Economic Weekly Wrap
20 November 2023 - 24 November 2023

Investors across the globe brace for the likelihood of the US interest rates peaking. It was stated by official Mary Daly that Fed needs to be ‘patient and resolute’ and ‘additional firming is not off the table’. Another Fed official, Austan Goolsbee added that he remains confident of the Fed meeting its inflation target as he expects easing of housing price pressure. A lot more clarity on economic and interest rate projections will be seen in the next policy meet. Separately, both building permits and housing starts data rose more than expected on a MoM basis to 1.1% and 1.9% respectively in Oct’23. On the other hand, homebuilder confidence dropped in Nov’23, though early signs of mortgage rate lowering may improve its outlook. In UK, retail sales weakened and slid by 0.3% in Oct’23 (MoM basis) far lower than expected and ex-petrol, the sales volume were down by 0.1%.

Global stocks ended mixed. Investors monitored commentary by Fed officials and awaited clear guidance on interest rate expectation. European indices ended in green supported by easing of price pressure. India, Sensex ended in red led by losses in banking and oil & gas stocks. It is trading lower today, while other Asian stocks are trading higher.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

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 fund data as of 8 and 9 Nov 2023

Oil prices inched up owing to revival in supply side concerns (sanctions on Iran).

Fig 7 – Commodities

Moving in line with market expectations, PBoC has kept its benchmark rates unchanged with 1-year LPR pegged at 3.45% (usually for new and outstanding loans) and 5-year at 4.2% (for mortgage pricing). Separately, Thailand’s GDP expanded at a much slower pace in Q3CY23 by 1.5% (1.8% in Q2) on account of slowdown in exports. Investors will closely monitor the OPEC+ meet scheduled this week with the expectation of output cuts proposed to support crude prices. Commentary by Fed officials will also be seen closely given the recent cooler than expected inflation print in US and raised hopes of a pause in the rate hike cycle by Fed.

Global indices ended mixed. US indices closed higher supported by strong gains in technology, consumer services and telecom. Latest developments in the AI industry was also tracked closely by investors. Nikkei touched its highest level since Jul-1990 during the day and closed in green, supported by earnings season. Sensex ended in red led by losses in auto and capital good stocks. However, it is trading higher today, in line with other Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR, other global currencies ended higher. DXY fell by 0.5% to more than 2-month low, as weaker than expected US conference board economic index data reaffirms the view that economy is slowing, and Fed has reached the end of its rate hike cycle. JPY and CNY gained the most. INR fell as oil prices rose. However, it is trading higher today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Barring US and Japan (lower), other global yields closed higher. US 10Y yield declined by 2bps, following strong demand in the Fed auction of treasury securities. Investors also await minutes of last Fed meeting, for more cues on trajectory of rate cuts. India’s 10Y yield was up by 4bps to 7.26%, as oil prices inched up again. However, it is trading lower today at 7.24%.

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 fund data as of 10 and 13 Nov 2023

 Oil prices inched up by 2.1% as it is anticipated that OPEC+ members will increase supply cuts to support prices.

Fig 7 – Commodities

Fed minutes highlighted the need to move ‘carefully’ and the need for policy to remain ‘restrictive’ in order to achieve the committee’s 2% inflation objective. Thereby signalling the continuance of higher for longer narrative. Separately, Japan government downgraded the assessment of economy sighting weaker domestic demand and noted its ‘pausing in parts’. On the other hand, Singapore’s economy rose at a much faster pace than anticipated at 1.1% in Q3CY23 from 0.5% in Q2.Given this data, the trade ministry has revised growth projection for CY23 to ‘around’ 1% (earlier 0.5-1.5%).

Barring Shanghai Comp (flat) and Sensex (higher), other global indices ended lower as investors’ monitored Fed minutes. US indices snapped its winning streak and closed in red on the back of the disappointing home sales data. However, Sensex ended in green led by a rally in consumer durable and real estate stocks. It is trading higher today, while other Asian indices are trading mixed

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY rose by 0.1%-continuing to hover near 2.5 month low, as Fed is expected to have reached the peak of its rate hike cycle. JPY ended flat, as investors seek more guidance from BoJ amidst reports of possible withdrawal from ultra-loose monetary policy stance. INR ended flat, but is trading higher today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Barring India and China (higher), other global yields closed lower. 10Y yields in Germany, Japan and US fell the most, as investors reviewed minutes of Fed’s last meeting. Slump in housing sales also raised concerns over slowdown in economy. India’s 10Y yield increased a tad to 7.27%, as oil remain higher. However, it is trading lower today at 7.26%

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

Oil prices inched up by 0.2% as investors remained cautious ahead of the OPEC+ meet.

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research, Mutual fund data as of 16 and 17 Nov 2023

Oil prices inched up by 0.2% as investors remained cautious ahead of the OPEC+ meet.

Fig 7 – Commodities

A spate of economic data across US suggested that the economy is moderating but it remains strong enough to avoid recession. US durable goods order declined more than anticipated by 5.4% in Oct’23 (+4.6% in Sep’23). Additionally, US consumer sentiment weakened in Nov’23 to 61.3 (63.8 in Oct’23) as concerns of higher inflation re-emerged. On the other hand, initial jobless claims for the week ending Nov 18, fell more than expected, down to 209k (expectation: 226k) suggesting strong labor market. This came at the backdrop of the recently released Fed minutes which signalled a ‘cautious’ approach. Separately, Australia’s business activity contracted at it fastest pace down to 46.4 in Nov’23 (47.6 in Oct’23) with both manufacturing and services dipping down to 47.7 and 46.3 levels respectively.

Global indices ended mixed. US indices rebounded as investors monitored recent data releases. FTSE slipped for the 3rd straight session led by fall in energy stocks amidst a drop in oil prices. Sensex ended in green led by gains in power and auto stocks. It is trading higher today, while other Asian indices are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR, other global currencies depreciated against the dollar. DXY rose by 0.3% as US jobless claims fell more than expected, suggesting continued tightness in the labour market. JPY depreciated the most by 0.8%. EUR too fell by 0.2% as ECB officials hinted that policy rates may have peaked. INR pulled back marginally from a record-low as oil prices eased. It is trading further stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Barring Germany and India (lower), other global yields closed higher. 10Y yield in UK rose by 5bps, after the government announced a smaller than expected cut to its borrowing program. US 10Y yield rose by 1bps tracking macro data. 10Y yields in Japan and China rose by 2bps each. India’s 10Y yield fell by3bps tracking a dip in oil prices. However, it is trading a tad higher at 7.26% 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, Mutual fund data as of 17 and 20 Nov 2023

Oil prices slipped down by 0.6% amidst a postponement of OPEC+ meet.

Fig 7 – Commodities

Eurozone composite PMI inched up to 47.1 in Nov’23 from 3-year low of 46.5 in Oct’23, but remained in the contraction zone. As the downturn in business activity remains broad-based, the fear of recession has resurfaced in the current quarter. Furthermore, the recently released ECB minutes highlighted that inflation has been moderating in line with expectation and the members noted the possibility of interest rate hike, which remains on table. Separately, Japan’s headline inflation accelerated to 3.3% in Oct’23 (3% in Sep’23) and even the core inflation inched up to 2.9% in Oct’23. Additionally, factory activity contracted for the 6th straight month down to 48.1 in Nov’23 (48.7 in Oct’23) amidst weaker demand.

Global indices ended higher. Investors awaited more guidance on US interest rate movement. FTSE inched up with gains in energy stocks and comes in the wake of the interim budget along with measures announced by the government to support growth. Sensex ended flat. However, it is trading flat today, while other Asian indices are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research, Note: US and Japan’s market were closed on 24.11.23

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research, Note: US and Japan’s market were closed on 24.11.23

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research Note: US and Japan’s market were closed on 24.11.23

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research Note: US and Japan’s market were closed on 24.11.23

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research, Mutual fund data as of 20 and 21 Nov 2023

Oil prices fell by 0.7%, as OPEC+ members postponed their meet and are now likely to announce smaller than anticipated production cuts.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research