Economic Weekly Wrap
06 November 2023 - 10 November 2023

Macro data from the US showed signs of slowdown with loosening labour market and easing services activity. Non-farm payroll additions in Oct’23 rose by only 150k versus est.: 180k and also lower compared with downwardly revised figure of 297k for Sep’23. Manufacturing and transport &warehousing sector reported job losses in Oct’23. Unemployment rate also inched up from 3.8% in Sep’23 to 3.9% in Oct’23. Further, ISM services index showed that PMI eased to 51.8 last month (est.: 53) from 53.6 in Sep’23. Analysts now expect Fed to remain on hold in its Dec’23 meeting as well. Elsewhere, PMI data shows that in Australia and UK, service sector activity contracted at a slower pace in Oct’23, while in India it moderated but still remains in the expansion zone (58.4 versus 61). In China, activity showed signs of improvement (50.4 versus 50.2), but missed analyst estimates (51).

Apart from FTSE, other global indices ended higher. Expectation of Fed and other major central banks holding rates for the remaining part of CY23, and positive macro data from China (services PMI) buoyed the equity markets higher. Sensex too ended in green, led by gains in realty and consumer durables stocks. It is trading further higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Most global currencies closed higher against the dollar. GBP and EUR gained the most. DXY fell by 1%, as softer than expected macro data (jobs and services PMI) reaffirmed the views that Fed may remain on pause for now. INR ended flat even as oil prices declined. It is trading lower today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Barring Japan and China, other sovereign yields dropped sharply, led by US and UK. Softer than expected job additions in the US have raised hopes of Fed remaining on hold in Dec’23 as well. India’s 10Y yield was also down a tad, as oil prices fell. However, it is trading higher today at 7.34%.

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

Fig 7 – Commodities

Final estimates for composite (46.5 in Oct’23 versus 47.2 in Sep’23) and services PMI (47.8 versus 48.7) show that Eurozone has started Q4 on an even weaker note. According to the survey, deceleration in activity was the strongest since Nov’20, driven by sharp dip in new business orders (fastest decline since Sep’12—debt crisis), and stagnation in employment. Germany’s service sector activity contracted (48.2 versus 50.3), while in France, pace of decline slowed (45.2 versus 44.4). In case of Japan, services sector is performing relatively better (50 versus 50.5), but is beginning to witness moderation, led by continued decline in new orders (49.3 versus 49.5). Separately, RBA hiked its policy rate by 25bps to 4.35% (in line with estimates), owing to persistently high services inflation and increase in wage growth. CPI is expected to be ~3.5% by the end of CY24, higher than targeted 2-3% range.

Barring yields in Asia, other sovereign yields closed higher. US 10Y yield was up by 7bps as focus shifts towards Fed Chair’s statement due this week, for guidance on rates and expectation on economic outlook. India’s 10Y yield was down by 1bps, despite increase in oil prices. It is trading flat today.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Barring EUR (flat) and CNY (higher), other global currencies ended lower. DXY index after falling for the last couple of days, corrected and firmed up (0.1%). Fed is expected (95% chance) to hike rates by 25 bps in the next meet. Fed Governor, Waller also reiterated more hikes are expected this year. INR fell by 0.1%. It is trading further lower today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except INR and CNY, other global currencies ended lower against the dollar. DXY gained by 0.2% as the focus will shift towards commentary by Fed officials and CPI data. Last week's data on jobs growth was weaker than expected and will support Fed's narrative of holding rates steady. INR appreciated by 0.1%. It is trading weaker today while other Asian currencies are trading mixed.

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 │Mutual funds data as of 17th and 18th Oct 2023

Oil prices rose by 0.3%, as Saudi Arabia and Russia reaffirmed the extension of voluntary production cuts until the end of this year.

Fig 7 – Commodities

As a result of weakening global demand, China’s trade data showed that its exports fell by 6.4% (est.: -2.9%) in Oct’23, following 6.2% decline in Sep’23. Exports to Asia and EU fell sharply. In contrast, its imports rose by 3% (est.: -4.5%), rebounding from 6.3% dip in Sep’23 and registering first positive print in a year. Elsewhere, even Taiwan’s export growth fell in Oct’23 by 4.5% compared with 3.4% increase in the previous month, largely owing to slowdown in global sales smartphones. Drop in disposable income due to weak economic activity and higher prices is impacting demand conditions. Central banks are thus hinting at end of their rate hike cycles. BoE’s chief economist has stirred hopes of rate cuts from next summer. Fed Chair’s speech is also awaited for cues on US rate trajectory.

Global indices ended mixed. US indices closed higher as investors anticipated the end of rate hike cycle and remained cautious about Fed commentary. As per CME Fedwatch, there is 90% of chance of Fed holding rates in Dec’23. Amongst indices, Hang Seng dropped the most. Sensex ended flat with sectoral gains in oil& gas stocks. It opened lower today in line with other Asian stocks

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended lower against the dollar. DXY gained by 0.3%. Euro fell by 0.2% after Germany's industrial production dropped more than expected and dented investor sentiments. INR fell by 0.1% amidst a sharp drop in oil prices. It is trading stronger today while other Asian currencies are trading mixed

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except China (flat), other global yields closed higher. 10Y yields in US (+7bps) and Germany (+3bps) rose the most. Comments by Fed Governor Waller favouring rate hikes and remaining cautious on inflation, and surprise jump in University Michigan consumer sentiment index, impacted investor sentiments. India’s 10Y rose by 2bps following global cues. It is trading broadly flat today at 7.10%.

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 │Mutual funds data as of 31 Oct and 1 Nov 2023

Oil prices tumbled (-4.2%) as data showed a significant build-up in US crude stockpiles.

Fig 7 – Commodities

As a concern for global economy, deflationary pressures in China continue to persist. China’s CPI fell by (-) 0.2% in Oct’23 (est.: -0.1%), following flat growth in Sep’23 (0%). Headline print was impacted by food prices, particularly 30% decline in pork prices. However, even core inflation eased (0.6% versus 0.8%), due to sluggish demand conditions and ongoing debt troubles in the property sector. Even PPI remained in the negative territory (-2.6% versus -2.5% in Sep’23) for the 13th consecutive month now. Separately, in Eurozone, demand too remains muted as retail sales fell by (-) 0.3% (MoM) in Oct’23 versus est.: (-) 0.2% and (-) 1.2% in Sep’23. This was on account of dip in sales of non-food items (-1.9%), online sales (- 1.9%) and fuel sales (-0.9%). Higher prices is also the key reason for dip in sales.

Global indices ended mixed. European indices ended lower as investor monitored corporate earnings. S&P 500 continued its winning streak. Treasury yields retreated and pushed the stock rally further. Amongst indices, Hang Seng dropped the most. Sensex ended in green led by gains in real estate and oil & gas stocks. It opened flat today while other Asian stocks are trading higher

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY remained steady amidst expectation of Fed nearing its rate hike cycle. JPY fell by 0.4% as investors expect a possible intervention. INR ended flat. It is trading stronger today while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except China (flat), other global yields closed higher. 10Y yields in US (+7bps) and Germany (+3bps) rose the most. Comments by Fed Governor Waller favouring rate hikes and remaining cautious on inflation, and surprise jump in University Michigan consumer sentiment index, impacted investor sentiments. India’s 10Y rose by 2bps following global cues. It is trading broadly flat today at 7.10%.

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 │Mutual funds data as of 31 Oct and 1 Nov 2023

Oil prices fell by 2.5% over concerns of weak demand (China, Europe) and excess supply (US).

Fig 7 – Commodities

Better than expected initial jobless claims data of the US and hawkish commentary from Fed Chair Powell, pushed treasury yields higher and equity markets lower. Initial jobless claims for week ending 4 Nov 2023 came in at 217k (est.: 220k), versus upwardly revised 220k in claims in the previous week. Further, Fed Chair in his speech signalled that the central bank continues to maintain a tight vigil on inflation trajectory, and if needed, it will not hesitate to hike once again. Powell also signalled that rate cut should not be priced at this stage. Separately, RBA’s statement reaffirms that members are of the view that inflation is more persistent than anticipated. Inflation forecasts have thus been revised higher, assuming peak policy rate of 4.5% and 3.5% by end CY25.

Global indices ended mixed. Investors monitored hawkish commentary by Fed Chair Powell and also closely tracked elevated treasury yields. As a result, S&P 500 snapped and lost its winning streak, ending lower by 0.8%. Sensex also ended in red and was dragged down by losses in IT and oil & gas stocks. It opened lower today in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY ended higher by 0.3% after Fed Chair expressed of not being confident if Fed has done enough to curb inflation. Thereby adding to the uncertainty to the end of rate hike cycle. INR ended flat. It is trading stronger today while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except China (flat), other global yields closed higher. 10Y yields in US (+7bps) and Germany (+3bps) rose the most. Comments by Fed Governor Waller favouring rate hikes and remaining cautious on inflation, and surprise jump in University Michigan consumer sentiment index, impacted investor sentiments. India’s 10Y rose by 2bps following global cues. It is trading broadly flat today at 7.10%.

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 │Mutual funds data as of 4 Jul and 5 Jul 2023

Crude prices declined by 1.8%, as a stronger USD made it more expensive for investors to hold onto oil.

Fig 7 – Commodities