Economic Weekly Wrap
02 December 2024 - 06 December 2024

US President-elect Trump recently made comments on the so called ‘BRICS nation’ with a warning of not creating a new currency that could replace dollar or else they will have to face 100% tariffs. This comes in the wake of the proposed tariff announcement against China, Canada and Mexico. Separately in China, official manufacturing PMI reading came in at 50.3 (highest- since Apr’24) against 50.1 in Oct’24. On domestic front, India’s Q2FY25 GDP came in much lower than anticipated at 5.4%. However, a strong recovery is expected in Q3 and Q4 with an estimated GDP growth of 6.6-6.8% for FY25 (BoB estimate). Markets this week will closely track the global manufacturing PMI, US Jobs report and factory order along with RBI’s credit policy, scheduled later this week.

Most of the global indices closed higher led by a rally in technology stocks. European indices ended in green as investors monitored the CPI print and assessed the possibility of rate cut in Dec’24. Nikkei ended in red amidst growing expectations of rate hike. Amongst other indices, Sensex ended in green led by gains in IT and oil & gas stocks. However, it is trading lower today, while Asian stocks are trading higher.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in US were closed on 28 Nov 2024

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields softened. US 10Y yield declined by 9bps as market participants await US jobs report and PMI data. Yields in Germany and UK also edged lower. India’s 10Y yield also fell by 9bps as GDP growth moderated more than expected in Q2FY25. It is trading stable at 6.74% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in US were closed on 28 Nov 2024

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 funds data as of 26 Nov and 27 Nov 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Political turmoil unfolded in France as the current government is on the brink of a potential collapse. Poor manufacturing data for Eurozone and concerns around political unrest, resulted in weakness in Euro and slipping down of bond yields. Separately, investors will focus towards upcoming commentary by Fed officials and US jobs report which might offer some guidance on rate cut trajectory. Investors have priced in a possibility (60%) of 25bps rate cut in Dec’24 meet. On domestic front, the government has apprised that the base year for calculating GDP will be revised from 2011-12 currently to 2022-23. The revision is expected to be completed by early CY26. Additionally, ahead of the RBI’s credit policy, there is a speculation of a possible CRR cut or OMO cut in order to boost liquidity instead of a repo rate cut.

Apart from Dow Jones, other global indices closed higher. S&P 500 inched up. Better than expected PMI print in US and proposed plans of deregulation and tax cuts by President-elect Trump lifted investors sentiments. Technology stocks rallied. Amongst other indices, Shanghai Comp gained the most. Sensex too closed in green supported by gains in real estate and consumer durable stocks. It is trading higher lower today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Barring JPY, other global currencies ended lower. DXY strengthened by 0.7%, supported by higher treasury yields and safe haven demand. President-elect Trump’s recent tariff threats revived dollar demand. Yen was helped by high possibility of rate hike by BoJ in Dec’24. INR depreciated by 0.2%, tracking global cues. It is trading even lower today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Except US and Japan, other bond yields closed lower. 10Y yield in US rose by 2bps, as investors digest data showing slower pace of contraction in the manufacturing sector. BoJ Governor’s hawkish comments pushed yields higher. Japan’s 2Y rose to 16-year high in the previous session. India’s 10Y yield fell by 3bps, tracking dip in oil prices. It is trading even higher at 6.87% 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 funds data as of 27 Nov and 28 Nov 2024

Oil prices continue to plummet, driven by over-supply concerns in 2025.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

A new political upheaval unfolded in South Korea after to and fro on the imposition of martial law. Bank of Korea sprung in to action and stated it will employ sufficient measures to boost liquidity with the aim to stabilize the foreign exchange and financial market. Separately, China’s Caixin services PMI dropped down marginally to 51.5 in Nov’24 from 52 in Oct’24. This was much slower than anticipated as growth in new business eased with concerns emerging on global trade outlook as competition intensified. In US, jobs openings inched up marginally in Oct’24 (7.7mn from 7.4mn in Sep’24), with hiring slowing down, signalling a mixed picture with signs that the labour market might be stabilizing. Mixed commentary by Fed officials did not offer much guidance on rate trajectory.

Apart from Dow Jones, other global indices closed higher. Investors monitored comments by Fed officials with focus shifting towards other data points (ISM and JOLTs). Amongst other indices, Nikkei gained the most. Sensex climbed up supported by strong gains in capital goods and power stocks. It is trading higher today, while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except bond yields in Asia, other bond yields closed higher. 10Y yield in both US and UK rose by 3bps. Increase in job openings in the US and decline in layoff have again increased uncertainty around Fed’s rate cut trajectory. India’s 10Y yield remained unchanged, despite jump in oil prices. However, it is trading slightly lower today at 6.69%, amidst hopes of an early rate cut by RBI.

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 funds data as of 27 Nov and 28 Nov 2024

Oil prices rebounded, tracking tensions in Middle East and US’ oil demand.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

OPEC+ in its highly anticipated meeting decided to postpone the output hike by over 3-months on the back of weak demand and rising output levels outside the group. Now, these are expected to start by Apr’25 with gradual unwinding and is expected to last till Sep’26. As a result, oil prices dipped. In US, the weekly jobless claims rose more than anticipated to a 1-month high to 224k against 215k for the previous week. Continuing claims dropped down to 1.87mn and remains low as per the long run standard. As per analyst, this could prompt Fed to lower rates in the upcoming meeting. Separately the US trade deficit narrowed by 11.9% to US$ 73.8bn in Oct’24 lower than expectation (US$ 75bn) and led by sharp decline in imports (4%- biggest drop since Nov’22). In India, investors will focus on RBI’s credit policy.

Global indices ended mixed. US indices closed lower ahead of the monthly jobs report which might offer some guidance of rate trajectory. European stocks ended in green amidst hopes of new budget announcement by a new French government. Sensex rallied further with gains in IT stocks. It is trading lower today, while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global bond yields closed mixed. While 10Y yield in US was flat, yields went up in UK and Germany. Investors in the US tracked slightly higher than estimated initial jobless claims. Non-farm payroll data is also awaited. In Europe, political upheaval guided the markets, even as ECB is set to cut rates this month. India’s 10Y yield ended flat at 6.68%. It is trading at the same level even 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 funds data as of 2 Dec and 3 Dec 2024

Oil prices fell, as extension of production cuts by OPEC+, signals weak demand.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research