Economic Weekly Wrap
09 October 2023 - 13 October 2023

Investors assessed the US jobs report for Sep’23 as non-farm payrolls increased by 336,000 in the month, much more than was anticipated by the analysts.

Unemployment rate remained unchanged at 3.8%. Thus signalling resilience in the economy and the possibility of Fed continuing with higher for longer; keeping rates elevated with the objective to tackle inflation. This will further add pressure on the already battered treasury yields, which even touched the 16-year high mark during the session. On domestic front, RBI maintained status quo as it kept both rates and stance unchanged. It reiterated about the 4% inflation target band and stated MPC remain vigilant towards achieving the same. With this, the focus would turn towards industrial growth and inflation data scheduled to release this week.

• Except Nikkei, other global indices ended higher. US stocks gained after better than expected jobs report signalled strength in the economy. Amongst other indices, Hang Seng rose the most followed by S&P 500. European indices closed higher supported by gains in retail sector. Sensex advanced post RBI’s decision to keep rates on Power and consumer good stocks rose the most. It is trading lower today, while other Asian indices are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research, Markets in China were closed since 28 Sep

• Except JPY (weaker), other global currencies ended higher against the Despite a strong jobs report, DXY eased by 0.2%. EUR rose by 0.3% after a surprise increase in Germany’s factory orders. JPY depreciated by 0.5% and remained near the possible intervention level of 150/$. INR closed flat and is trading stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research, Markets in China were closed since 28 Sep

• Global bond market rout deepened further after a strong US jobs report. Non- farm payrolls in US rose by 336k in Sep’23, est. 170k, suggesting that rates are likely to remain higher for longer. US 10Y yield rose by 8bps to its highest since Aug’07. India’s 10Y yield rose by 13bps (7.34%) after RBI said that it could opt for OMO sales to manage It is trading at 7.4% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research , Markets in China were closed since 28 Sep

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 fund data as on 3th and 4th Oct

• Oil prices rose by 6% despite some demand concerns.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Widening of the conflict in Middle East weighed in on the investor sentiments as global markets remained attuned to the turmoil. As a result, crude oil prices surged by 4.2% with the possibility of supply constraints which might push prices higher. Gold prices also edged up, pushing higher demand for safe havens. Additionally, such escalations usually heighten the layer of uncertainty. Separately, US Fed officials in their latest commentary turned dovish signalling no more rate hike. They noted of carefully monitoring the rise in yields and will ‘assess the extent of any additional policy firming that may be necessary’. Markets will also turn their attention towards the earnings reports.

• Global indices ended US stocks advanced amidst a rally in energy stocks as investors monitored the developments around the Middle East. Dovish commentary by Fed officials further supported the market. Sensex ended in red and was dragged down by losses in power and consumer good stocks. However, it is trading higher today, in line with other Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Barring INR (lower), other global currencies ended higher. DXY ended flat while JPY and GBP gained the most. Softening US Fed rate hike expectations weighed down on DXY, while Yen’s performance was boosted by safe-haven INR fell by 0.1% as oil prices increased. It is trading a tad higher today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Global yields closed mixed, with 10Y yield in Japan ending flat and UK and German yields seeing significant Dovish comments from Fed official

suggesting lesser need to hike rates, along with increased geo-political uncertainty (Israel conflict), impacted investor sentiments. India’s 10Y yield rose by 4bps, as oil prices jumped 4%. It trading higher at 7.41% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research , Market in US were closed on 9.10.23

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 amidst ongoing geopolitical

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Concerns around Middle East conflict eased marginally as investor continued to monitor the developments. This resulted in lower global crude oil prices. Gold prices slipped as investors looked for more cues on the next Fed policy action. Notably, recent comments by Fed officials hinted a dovish tone on interest rate expectation. The focus would now shift towards inflation data which is scheduled to release later this week. Separately, IMF hiked GDP forecast for India to 6.3% (+20bps from last update) for FY24 supported by ’stronger than expected consumption’ in Q1. Inflation projections have also been revised upwards for FY24.

• Barring Shanghai Comp, other global indices ended higher as investors continued to monitor developments around Middle East. US indices continue to rally after dovish comment by Fed, dragged down treasury IMF raised US growth forecast (up by 0.3% points from last update) which supported the market. Sensex reversed it losses and ended in green led by gains in real estate and metal stocks. It is trading higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Global currencies ended mixed, with GBP and EUR appreciating the most. DXY fell by 2% as dovish commentary from Fed officials has lowered the probability of any more rate hikes this year. Easing concerns around Middle East conflict also impacted safe haven demand (USD and JPY). INR ended flat, but is trading a tad higher today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Except Germany (flat) and China (higher), other global yields US 10Y yield fell the most (-15bps). Investors await Fed minutes, due later today, which may

reaffirm the views that the central bank may have come to an end of its rate hike cycle. India’s 10Y yield also fell by 3bps, following global cues and easing oil prices. However, it is again trading higher at 7.39% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research , Market in US were closed on 9.10.23

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 fell by 6%, with concerns easing over Israel-Palestine conflict.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Investors wagered that US interest rates have peaked, this was supported by recent dovish commentary of Fed officials. Fed minutes also highlighted the same. It was noted there is heightened uncertainty around economic outlook and there are host of factors that could impact the inflation. Fed remains attentive towards any inflation risk. According to the CME Fed watch tool, rates are already at its peak, with only 9% chance of a hike seen in Nov’23 meet. Investors will closely monitor the release of US CPI data, given the PPI data came in higher than anticipated. On domestic front, India’s inflation and industrial growth is also awaited.

• Barring FTSE, other global indices ended higher. Investors monitored the cautious/dovish tone in Fed minutes which signalled that interest rates might be kept steady in the coming months. CPI data is expected to offer further Amidst strong cues, Sensex continued to advance for a second day in a row led by strong gains in auto and real estate stocks. It is trading higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Barring JPY and CNY (lower), other global currencies closed higher against the GBP gained the most. DXY ended flat, owing to dip in US treasury yields and more dovish stance of Fed officials. INR was up by 0.1%, supported by drop in oil prices and improvement in risk appetite. It is trading further higher today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Except China (higher), other global yields 10Y yields in UK and US fell sharply. Investors are now more confident of Fed’s end of rate hike cycle,

following the release of Fed’s minutes. India’s 10Y yield also fell by 4bps, as oil prices eased further. However, it is again trading higher at 7.35% 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 6th and 9th Oct 2023

• Oil prices fell by 2.1%, after Saudi Arabia reiterated its support to maintain undisrupted supply of oil.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US CPI came in higher than expected (0.4%in Sep’23 on MoM basis) led by acceleration in shelter cost (0.6% from 0.3%) and services (0.6% from 0.4%). This raises expectation that Fed will keep rates elevated for longer time. China’s inflation remained steady in Sep’23 (0.1% in Aug’23) against an expectation of 0.2%. On the other hand, producer price index remained in contraction (-2.5% from -3% in Aug’23). This raised concern of deflationary pressure in the economy. On domestic front, India’s inflation and industrial growth surprised positively. CPI moderated to 5% from 6.8% in Aug’23 with core softening to 4.6%. Food inflation eased to 6.6% (9.9% in Aug’23) and fuel inflation contracted to 0.1% (+4.3% in Aug’23). Industrial growth expanded to 10.3% due to base effect and strong growth in infra goods.

• Global indices ended mixed. Investors monitored US inflation data which came in higher than anticipated (0.4% against est; 0.3%) and ECB minutes which highlighted differences among members along with concerns on growth as well as upside risks to inflation. Sensex ended in red and was dragged down by losses in IT It is trading lower today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Global currencies closed lower against the dollar. EUR dropped the most. DXY firmed up after higher than expected inflation data raised the possibility of Fed keeping rates higher for longer. INR depreciated by 0.1% as oil prices inched It is trading higher today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Sovereign yields in US and Europe jumped sharply, following the release of hotter than expected US CPI US 10Y yield jumped 14bps. Probability of

one more rate hike by Fed has increased to 38% from 28% previously. On the other hand, India’s 10Y yield fell by 1bps, even as oil prices showed slight upward movement. However, it is trading higher today at 7.37%, 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 as of 6th and 9th Oct 2023

• Oil prices inched up by 2%, amidst stronger build up in US crude stock piles.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research