Economic Weekly Wrap
07 November 2022 - 11 November 2022

Global equities, currencies, and bond yields ended higher. US non-farm payroll data showed 261k jobs were added in Oct’22 (est.: 193k), compared with upwardly revised figure of 315k for Sep’22. More than estimated increase in job additions indicates that US economy is not cooling off as much as expected. However on the other hand, increase in unemployment rate signals impact of rate hikes is beginning to show some impact. Elsewhere, services PMI data for Europe, in particular Germany, shows that economic activity remains weak (46.5 in Oct’22 versus 45 in Sep’22). Even in France services PMI has begun to ease (51.7 versus 52.9). 12- month ahead outlook too has slumped, as energy crisis is expected to deepen as EU’s ban on Russian oil imports looms. However, hopes of China loosening Covid- 19 restrictions may boost global demand.

Except Nikkei, other global stocks edged up as US unemployment rate increased, raising hopes that the Fed may soften its rate hike stance. Investors’ sentiments were also buoyed by reports that China may relax its Covid zero stance. Hang Seng rose sharply by 5.4%, followed by Shanghai Comp (up by 2.4%). Sensex rose by 0.2% supported by gains in metal stocks. It is trading further higher today, in line with other Asian markets.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies edged higher against the dollar. DXY fell by 1.8% as US jobs report showed a pickup in unemployment rate. EUR and GBP gained by 2.1% and 2% respectively. INR too appreciated by 0.6%, supported by global cues. It is trading further stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except Japan (steady) and India (lower), global yields closed higher. 10Y yield of Germany rose the most by 5bps followed by China (3bps) and UK (2bps). US labour market data and ECB President’s reaffirmation that central bank will tighten faster if inflation remains sticky, impacted investor sentiments. India’s 10Y yield fell by 1bps (7.47%) supported by healthy demand at weekly auction. It is trading slightly lower at 7.45% 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 pertains to 16 and 17 May 2022

Crude oil prices rose sharply by 4.1%, owing to supply concerns due to looming EU ban on Russian oil and on hopes of easing Covid-19 restrictions by China.

Fig 7 – Commodities

Latest global macro prints further indicate that there might be an impending global growth slowdown. China PPI/factory gate prices fell for the 1st time in 2 years in Oct’22 (-1.3%) compared with 0.9% increase in Sep’22. This will have an impact on profitability of Chinese firms and also shows the impact of China’s slowdown on commodity prices. Further, Taiwan’s exports fell for the second consecutive month in Oct’22 (-0.5%). A depreciating Yen is also taking a toll on Japan’s current account balance, as the surplus fell to 8-year low of ¥4.85 tn in H1FY22. Continued increase in Covid-19 cases in China, possibility of gridlock between US Congress and US Senate have further raised fears of growth slowdown. EIA has also lowered its US energy demand outlook for CY23.

Barring Hang Seng and Shanghai Comp, other global indices ended higher as investors turned their focus toward the US midterm elections which will decide the course of future spending. Also, key data prints are scheduled to release later this week including US CPI, signalling direction of future rate hike. Amongst other indices, Nikkei (1.3%) rose the most followed by Dow jones (1%). Sensex opened higher today while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except CNY (flat), other global currencies traded higher against the dollar. DXY slid ahead of the US midterm election results and US CPI. Euro strengthened as German bond yields (2Y) edged higher on expectations of further tightening by ECB. INR opened stronger today while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed lower with 10Y yields of US, UK (9bps each), and Germany (6bps) falling the most. Investors await results of US mid-term elections for Congress and CPI. In US, a split in party controlling the Congress and the Senate could prove difficult for the President to achieve the economic agenda. India’s 10Y yield is trading lower today at 7.39%, following global cues.

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 pertains to 16 and 17 May 2022

Crude oil prices fell by 2.6%, as rising Covid-19 cases in China dimmed the hopes of fewer restrictions, which would further dampen demand prospects.

Fig 7 – Commodities

With rising Covid-19 cases in China, and PPI falling for the 1st time in 2 years, fears of global growth slowdown have increased. In the US, rate hike is showing impact on real estate sector with US mortgage applications down 41% in YoY terms—hovering near 7-year. Average interest rate for 30-year fixed rate mortgage has risen to 7.14% from 7.06% last week. Further, as investors await US midterm election results, there remains a possibility of gridlock in the US Congress, which could potentially stall fiscal programs of the government. US CPI is also due for release later today, and is expected to have cooled down from Sep’22.

Global indices closed lower ahead of the mixed verdict likely in the US midterm elections resulting in gridlock of key policies. Investors also await US CPI which will direct future trajectory of rate hike. S&P 500 dropped the most followed by Hang Seng (1.5%). Sensex too ended in red and was dragged down by losses in real estate and metal stocks. It is trading further lower today while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR, other global currencies traded lower against the dollar. The greenback rebounded and strengthened by 0.8% ahead of the release of US inflation. Fed in its minutes had highlighted smaller rate hike and hence the focus on inflation front will guide the markets further. INR appreciated by 0.6% and opened lower today. Other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Barring Japan and China (flat), other global yields closed lower. 10Y yields of Germany (11bps) and UK (10bps) fell the most. Investors are hoping that Central Banks will moderate the pace of rate hikes as economy is slowing. US 10Yyield fell by 3bps, awaiting CPI data. Also midterm elections results are being closely watched. India’s 10Y yield fell by 5bps to 7.69% and is trading even lower today at 7.37%, following global cues.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

T-bill rates in RBI’s latest auction have seen marginal inch up (3bps-364 day).

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 pertains to 16 and 17 May 2022

Crude oil prices fell by another 2.8%, as investors monitor rising Covid-19 cases in China and await US midterm election results.

Fig 7 – Commodities

US CPI for Oct’22 fell to a 9-month low of 0.4%, lower than estimated 0.6% and also down from upwardly revised 0.6% in Sep’22. Even in YoY terms, inflation pressure eased and it fell to 7.7% in Oct’22 (est.: 7.9%) from 8.2% in Sep’22. Separately, US jobless claims for the week ending 5 Nov 2022, rose by 7k over the week and reached 225k, running slightly higher than pre-pandemic (2019) weekly average of 218k. Investors now believe that Fed might moderate the pace of rate hikes in the coming months as inflation seems to have peaked. As a result, US and European stock markets rose, DXY fell, oil and gold prices gained.

Except US and UK indices, other global indices closed lower. Dow Jones surged by 3.7% on the back of softer than expected CPI print (7.7% against an expectation of 7.9%). This also raised hopes of a possible trim down on Fed rate hike. Sensex continued to fall for the second day in a row. Losses in auto and consumer durable stocks pulled the index lower. However, it is trading higher today in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR, other global currencies ended higher against the dollar. The greenback struggled and declined (2.1%) on the back of softer inflation print, signalling inflation might have peaked. It also added to the possibility of a less aggressive monetary tightening by the US Fed. INR weakened by 0.5% but opened stronger today. Other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Barring Japan and China (flat), other global yields closed sharply lower. 10Y yields of US (-28bps), UK (-17bps), and Germany (-16bps) fell the most. Lower than expected US CPI data and weakness in US labour markets raised hopes that Fed might moderate the pace of rate hikes in its upcoming meetings. India’s 10Y yield too fell by 4bps to 7.35% as investors had estimated dip in US CPI and a similar trend is expected in India’s CPI (due for release on Monday). It is trading much lower today at 7.25%, following global cues.

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 pertains to 16 and 17 May 2022

Crude oil prices rose by 1.1% as investors digested US CPI inflation data. Weaker US$ also helped support prices. Gold prices also gained by 2.9%.

Fig 7 – Commodities