Economic Weekly Wrap
27 November 2023 - 01 December 2023

Providing fresh signs that the US economy may be slowing down, new home sales declined by 5.6% to 679,000 (est. 723,000). The 30-year fixed mortgage rate remains elevated at ~7.29%. Expectations that the Fed rates have peaked have strengthened, with investors now anticipating the possibility of a sooner-thanexpected rate cuts. This has weighed on the dollar and treasury yields. All eyes are on the PCE data scheduled later in the week. Separately, growth in industrial profits in China slowed down to 2.7% in Oct’23, after increasing by 11.9% in Sep’23. Apart from US PCE data, focus will also be on OPEC+ meet, US and China’s official PMIs and Eurozone’s inflation data due in the week. In India, Q2FY24 GDP data is due.

Global stocks ended lower. Investors remained cautious amidst rate cut bets by Fed. CME Fed watch tool is pricing in a probability of 23.1% of a rate cut in Mar’24 meeting. Weaker macros in the US and commentary by ECB President on softer economic activity, also impacted sentiments. In China, regulators spoke of weaker credit demand. Nikkei fell the most followed by Shanghai Comp. Sensex is trading higher today, while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR and CNY, other global currencies ended stronger against the dollar. DXY fell by 0.2% and traded near a 3-month low amidst weak economic data (new home sales). JPY gained the most and appreciated by 0.5%. INR ended at a fresh-record low despite a weaker dollar and lower oil prices. It is trading near similar levels today, while other Asian currencies are trading stronger.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed. US 10Y yield fell by 8bps as new home sales data remained weaker and expectation of a future rate cut by Fed built up. Germany’s 10Y yield fell by 9bps as Q3 final estimate showed contraction in economic activity. Japan and China’s yield closed stable in absence of fresh cues. India’s 10Y yield is trading a tad lower at 7.26% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Fig 4 – Short-term rates

Source: Bloomberg, Bank of Baroda Research
Note: Markets in India were closed on 27 Nov 2023

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research
Note: Markets in India were closed on 27 Nov 2023

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research
Note: Mutual fund data as of 21 Nov 2023 and 22 Nov 2023

Oil prices fell further awaiting results of OPEC+ meet scheduled this week.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US Conference Board consumer confidence index rose to 102 in Nov’23 (est. 101.0) from 99.1 in Oct’23. Even so, consumers’ expectations of a recession next year remained elevated. Comments from Fed’s Christopher Waller hinted at a likely Fed pivot in the coming months, if inflation continues to tread lower. On the other hand, another key Fed official Michelle Bowman stated that more policy tightening might be required. While the Fed is likely to keep policy rates on hold in Dec’23, odds of rate cut next year have risen, with some analysts expecting a rate cut as soon as Mar’24. Separately, consumer confidence in Germany edged up marginally to -27.8 in Dec’23 from -28.3 in Nov’23. Reserve Bank of New Zealand kept its policy rate steady at 5.5%, but projected a peak rate of 5.7%, suggesting more hikes.

Global stocks ended mixed. US stocks were supported by dovish comments of some Fed officials. Even Christopher Waller, one of the hawkish Fed official said that Fed is well positioned to push inflation to 2% target. Amongst Asian stocks, Hang Seng fell the most, led by decline in banking stocks. Sensex rose by 0.3%, supported by power and 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 India were closed on 27 Nov 2023

Global currencies continued to gain against the dollar. DXY fell by 0.4% to its lowest since Aug’23, as traders anticipate sooner than expected rate cuts from the Fed. JPY appreciated the most by 0.8%. INR too recovered from a recordlow, despite higher oil prices. It is trading further stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research
Note: Markets in India were closed on 27 Nov 2023

Global yields broadly closed lower. US 10Y yield fell the most as a pivot in policy rate is soon anticipated amidst dovish comments from some Fed officials. Germany’s and UK’s 10Y yield also softened. In UK, BRC shop price index moderated, providing some comfort on inflation. India’s 10Y yield inched a tad bit by 1bps. It is trading lower at 7.24% today, taking cues from global markets.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research
Note: Markets in India were closed on 27 Nov 2023

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research
Note: Markets in India were closed on 27 Nov 2023

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research
Note: Markets in India were closed on 27 Nov 2023

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research
Note: Mutual fund data as of 22 Nov 2023 and 23 Nov 2023

Oil rose as storms in Black Sea region have led to fears of supply disruption

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

China’s manufacturing PMI slipped deeper into the contraction zone (49.4 in Nov’23 v. 49.5 in Oct’23). Non-manufacturing PMI too moderated (50.2 from 50.6 in Oct’23), led by a contraction in services activity. On the other hand, US economic strength was reinforced after Q3CY23 GDP was revised upwards to 5.2% (est. 5%), from 4.9% earlier. In the Eurozone, inflation in both Germany and Spain eased significantly, led by a drop in energy prices. Separately, OECD has projected a slowdown in global growth from 2.9% in 2023 to 2.7% in 2024. Even so, it expects most major economies to avoid a hard landing. For India, GDP growth is estimated at 6.3% in FY24 and 6.1% in FY25. In India, the free foodgrains scheme (PMGKAY) has been extended for another 5 years, with an estimated cost of Rs. 11.8 lakh crores.

Global stocks broadly ended lower. Investors' sentiments were impacted by expectations of a mild slowdown in 2024 as projected in OECD’s Economic Outlook. Apart from this, moderation in inflation in Germany and slowdown in consumer credit in UK, also impacted sentiments. Hang Seng fell the most, followed by Shanghai Comp. Sensex rose by 1.1%, supported by banking stocks. It is trading higher today, in line with Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY closed flat, after declining for the last three sessions. Positive GDP data lent support to the dollar. EUR fell by 0.2% after Germany’s inflation report. INR ended broadly stable. It is trading stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except China (stable), global yields closed lower. Japan’s 10Y yield fell sharply, as a BoJ Board member spoke of easy monetary policy. US 10Y yield fell, tracking comments from Fed’s Loretta Mester’s suggesting a nimble approach. Germany’s 10Y yield got comfort from a softened inflation print in Nov’23. India’s 10Y yield fell by 3bps led by global cues. 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 Nov 2023 and 24 Nov 2023

Oil prices rose amidst expectations of deeper output cuts from OPEC+.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

A slew of data from US and Eurozone reinforced views that global rates have peaked, with bets now being placed on the timing of rate cuts. In US, inflation as measured by the PCE price index slowed down to 3% in Oct’23 vs. 3.4% in Sep’23. Initial jobless claims increased by 7,000 to 218,000, suggesting a weakening momentum in the labour market. There are signs of a slowdown in the housing market as well, with US pending home sales dropping to its lowest in over 20 years. In the Eurozone as well, inflation moderated to 2.4% (est. 2.7%), leading analysts to expect a rate cut as early as Apr’24. Separately, manufacturing activity in Japan remained subdued with PMI at 48.3 vs. 48.7 in Oct’23, led a fall in both output and new orders. In India, GDP growth remained buoyant at 7.6% in Q2FY24. Even coresector output rose by 12.1% in Oct’23 compared with 9.2% in Sep’23.

Global stocks ended higher. Easing PCE inflation in the US and a softer labour market data, provided comfort of easing financial conditions going ahead. Apart from this, pick up in retail sales numbers in Germany and moderation in inflation expectations in UK, also supported investor sentiments. Dow Jones rose the most, followed by Nikkei. Sensex rose by 0.1%, supported by consumer durable stocks. It is trading higher today, while Asian stocks are mixed

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed. In UK, 10Y yield firmed up by 8bps as a BoE official spoke of a restrictive monetary policy amidst worries over persisting inflation. US 10Y yield also rose by 7bps ahead of Fed Chair’s speech. China’s 10Y yield fell a tad by 1bps, as growth concerns remain. India’s 10Y yield rose by 3bps, ahead of auction results. 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 24 Nov 2023 and 28 Nov 2023

Oil prices moderated as OPEC+ output cut fell short of market expectations.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research