1 led by robust consumer spending which accounts for 2/3 rd of the economy. Additionally, weekly jobless claims dropped down to 231k for week ending 24 Aug and have retreated back from 11-month high claims noted in Jul’24. The data has tempered down expectation of 50bps rate cuts by Fed in the upcoming meet. Separately in Japan, core inflation for Tokyo accelerated to 2.4% in Aug’24 from 2.2% in Jul’24. Inflation continues to remain above the 2% central bank target and thereby raising the possibility of more rate hikes in the coming months. On domestic front, India’s GDP print for Q1FY25 (our expectation is 7.3%), core, fiscal and sectoral bank credit data is due to release later today.

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 26 Aug and 27 Aug 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research