Economic Weekly Wrap
27 May 2024 - 31 May 2024

Durable goods orders in the US rose by 0.7% in Apr’24, versus (-) 0.8% estimated decline, and following 0.8% increase in Mar’24. Even core capital goods orders (nondefence capital goods excluding aircrafts), a proxy for business investment, were up by 0.3%, versus (-) 0.1% decline in Mar’24. Stronger than expected macro data has revived fears of a delayed start to rate cuts by Fed. On the other hand, UK economy is showing some more signs of weakness, as Apr’24 retail sales unexpectedly fell, by (-) 2.3% after seeing (-) 0.2% decline in Mar’24. Seasonal factor (rains) impacted sales of clothing, sports equipment and furniture. In Asia, China’s industrial profits rose by 4% in Apr’24, following (-) 3.5% decline in Mar’24, supported by higher earnings from export led sectors, even as domestic demand languishes

Except US, stocks elsewhere ended broadly lower. US indices rallied buoyed by an uptick in US durable goods orders. Concerns over elevated rates weighed on other global indices, with Hang Seng and Nikkei declining by over 1%. Sensex ended marginally weaker after scaling a new high in intra-day trading. Real estate and metal stocks led the losses. However, it is trading higher today, in line with other Asian markets.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 23-05-2024

Global currencies ended mixed. DXY dipped by 0.4% even as US durable goods orders rose more than expected. On the other hand, GBP appreciated despite a sharper than expected decline in retail sales in UK. INR strengthened to a 2-month high amidst expectations of a resumption in FPI inflows. It is trading further stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Global yields traded range bound. Yields in US and Germany fell, while they inched up in India and China. Markets await for more cues regarding the US rate trajectory (GDP data, jobless claims). So far macro data and Fed minutes indicate ‘higher for longer’ rate scenario. India’s 10Y yield rose, tracking gains in oil prices. It is trading at 7.04% today. 07.10 GS 2034 is trading at 6.99%.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 23-05-2024

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 23-05-2024

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research | Note: Markets in India were closed on 23-05-2024

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 15 May and 16 May 2024

Oil prices inched up on the back of firmer seasonal demand from the US.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Germany’s IFO business sentiment index remained steady in May at 89.3 with sectors such as manufacturing, construction and trade making steady recovery even as services sector continues to remain a challenge. In Japan, services PPI climbed up to 2.8% in Apr’24 (fastest in 9-year) from 2.4% in Mar’24, signalling sustained rise in inflation. Separately, ahead of the release of inflation data, the ECB officials sounded dovish and stated the likelihood of rate cut in Jun’24 in their commentary as inflation continues to fall in a ‘sustained way’. Inflation in Eurozone has been below the 3% mark for the last 7 months. In Australia, retail sales inched up but at a much slower rate than anticipated, raising caution over slower discretionary spending by consumers. On domestic front, IMD retained its forecast of above normal monsoon.

Global indices ended mixed. The recent upbeat data from the US has raised concerns of possible overheating by some investors and thereby making US equities more vulnerable than its global counterparts. Investors will await key economic readings from US, Europe and Japan. Sensex ended flat. However, it is trading higher today, in line with other Asian markets.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research │ Markets in US and UK were closed on 27-05-2024

Global currencies ended mixed. DXY dipped by 0.1% as investors await US core PCE data scheduled to be released later in the week. GBP logged another session of gains led by expectations that BoE’s rate cut might be delayed. INR depreciated by 0.1% as oil prices increased. However, it is trading stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda │ Markets in US and UK were closed on 27-05-2024

Global yields ended mixed. Germany’s 10Y yield declined the most by 4bps as a key ECB policymaker suggested that a Jun’24 rate cut is a “done deal”. Sombre data (Germany’s business climate index) also weighed on yields. 10Y yield in US dipped marginally ahead of key inflation report. India’s 10Y yield eased by 1bps. It is trading flat today. 07.10 GS 2034 is trading lower at 6.97%.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research │ Markets in US and UK were closed on 27-05-2024

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research │ Markets in US and UK were closed on 27-05-2024

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research │ Mutual funds data as of 22 May and 24 May 2024

Oil prices rose as investors awaited policy decision from OPEC+ meeting.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Investors will turn their attention towards key inflation reading from both sides of the Atlantic. US PCE data, Fed’s preferred indicator for tracking inflation could possibly sway rate cut expectations. On the other hand, Fed official Kashkari stated, ‘many more months’ of positive inflation data in needed before Fed could dial back on rates. Separately, US consumer confidence index inched up to 102 in May’24 (97.5 in Apr’24). In Australia, inflation edged up to 3.6% in Apr’24 (highest in last 5- months) from 3.5% in Mar’24 led by acceleration in prices of housing (4.9%), food (3.8%), alcohol and tobacco (6.5%) and transport (4.2%). Core CPI (excl food, automotive fuel and holiday travel) remained steady at 4.1% in Apr’24. Higher than expected inflation has also pushed back possibility of rate cut by Central Bank.

Barring S&P 500 and Hang Seng (flat), other global indices ended lower. Disappointing earnings results dragged down US indices. The focus will shift towards upcoming PCE data which will offer some guidance on Fed’s interest rate outlook. Sensex ended lower with sharp losses in real estate and power sector. It is trading lower today, in line with other Asian markets.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research │ Markets in US and UK were closed on 27-05-2024

Global currencies ended mixed. DXY rose marginally led by positive macro data and hawkish comments from Minneapolis Fed President. JPY depreciated further led by expectations of widening yield differential between Japan and other advanced economies. INR too depreciated led by weak global cues. It is trading further lower today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda │ Markets in US and UK were closed on 27-05-2024

Except China and India, global yields inched up.10Y yield in US rose sharply by 9bps tracking muted demand in treasury auction. Comments from a key Fed official suggesting rate hikes are not entirely ruled out, and a surprise uptick in US consumer confidence index also impacted sentiments. India’s 10Y yield inched up (7.10% GS 2034), led by higher oil prices. It is trading flat today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research │ Markets in US and UK were closed on 27-05-2024

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research │ Markets in US and UK were closed on 27-05-2024

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research │ Mutual Fund data as of 22 May and 23 May 2024

Oil prices rose amidst expectation of OPEC+ to continue with output cuts.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Fed’s Beige book noted the economic activity in the US continued to expand at modest pace during the Apr-Mid May period. There has been a pushback by consumers after retail spending inched up moderately, ‘reflecting lower discretionary spending and heightened price sensitivity’. IMF revised its forecast for China 5% growth in CY24, with risk titled to the downside given the ongoing measures taken by the government. For CY25, it expects the economy to moderate by 4.5%. On the domestic front, S&P has revised India’s outlook from stable to positive with a rating of BBB- on the back of improved quality of government expenditure, political commitment to fiscal consolidation and robust economic growth.

Global indices ended mixed. US indices ended in red after treasury yields registered gains amidst conflicting signs of timing and cuts in interest rates by Fed. Amongst other indices, Hang Seng dropped the most followed by losses in FTSE and Nikkei. The drop in Nikkei was due to growing threats of a possible hike by BoJ which affected the demand for stocks. Sensex ended lower and was dragged down by losses in banking and oil & gas sector. It is trading lower today, in line with other Asian markets.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended weaker as dollar regained strength. DXY rose by 0.5% to a near 3-week high, as investors dialed back expectations of Fed rate cuts. A jump in US treasury yields also supported the dollar. Both EUR and GBP depreciated by 0.5%. INR also ended weaker by 0.2%. It is trading further lower today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Anticipation of a delayed start to the global rate cut cycle has led to a sharp selloff in global yields. Germany’s 10Y yield inched up by 10bps amidst a higherthan-expected CPI print. In US, 10Y yield rose by 6bps, ahead of PCE data. India’s 10Y yield also rose in line with global cues. However, an upgrade of India’s rating outlook by S&P, limited losses. It is trading flat 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

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 23 May and 24 May 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

A deluge of data is expected to guide the markets including inflation reading form US and Europe. US GDP for Q1 was revised downwards to 1.3% (1.6% previously) with slower pace of growth in personal spending. US jobless claims edged up in the preceding week to 219,000. China’s manufacturing activity slipped into contraction unexpectedly to 49.5 in May’24 from 50.4 in Apr’24. Both sub-indices, new orders and export orders declined, after registering positive growth for 2-months. Employment level continue to shrink. Separately, Japan’s industrial output surprised negatively with a 0.1% fall in Apr’24 (on MoM basis) much lower than expectation (1% rise) led by decline in transport equipment production. Additionally, Tokyo’s core inflation climbed up to 1.9% in May’24 (1.6% in Apr’24).

Barring Dow Jones, other global indices ended lower. US indices dropped further as investors monitored subdued data (downward revision in GDP and higher weekly jobless claims). Amongst other indices, both Hang Seng and Nikkei dropped by 1.3% each. Sensex ended in red and was dragged down by losses in metal and consumer durable sector. However, it is trading higher today, in line with other Asian markets.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Barring INR, other major currencies ended stronger as dollar weakened. DXY fell by (-) 0.4%, as investors noted weaker than previously estimated US Q1 GDP print. Dip in US treasury yields also impacted strength of the dollar. JPY and EUR gained the most. INR ended flat. However, it is trading higher today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Except China, other major global yields closed lower. US 10Y yield fell the most by 7bps, as downwardly revised US GDP for Q1 revived hopes of increased chances of Fed rate cut this year. PCE data, due today, will provide additional cues. India’s 10Y yield also declined in line with global cues. However, it is trading slightly higher today at 7.05% 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

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 27 May and 28 May 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research