Economic Weekly Wrap
18 November 2024 - 22 November 2024

UK’s economy contracted by (-) 0.1% in Sep’24 on a monthly basis after increasing by 0.2% in Aug’24. This was led by sharp fall in manufacturing output; moderation in both construction and services growth. For Q3CY24, the economy rose by 0.1%, much lower than expected. The services sector which contributes to more than 50% of the economy, moderated down to 0.1% in Q3 (0.6% in Q2). In the US, advance monthly retail sales rose more than expected at 0.4% in Oct’24 (0.8% in Sep’24). Core sales eased down to 0.1% compared with 1.2% growth noted in Sep’24. US Fed in recent commentary hinted about slower pace of easing in the near term, with investors dialling back on rate cut expectation, with no cuts seen in Dec’24 meet.

Barring Nikkei and Hang Seng, other global indices ended lower. Investors monitored the political development in the US after the Presidential elections. Furthermore, concerns of slower pace of rate cuts weighed in on investors’ sentiments. Amongst other indices, Shanghai Comp, declined the most. Sensex too ended in red led by losses in oil & gas and power stocks. It is trading lower today, while other Asian indices are trading higher.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except EUR and JPY (stronger), other major currencies ended lower/flat. DXY was unchanged and hovered at its highest level since Nov’23, as Fed’s Dec’24 rate cut probability declined. GBP fell the most, tracking weaker than expected GDP growth for Q3. INR was flat amidst 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

Global yields closed mixed. 10Y yields in Germany, Japan and India inched up, while they fell/were flat elsewhere. US 10Y yield closed flat as Fed rate cut bets eased (strong retail sales data). Yields in Japan are tracking expectations of an early rate hike by BoJ. India’s 10Y yield rose, owing to elevated CPI print. It is trading at 6.85% 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: MF data as of 8th and 11th Nov 2024

Oil prices fell, dragged by concerns of oversupply and a stronger US$.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

As economic calendar remains tepid so far, market participants are monitoring statements of central bank officials and appointments made by Trump administration for future guidance. Recent comments by Fed officials have signalled that the central bank maybe less-dovish in its statement in Dec’24. ECB officials have highlighted that risks to Eurozone growth from US tariffs will be significant. It may also lead to higher inflation, and in turn elevated rates for longer. BoJ Governor also stated that given the prevailing geo-political uncertainties, the timing of rate hike remains unclear. Tensions between Russia and Ukraine have escalated, as Biden administration has allowed Ukraine to use US military equipment to attack Russia. This reversal in policy is set to intensify the war and has sent oil prices on an upward trajectory. Markets now await CPI data of US and Europe to gauge inflation trends.

Nikkei fell the most, buoyed by moderation in tech shares. A weaker Yen and muted macro data has weighed on sentiments. Hang Seng inched up followed by FTSE. Varied sentiments are playing ahead of incoming macro data and US President-elect selection of core officials, for policy cues. Sensex inched down led by oil & gas stocks. It is trading higher today, in line with other Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research| Note: Markets in India were closed on 15 Nov 2024

Except EUR and GBP (stronger), other major currencies ended lower/flat. DXY fell by (-) 0.4%. European currencies rose the most. Risks of inflation inching up have significantly increased as Trump administrations prepares to impose tariffs. INR was flat. However, tracking jump in oil prices, it is trading a tad weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda | Note: Markets in India were closed on 15 Nov 2024

US 10Y yield moderated with correction in US dollar. Some Fed officials are also scheduled to speak in the current week. UK’s 10Y yield moderated following weaker reading of house price data. Germany’s 10Y yield firmed up despite ECB Governing council member hinting at 25bps rate cut in its next meeting. India’s 10Y fell a tad. It is trading higher at 6.85% today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 15 Nov 2024

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 15 Nov 2024

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research | Note: Markets in India were closed on 15 Nov 2024

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research, Note: MF data as of 8th and 11th Nov 2024 | Note: Markets in India were closed on 15 Nov 2024

Oil prices jumped, due to escalating geo-political tensions and Sverdrup outage.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

In view of elevated mortgage rates in the US, single-family housing starts fell by 6.9% in Oct’24 to 970k units. 30-yr fixed mortgage rate in the US had jumped to 6.72% by the end of Oct’24 from 6.08% by the end of Sep’24. It is currently further higher at 6.78%. This reflects that markets are pricing in Fed’s policy rates to remain elevated for a longer period. Investors are currently bracing for new policies to be announced by the Trump administration. Tariffs on all imports is likely to impact both global growth and inflation. Separately in the UK, inflation in Oct’24 rose by 2.3% (est.: 2.2%) from 1.7% in Sep’24, primarily due to energy prices. Services inflation also remains higher at 5% (4.9% in Sep’24). In Asia, given the increase in geopolitical uncertainty and the headwinds faced by Indonesian Rupiah, Bank of Indonesia decided to keep the rates unchanged at 5.25% in Nov’24.

Barring FTSE and Nikkei, global indices closed higher. Investors are assessing range of factors from US President elect’s policy to Fed’s trajectory. A major chipmaker’s less than expected financial results also capped gains. Nikkei moderated as cautiousness prevailed ahead of stimulus measures. Shanghai Comp rose the most. Sensex is trading lower today in line with Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research| Note: Markets in India were closed on 20 Nov 2024

Major global currencies ended lower against the US$. DXY rose by 0.4%. Dollar strengthened as probability of a rate cut by Fed in Dec’24 continues to dwindle. EUR fell against the $ as investors second guess the impact of possible Trump tariffs on Europe. Indian markets were closed, however, INR is trading a tad weaker today, while other Asian currencies are trading higher.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda | Note: Markets in India were closed on 20 Nov 2024

Except China (tad lower), global yields firmed up as dollar continued to exhibit stickiness. UK’s 10Y yield firmed up the most supported by a stickier inflation reading. In US, varied comments from Fed officials kept yield range bound. India’s 10Y yield is trading at the same level today at 6.85%.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 20 Nov 2024

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research| Note: Markets in India were closed on 20 Nov 2024

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research | Note: Markets in India were closed on 20 Nov 2024

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research, Note: MF data as of 8th and 11th Nov 2024

Oil prices fell, as US crude oil inventory rose more than expected.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US labour market data shows that continuing claims (4-week moving average), a better indicator for gauging labour market conditions, rose by 5k to 1.88mn to reach its highest level since end-Nov’21. This slack in labour market has refuelled hopes of a rate cut by Fed in Dec’24. The cut is expected to be shallower as other indicators show relatively steady economic activity. Existing home sales rose by 3.4% (MoM) in Oct’24 to 3.96mn units (est.: 3.93mn). However, the renewed rise in mortgage rates is expected to dent this recovery going forward. In Asia-Pacific, flash PMI indices show that manufacturing contracted at a faster pace in Japan in Nov’24 (49 versus 49.4 in Oct’24), while it fell at a slower pace in Australia (49.4 versus 47.3). In contrast, while services activity rebounded in Japan, it fell to 10-month low in Australia. Investors are also monitoring Japan’s higher than expected CPI (2.3% in Oct’24 versus est.: 2.2%) and jump in Singapore’s Q3 GDP (5.4% versus 3% in Q2).

Global indices ended mixed. US indices rose, tracking jobs data and commentary by Fed officials. Amongst other indices, Nikkei dropped the most. Sensex too ended in the red and was dragged down by losses in oil & gas and power stocks. However, it is trading higher today in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research| Note: Markets in India were closed on 20 Nov 2024

Barring CNY (flat) and JPY (higher), other global currencies ended lower. DXY strengthened after investors turned their focus towards the impact of upcoming policies by President elect-Trump. For Yen, the focus will be on commentary by BoJ Governor. INR depreciated amidst the rise in oil prices. It is trading stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda | Note: Markets in India were closed on 20 Nov 2024

Global bond yields closed mixed. 10Y yield in US rose by 1bps, amidst mixed commentary from some Fed officials, and macro data release (labour market and home sales). UK’s bond market reacted to BoE’s Deputy Governor Ramsden expectation of inflation undershooting BoE’s target. India’s 10Y yield rose by 2bps, tracking rise in oil prices. It is trading even higher at 6.87% today

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 20 Nov 2024

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research| Note: Markets in India were closed on 20 Nov 2024

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research | Note: Markets in India were closed on 20 Nov 2024

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research, Note: MF data as of 8th and 11th Nov 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research