Economic Weekly Wrap
13 January 2025 - 17 January 2025

Labour market in the US ended CY24 on solid ground, with non-farm employment rising by 256k in Dec’24. It was much higher than estimated 160k increase and also up from 212k in Nov’24. Unemployment rate also eased to 4.1% from 4.2% in Nov’24. Average hourly wage growth was up by 0.3% following 0.4% increase in Nov’24. University of Michigan consumer sentiment index fell in Jan’25 (73.2 versus 74 in Dec’24), led by decline in expectations index. Notably, year-ahead inflation expectations soared to 3.3% from 2.8% expected earlier. As a result, bond yields and US$ firmed up. Markets are now expecting one rate cut in CY25. However, if President-elect Trump announces inflationary policies, then that window might also close. In India, IIP growth rose by 5.2% in Nov’24 versus 3.7% in Oct’24. Manufacturing sector expanded by 5.8%. Mining and electricity output also rose.

Global indices ended lower. Investors will closely monitor upcoming CPI data and the impact of the policies that maybe announced by president-elect Trump. Amongst other indices, Hang Seng dropped the most. Sensex too ended in red, with sharp losses noted in power and real estate stocks. It is trading lower today, in line with other Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in US were closed on 09 Jan 2025

Barring JPY (higher) and CNY (flat), other global currencies ended lower. The greenback firmed by 0.4%, supported by strong US jobs report. GBP remained under pressure (lowest since Nov’23) with concerns around fiscal outlook. INR depreciated amidst higher oil prices. It is trading weaker today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Markets in US were closed on 09 Jan 2025

Global 10Y yields inched up. US 10Y rose sharply by 7bps, as labour market (non-farm payroll) and inflation expectation data reaffirmed the case of Fed holding rates for longer in CY25. In UK, worries around government’s borrowing program still remain. India’s 10Y yield also rose by 1bps, and is trading much higher today at 6.82%, tracking global cues and higher oil prices.

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

Note: Markets in US were closed on 09 Jan 2025

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 7 and 8 Jan 2025

Oil prices jumped, following news of possible sanctions on Russia and Iran.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Amidst US President-elect Trump’s tariff policy uncertainty, China’s exports have hit record high, as they rose by 10.7% (est.: 7.3%) in Dec’24, up from 6.7% in Nov’24. This was mainly on account of front-loading of orders by importers before tariffs are announced, and weaker Yuan. Imports also rose by 1% (highest growth since Jul’24) versus est.: (-) 1.5% decline, as China took advantage of lower commodity prices (copper, iron ore). However, this momentum is unlikely to sustain if steep tariffs are announced on Chinese products. Not only US has threatened China with tariffs, but Eurozone has also raised tariffs on Chinese vehicles to 45.3%. Markets now await remarks by various Fed officials this week, along other data sets such as, US CPI, UK GDP, ECB minutes, China’s retail sales/industrial production/FAI/GDP data. This will decide their respective central bank’s rate cut trajectory in the near-term.

Barring US indices, other global indices ended lower. Investors monitored elevated global yields and firmer US dollar. Investors have also scaled back expectation of rate cut by US Fed in CY25. Sensex dropped by more than 1000 points due to subdued global cues with sharp losses in real estate and power stocks. However, it is trading higher today, in line with other Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in Japan were closed on 13 Jan 2025

Global currencies ended mixed. Dollar index climbed up to a 2-year high amidst solid jobs report and ahead of the key CPI print. INR depreciated to a record low breaching the 86/$ mark amidst stronger greenback and higher oil prices. It is trading stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Markets in Japan were closed on 13 Jan 2025

Major global 10Y yields inched up. US10Y yield was up by 2bps, as investors are now pricing in even fewer rate cuts by Fed this year. In UK, investors are reassessing economy’s growth prospects, higher government borrowings. India’s 10Y yield rose sharply by 8bps, tracking steep rise in oil prices. However, today it is trading a tad lower at 6.84%.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in Japan were closed on 13 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

Note: Mutual Fund data as of 8 and 9 Jan 2025

Oil prices surpassed US$ 80/bbl mark, as supply concerns (Iran, Russia) linger.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Both BoJ and US Fed are scheduled to announce their respective policy decisions later this month. It is almost certain (~97% chance as CME Fed WatchTool) that Fed will keep rates on hold, even as US PPI has come in lower (0.2% in Dec’24 versus 0.4% in Nov’24) than expected (0.3%). This is most likely due to seasonal effects. In case of BoJ, some analysts are expecting rates to be on hold, while others are expecting a rate hike, as the central bank presents its new inflationary forecasts, and takes into account developments post President-elect Trump’s swearing in. Japan recently posted a current account surplus of 3.35tn Yen in Nov’24, supported by goods trade surplus of 97.9bn Yen (683.3bn Yen deficit in Nov’23), driven by weaker currency. India’s WPI growth shows price pressures going up, given sticky food inflation and slower deceleration in fuel and manufactured product inflation.

Barring FTSE and Nikkei, other global indices ended higher. US indices closed in green after softer than expected PPI and awaited the earnings report. Both Hang Seng and Shanghai Comp advanced amidst news report of US tariff relief talks. Sensex rebounded supported by a rally in global stocks, easing inflation and strong IIP data. It is trading higher today in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in Japan were closed on 13 Jan 2025

Global currencies ended mixed. Dollar index retreated from a 2-year high given the news of gradual tariff imposition by US and ahead of CPI data. INR remained under pressure as it depreciated further (steepest fall in over 2-years) given FPI outflows. However, it is trading stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Markets in Japan were closed on 13 Jan 2025

Global 10Y yields closed mixed. US10Y yield rose a tad by 1bps, even after muted PPI print. Japan’s 10Y yield rose by 4bps, to reach its highest since Apr’11. At the longer-end (40Y), the rise was even steeper. BoJ is expected to hike rates in the coming months. India’s 10Y yield fell by 3bps, tracking decline in oil prices. It is trading further lower today at 6.81%.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in Japan were closed on 13 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

Note: Mutual Fund data as of 9 and 10 Jan 2025

Oil prices fell, as US EIA expects steady demand and rise in output in CY25.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

UK and US CPI prints for Dec’24 have provided much need relief to the bond markets. US retail inflation rose by 2.9% (in line with estimates) in Dec’24, from 2.7% in Nov’24. Core CPI eased to 3.2% from 3.3% earlier. The upside pressure was on account of energy and food prices. Services inflation was stable. Thus, investors have brought forward their expectation of rate cut by Fed from Sep’25 to Jun’25. In the UK, CPI eased to 2.5% in Dec’24 (est.: 2.6%) from 2.6% in Nov’24. Notably, services inflation softened to 4.4% from 5%, raising hopes of a 25bps rate cut by BoE in Feb’25. The central bank is expected to lower rates 4 times this year. In India, exports fell by (-) 1% in Dec’24, recording slower pace of contraction from last month, and imports rose by 4.9% (lower than last month), leading to narrowing of trade deficit to US$ 21.9bn.

Barring Shanghai Comp and Nikkei, other global indices ended higher. US indices rose, led by softer than expected core inflation. FTSE too rallied as inflation cooled off in UK, pushing the rate cut expectation further. Sensex rose by 0.3% tracking global markets with strong gains noted in power 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

Except CNY (flat) and EUR (lower), other global currencies ended higher. Dollar index weakened by 0.2% after cooler than expected inflation print. Yen strengthened amidst hawkish commentary by BoJ Governor. INR recovered given the weakness in dollar. However, it is trading weaker today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except Japan (higher), other global yields declined. US and UK 10Y yields fell most sharply, supported by positive inflation news. Investors now expect a Fed rate cut in Jun’25 versus Sep’25 earlier. BoE is expected to cut 4 times in CY25, to support growth. India’s 10Y yield fell by 1bps and is trading even lower today at 6.78%, tracking 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 9 and 10 Jan 2025

Oil prices jumped, supported by sharp decline in US crude inventories.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Following softening core inflation in Dec’24 in the US, now labour market data is pointing towards a weaker momentum. Initial jobless claims for the week ending 11 Jan rose by 14k from last week to 217k. However, in the beige book released by Fed, the central bank has cautioned that labour market is showing an uptick as layoffs are rare, and inflationary pressures remain. Markets are thus pricing in 2 rate cuts in CY25. In the UK, GDP rose by 0.1% (est.: 0.2%) in Nov’24, following (-) 0.1% decline in Oct’24. However, stagflation concerns continue to persist. In China, Q4 GDP sprinted towards 5.4% growth (est.: 5%), up from 4.6% in Q3, helped by government’s stimulus measures. CY24 GDP rose by 5%, meeting the official target. Retail sales also surpassed (3.7% in Dec’24) expectations (3.5%). FAI in CY24 rose by 3.2% (est.: 3.3%), dragged by (-) 10.6% decline in real estate investment.

Except US stocks, global indices ended higher. Better than expected corporate earnings in Q4 boosted sentiments. Hang Seng rose the most, amidst expectation of revival of growth in China. US stocks were impacted on account of realigning of expectation surrounding next Fed rate cut. Sensex inched up. However, it is trading lower today while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except US stocks, global indices ended higher. Better than expected corporate earnings in Q4 boosted sentiments. Hang Seng rose the most, amidst expectation of revival of growth in China. US stocks were impacted on account of realigning of expectation surrounding next Fed rate cut. Sensex inched up. However, it is trading lower today while Asian stocks are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields broadly closed lower. UK and Japan’s 10Y yield fell the most. For the former, softening growth numbers came into play and for the latter, interest rate differential with the US was the primary factor. Even US 10Y yield fell tracking dovish comments of Fed official. India’s 10Y yield fell sharply amidst RBI’s announcement of daily VRR. It is trading at the same level 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 10 and 13 Jan 2025

Oil prices slipped, following the news of Israel-Gaza ceasefire deal.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research