Economic Weekly Wrap
06 January 2025 - 10 January 2025

US ISM manufacturing PMI rose to 49.3 in Dec’24 (48.4 in Nov’24), just shy of the 50-mark. This has raised hopes of a recovery in manufacturing activity in the country. Fed officials advocated a cautious approach to further rate cuts, noting risks to inflation. This suggests only shallow rate cuts in 2025 which is likely to keep the dollar stronger. However, US jobs report due this week is expected to have a strong bearing on the rate trajectory. In the UK, a slowdown in consumer credit raised fresh concerns over the growth outlook. In the week ahead, focus will be on inflation figures from China and Eurozone and global services PMI. In India, focus will be on the first advance estimates for FY25 GDP.

Except US and Hong Kong, stocks elsewhere closed lower. Higher than expected US ISM manufacturing buoyed investor sentiments. Tech stocks rallied. FTSE was dragged by industrial mining sector, as stronger US$ is affecting prices of base metals. In India, Sensex ended in red, led by losses in tech, banking and capital good stocks. It is trading higher today, while Asian markets are trading mixed

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in Japan remain closed since 30 Dec 2024

Global currencies recouped some losses as the dollar eased. DXY fell 0.4% from a 2-year high. EUR and GBP gained the most. CNY however depreciated amidst weak economic outlook. INR touched a fresh record low for the 4th straight session. It is trading further weaker today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Markets in Japan remain closed since 30 Dec 2024

Global 10Y yields closed mixed. 10Y yield in Germany and US rose the most. Slowdown in the pace of contraction of manufacturing sector in the US and rise in input prices impacted investor sentiments. In Germany, less than expected increase unemployment levels, guided yields. India’s 10Y yield fell a tad by 1bps, even as oil prices climbed higher. It is trading at 6.79% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in Japan remain closed since 30 Dec 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 31 Dec 2024 and 01 Jan 2025

Oil prices increased amidst a seasonal uptick in demand.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global composite PMI rose to 52.6 in Dec’24 from 52.4 in Nov’24, led by a steady expansion in services activity. In fact, services PMI in the US, UK, Eurozone and India edged up due to an increase in new orders. Employment growth was also registered higher, while input costs also inched up. Separately in the US, factory order declined by 0.4% in Nov’24 after increasing by 0.5% in Oct’24. Uncertainty remained over US tariff policies, as the President elect refuted news reports of tariffs on only select products. In Germany, inflation edged up to 2.6% in Dec’24 (est. 2.4%), from 2.2% in Nov’24, which is likely to weigh on the minds of ECB policymakers. In India, services PMI rose to 59.3 in Dec’24 from 58.4 in Nov’24, led by strong order growth in financial and insurance sector.

Global indices largely ended lower. S&P500 rose by 0.6% supported by strong gains in technology (1.4%) and communication services (2.1%) stocks. Investors will turn their focus towards upcoming speeches by Fed officials in order to gauge the rates trajectory. Sensex slipped by 1.6% amidst a broad based sell-off. Power, metal and oil & gas stocks dropped the most. However, it is trading higher today, in line with other Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY declined 0.6% amidst uncertainty over US tariff. EUR and GBP rose by 0.8% each. However, Asian currencies were mostly weaker. INR slipped to a fresh record low. However, it is trading a tad stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Barring China and India, other global 10Y yields closed higher. 10Y yield in Japan and US rose the most. Uncertainty over upcoming tariff policies by the US President-elect weighed on investor sentiments. 10Y yield in Japan edged up amidst reports of BoJ signalling more rate hikes. India’s 10Y yield eased by 3bps but is trading lower at 6.74% 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 01 Jan and 02 Jan 2025

Oil prices declined amidst concerns over demand prospects.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US macro data once again underscored the need for keeping rates higher for longer. Labour market continued to show resilience with US JOLTS openings rising to 8.1mn in Dec’24, much higher than expectations of 7.7 mn. Separately, ISM nonmanufacturing PMI climbed to 54.1 in Dec’24 (est. 53.3), from 52.1 in Nov’24. Concerns over inflation were reignited as an underlying measure of input prices rose to its highest in over 2-years. In the Eurozone as well, CPI inflation rose to 2.4% in Dec’24 from 2.2% last month, broadly in line with expectations. The data is unlikely to deter the ECB from easing policy rates further. In India, NSO estimates GDP growth to be 6.4% in FY25 as per the first advance estimates. However, we do see the possibility of an upward revision in the final figures as growth is likely to have bottomed out in Q2 FY25.

Global indices ended mixed. US indices closed in red as fresh data raised concerns around inflation risk. The focus will shift towards non-farm payroll and Fed minutes. Nikkei surged by 2% supported by gains in technology stocks. Sensex recovered and closed in green led by gains in oil&gas and capital goods stocks. However, it is trading lower today, in line with other Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR and CNY, other global currencies ended weaker. DXY rose by 0.3%, led by positive data (JOLTS openings and ISM non-manufacturing PMI). EUR declined the most by 0.5% tracking the inflation report. INR recovered marginally. However, it is trading weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Barring Japan and India (flat), other global 10Y yields closed higher. US 10Y yield climbed up supported by strong economic data (surprise upside in job openings). UK’s 10Y yield edged up amidst investors’ expectations of only 50bps rate cut this year. India’s 10Y yield ended flat and is trading lower at 6.75% 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 02 Jan and 03 Jan 2025

Oil prices rose as buoyant US data raised hopes of a demand recovery.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Reports suggesting that the incoming US President may declare a national economic emergency to impose wide ranging tariffs soured investor sentiments. This intensified the sell-off in bond markets, while the dollar continued its upward climb. Fed minutes also noted that members remain wary of the risks to inflation and growth outlook amidst uncertainty over government policies, suggesting a cautious approach to future rate cuts. Separately, US labour market continued to show resilience with jobless claims falling to an 11-month low. However, private payrolls (ADP report) moderated to 122,000 in Dec’24 compared with 140,000 in Nov’24. In Japan, consumer sentiment soured, and real wage growth slowed amidst continued price pressures in the country. In contrast, CPI inflation in China rose by 0.2% in Jan’25, only marginally higher than 0.1% in Dec’24. Deflation in PPI persisted even though the pace of contraction was lower.

Global indices ended mixed. Investors monitored Fed minutes which highlighted inflation risk and concerns around the impact of polices by the incoming US President. The focus will now shift towards jobs report. Sensex ended in red, amid losses in capital goods and power stocks. It is trading lower today, in line with other Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended weaker. DXY rose by 0.3% tracking positive labour market data. GBP declined by 0.9% as elevated bond yields raised concerns over government debt. INR slipped to a fresh record low amidst patchy FPI inflows. It is trading further weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Barring China and US (flat), other global 10Y yields closed higher. UK’s 10Y yield surged by 11bps (highest since Aug’08) amidst anticipation of much higher borrowing by government and increased prospects of a tighter monetary policy. Germany and Japan’s 10Y yield rose by 7bps and 4bps. India’s 10Y yield was up by 2bps but is trading a tad lower at 6.76% 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

Oil prices declined led by a buildup in US crude inventories and a stronger US$.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global growth is expected to remain stable at 2.8% in 2025 (same as 2024) as per the UN World Economic and Prospects Report 2025. Lower growth in China and US is likely to be offset by improved growth prospects in the EU, Japan and UK. Global inflation is projected to moderate from 4% in 2024 to 3.4% in 2025. For India, GDP growth is projected at 6.6% in 2025, driven by private consumption and investment. Separately, household spending in Japan declined by 0.4% in Nov’24 amidst intensifying price pressures, reinforcing the need for BoJ to hike rates. In UK, BoE’s Deputy Governor emphasised a more gradual approach to further rate cuts. In the US, Fed’s Michelle Bowman suggested that the Dec’24 rate cut would be the last. Focus now shifts to the US jobs report due today.

Barring UK (higher) and US (closed), other global indices ended lower. FTSE gained on the back of mining stocks, supported by rising commodity prices. In the case of Asian markets, continued disinflation in China dented investor sentiments. Sensex ended in red, dragged by consumer durables, and capital goods stocks. However, it is trading higher today, while other Asian indices are trading lower.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in US were closed on 09 Jan 2025

Global currencies ended mixed. DXY rose by 0.1%, as investors await the US jobs report. GBP declined further by 0.4% as BoE’s Deputy Governor advocated for more rate cuts. JPY ended marginally stronger. INR ended stable. However, it is trading weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Markets in US were closed on 09 Jan 2025

Except India (flat), other global 10Y yields ended higher. UK’s 10Y rose by 1bps and continued to trade near a 16-year high, driven by concerns regarding government’s borrowing program and its impact on inflation. Investors await inflation data for Dec’24 to gauge major central banks’ rate trajectory. India’s 10Y yield closed stable at 6.77%, but is trading a tad lower at 6.76% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in US were closed on 09 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

Oil prices rose as colder weather has raised prospects of higher fuel demand.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research