Economic Weekly Wrap
27 January 2025 - 31 January 2025

Existing home sales in the US rose by 2.2% in Dec’24 to 4.24mn units (10-month high), even as house prices surged. However, on an annual basis, sales in CY24 were the lowest since CY95. CY25 appears to have started on a bleaker note, with services PMI and consumer sentiment declining. Flash US services PMI eased to 52.8 in Jan’25 (9-month low) from 56.8 in Dec’24. University of Michigan’s Jan’25 consumer sentiment also dropped for the 1st time in six months, to 71.1 from 74 in Dec’24, and inflation expectations jumped (3.3% versus 2.8% in Dec’24). In China as well, the year has started on a weak footing with official manufacturing PMI dropping to 49.1 in Jan’25 from 50.1 in Dec’24, led by steep decline in new orders index. Industrial profits in China fell for the 3rd consecutive year in CY24 (-3.3%), following (-) 2.3% decline in CY23. In contrast, India’s manufacturing activity remains robust, with flash Markit PMI at 58 in Jan’25, up from 56.4 in Dec’24.

Except Hong Kong and China, stocks elsewhere ended lower. Investors continued to monitor US policies and macro data. Earnings reports also remain in focus. However, optimism over US-China relations drove stocks in HK and China higher. Sensex ended in red, as real estate and oil and gas stocks slid. It is trading further lower today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed. US 10Y yield fell by 2bps, as analysts assess recent comments by President Trump (call for lower rates) mixed macro data (weak service PMI and higher home sales). Japan’s 10Y rose further, tracking rate hike by BoJ. India’s 10Y yield closed a tad lower, and has fallen sharply today by 5bps to 6.67%, ahead of Union Budget announcement later this week.

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: Mutual Fund data as of 21 and 22 Jan 2025

Oil prices were broadly steady, awaiting details on US sanctions and tariffs.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

New home sales in the US rose by 3.6% in Dec’24 to 6.98mn units (est.: 6.75mn) from 6.74mn units in Nov’24. On an annual basis, new home sales in CY24 were up by 2.5% (6.83mn units). Prices rose at a subdued pace of 2.1%, amidst higher inventories. However, higher mortgage rates remain a concern and it is unlikely that this momentum can be sustained if rates in the US remain elevated for long. Markets await US Fed decision for more guidance. President Donald Trump’s tariff decisions are also being closely watched. In Germany, IFO business climate index improved in Jan’25 to 85.1 from 84.7 in Dec’24, led by improvement in the current situation index. Expectation index continued to decline. Domestically, RBI announced measures to alleviate tight liquidity conditions, and these include: OMO purchase of Rs 60,000cr; 56-day VRR (Rs 50,000cr); and USD/INR buy/sell swap (US$ 5bn).

Global stocks ended mixed. Investors remained cautious tracking US President’s comments on tariffs. Apart from this, concerns of overvaluation of AI companies also impacted sentiments. S&P500 moderated, while Hang Seng inched up. Sensex fell by 1.1%, led by technology stocks. It is trading higher today, while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Major global currencies closed mixed. DXY fell by another 0.1%, amidst decline in US bond yields and stock markets. Yen gained most significantly, helped by safe haven demand, as investors assess developments in AI. INR depreciated by 0.2%, despite lower oil prices. It is trading even weaker today, in line with its Asian peers.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed lower amidst risk off sentiments. US 10Y yield fell at the sharpest pace by 9bps albeit a better-than-expected new home sales data. UK and Germany’s 10Y yield fell by 4bps each, for the latter lacklustre growth build up expectations of softer monetary policy. India’s 10Y yield fell by 4bps. It is trading further lower at 6.64% today supported by RBI’s liquidity measures.

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: Mutual Fund data as of 22 and 23 Jan 2025

Oil prices declined, following the news of reversal of US tariffs on Colombia.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Latest macro data from the US indicates some slowdown in economic momentum. US durable goods orders declined by (-) 2.2% in Dec’24 (est.: +0.8%), following (-) 2% decline in Nov’24. Core orders (non-defence capital goods excl aircrafts) also eased, to 0.5% from 0.9%, indicating weakening investment activity. Conference board consumer confidence index also slipped in Jan’25 to 104.1 from 109.5 in Dec’24, led by steeper decline in the present situation index (-9.7 points) versus the expectations index (-2.6 points). Concerns surrounding labour market remain significant. Markets now await guidance from Fed regarding future rate trajectory and President Donald Trump’s tariff announcement on Canadian and Mexican imports. This will have an impact on the inflation in the US. Separately, in Australia, inflation cooled in Q4CY24 to 2.4%, from 2.8% in Q3. Core inflation also slowed to 3.2%, giving room to RBA to cut rates in Feb’25 rather than May’25.

Global stocks ended broadly higher as the AI-driven sell-off took a breather. Focus shifted towards US President’s tariff warnings, Fed meeting and earnings reports. S&P 500 rose the most. In India, Sensex ended higher by 0.7%. This was led by a rally in banking stocks after RBI announced measures to boost liquidity. It is trading further higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China were closed on 28 Jan 2025

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China were closed on 28 Jan 2025

Global yields closed mixed. US 10Y yield ended flat, as investors await Fed’s rate decision (due today) and President Trump’s tariff announcements this week. Markets are now pricing in 2 rate cuts in CY25. India’s 10Y yield rose a tad by 1bps, tracking rise in oil prices. However, following global cues, it is trading slightly lower today at 6.68%.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China were closed on 28 Jan 2025

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: Mutual Fund data as of 23 and 24 Jan 2025

Oil prices rose, awaiting announcement of US tariffs on Canada and Mexico

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

In line with market expectations, US Fed held rates unchanged at 4.25-4.5%. The central bank in its statement highlighted that “in the labour market, conditions remain solid” and “following weakness in the middle of last year, activity in the housing sector seems to have stabilized”. It even clarified that “if the economy remains strong and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer”. Analyst are now pricing steady rates until Jun’25, as they await more clarity on US tariffs on Canada and Mexico. Latest trade data indicates that US trade deficit surged to US$ 122.1bn in Dec’24 (highest since 1992), led by 3.9% increase in imports and 4.5% decline in exports. Today, ECB is also set announce its rate decision. A 25bps rate cut is expected to support growth in the Eurozone (Germany’s GDP is expected to contract by (-) 0.1% in Q4CY24).

Barring US, other global indices ended higher as investors monitored Fed's rate decision. The Fed Governor stated they are 'not in hurry to adjust stance' and monetary policy is 'well positioned'. FTSE inched up with gains in technology stocks. Sensex extended its gains led by a rally in real estate and capital good stocks. However, it is trading lower today.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research | Note: Markets in China remain closed since 28 Jan 2025

Global currencies ended mixed. DXY continued to firm up, after the Fed kept rates unchanged in a unanimous decision. Investors also await clarity on the impact of policies by the US President. JPY strengthened given the growing likelihood of more rate hikes by BoJ. INR ended flat amidst a dip in oil prices and is trading weaker today.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research | Note: Markets in China remain closed since 28 Jan 2025

Global yields closed mixed. US 10Y yield ended flat, as investors digested slightly hawkish Fed policy. Yields in Europe remained elevated as US tariff threat continues to loom. India’s 10Y yield closed flat, even as oil prices fell. However, following global cues, and awaiting Union Budget announcement, it is trading slightly lower today at 6.68%.

Fig 3 – Bond 10Y Yield

Source: Bloomberg, Bank of Baroda Research | Note: Markets in China remain closed since 28 Jan 2025

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: Mutual Fund data as of 24 and 27 Jan 2025

 Oil prices fell, led by higher US inventories and easing Libyan supply concerns.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Labour market in the US remains resilient, with initial jobless claims for the week ending 25 Jan 2025 falling to 207k (est.: 220k), down by 16k from the previous week. In Q4, US GDP rose by 2.3% (est.: 2.5%), down from 3.1% in Q3, dragged by weaker business investments and exports. In contrast, economic conditions in Europe remains much weaker. Germany’s Q4CY24 GDP contracted by (-) 0.2% (est.: -0.1%) following 0.1% increase in Q3. On an annual basis, GDP was down by (-) 0.2% in CY24 versus (-) 0.3% in CY23. Eurozone’s Q4CY24 GDP registered flat growth (0%), down from 0.4% in Q3. Key drivers of this trend were inflationary shocks, elevated rates, and weakness in manufacturing sector. Consequently, ECB has decided to lower rates aggressively to support growth. In its latest meeting as well, 25bps rate cut in deposit rate was announced yesterday, bringing it to 2.75%.

Except China (closed), global stocks ended higher. FTSE firmed up the most followed by US stocks. An interplay of factors such as buoyant private consumption data in the US and a softer US$, impacted investor sentiments. Sensex rose by 0.3%, led by oil and gas stocks. It is trading higher today, while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China remain closed since 28 Jan 2025

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Markets in China remain closed since 28 Jan 2025

Barring Japan (higher), global yields closed lower amidst risk off sentiments in anticipation of higher tariffs under new US administration. UK and Germany’s 10Y yield fell at the sharpest pace amidst dovish comments from central bank officials. Japan’s 10Y yield inched up over rising policy divergence with the US. India’s 10Y yield closed stable and trading at unchanged levels even today.

Fig 3 – Bond 10Y Yield

Source: Bloomberg, Bank of Baroda Research | Note: Markets in China remain closed since 28 Jan 2025

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: Mutual Fund data as of 27 and 28 Jan 2025

Oil prices rose, tracking possibility of more sanctions on Russia and Iran

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research