Economic Weekly Wrap
23 December 2024 - 27 December 2024

US core PCE index rose at a softer pace of 0.1% in Nov’24 after advancing by 0.3% last month (MoM), providing further cues of moderating price pressures. Consumer spending however remained robust, increasing by 0.4% vs. 0.3% in Oct’24. The data reinforced Fed’s assertion of economic resilience and slowing price pressures and thus vindicates the case for fewer rate cuts. Separately, the US Senate passed the government spending bill in a last-minute deal, averting a possible shutdown. In Japan, the government issued fresh salvo to defend the currency, stating that it stands ready to curb speculative moves. In India, RBI’s minutes highlighted the need for growth inflation balance. A durable moderation in inflation would give the MPC the needed comfort to move on rates. Global markets are likely to trade in narrow ranges this week, amidst lower trading due to year-end holidays.

US core PCE index rose at a softer pace of 0.1% in Nov’24 after advancing by 0.3% last month (MoM), providing further cues of moderating price pressures. Consumer spending however remained robust, increasing by 0.4% vs. 0.3% in Oct’24. The data reinforced Fed’s assertion of economic resilience and slowing price pressures and thus vindicates the case for fewer rate cuts. Separately, the US Senate passed the government spending bill in a last-minute deal, averting a possible shutdown. In Japan, the government issued fresh salvo to defend the currency, stating that it stands ready to curb speculative moves. In India, RBI’s minutes highlighted the need for growth inflation balance. A durable moderation in inflation would give the MPC the needed comfort to move on rates. Global markets are likely to trade in narrow ranges this week, amidst lower trading due to year-end holidays.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended broadly stronger against the dollar. DXY eased from a ~2-year high, as investors assessed the PCE report and developments surrounding the government spending bill. JPY rose the most by 0.7%. INR recovered from its record low and appreciated by 0.1%. However, it is trading weaker today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed lower. Softer core PCE data in the US released last week continued to build up hopes of momentum in monetary stimulus from the Fed. 10Y yield in UK fell at the sharpest pace by 7bps as retail sales prior to holiday month softened. India’s 10Y yield closed flat. It is trading lower at 6.77% 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 funds data as of 17 Dec and 18 Dec 2024

Oil prices inched up amidst expectations of revival of demand from China

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US core capital goods orders, a proxy for business investment plans, rebounded strongly in Nov’24 and increased by 0.7%. This followed a 0.1% decline in Oct’24. New home sales also increased by 5.9% in Nov’24, after declining by 14.8% in Oct’24. However, Conference Board’s consumer confidence index plunged to 104.7 in Dec’24 (est. 113.2) from 112.8 last month. In UK, GDP growth estimate for Q3 CY24 was revised to 0% from 0.1% estimated earlier. Even for Q2 CY24, growth estimate was revised to 0.4% from 0.5%, suggesting continued weakness in the economy. Minutes of BoJ’s Oct’24 policy reflected that while the members remained positive on domestic economic conditions, they flagged risks to the outlook from external factors. In India, domestic liquidity remained tight due to advance tax payments, even as the RBI conducted VRR auctions to manage liquidity situation.

Barring China, global indices ended higher. Nikkei rose the most amidst ongoing speculation over movement in JPY ahead of BoJ Governor’s speech. Hang Seng and S&P 500 firmed up buoyed by a rally in technology stocks. Sensex was supported by gains in real estate and banking stocks. It is however, trading higher today, while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except China and India, global yields closed higher. Portfolio realignment in favour of equity seems likely amidst an interplay of macro and political factors. This ranges from speculation of a stricter tariff regime to ongoing macro dynamics of growth and inflation. US 10Y yield rose the most. India’s 10Y yield fell a tad and is trading higher at 6.78% 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

Oil prices ended marginally weaker on demand concerns amidst higher supply.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Movement in global markets remained muted due to thin holiday trading. Investors look forward to rate trajectory of major central banks, amidst increased threat of US tariffs. This coupled with expectations of fewer rate cuts by the Fed are likely to weigh on market sentiments. In Japan, bets a rate hike increased as inflation in the services sector rose to 3% in Nov’24 from 2.9% in Oct’24. This comes on heels of comments from BoJ Governor, who stated that inflation is likely to fall sustainably to BoJ’s target in 2025. In India, RBI’s bulletin noted that high frequency indicators signal a pickup in economic activity in Q3 FY25. This is on the back of festive and rural demand. Further, improved agricultural prospects due to robust rabi sowing and a pickup in government expenditure also bode well for the growth outlook. Thus, RBI projects GDP growth to recover to 6.8% in Q3 and 6.5% in Q4. For FY26, RBI estimates growth at 6.7% and inflation at 3.8%

Barring Japan, global indices ended higher. Seasonal factors surrounding Santa Claus rally contributed to the rise in stocks. Shanghai Comp rose the most supported by China’s stimulus measures such as flexibility in investing proceeds of government bonds by local government. Sensex moderated led by metal stocks. It is however, trading higher today, in line with Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Global markets were closed on 25 Dec 2024

Global currencies traded in narrow ranges as market trading remained thin due to the holiday season. EUR and INR depreciated by 0.1% each. Dollar demand from importers weighed on INR which slipped to a fresh record low. It is trading further weaker today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Global markets were closed on 25 Dec 2024

Global yields traded in a narrow range amidst the ongoing holiday season. UK’s 10Y yield rose as macros yielded mixed signals over the shape of the economy. China’s 10Y yield firmed up awaiting its monetary policy decision. India’s 10Y yield closed stable and is trading at the same level today. However, continued tightness in system liquidity will be closely watched in the coming days.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Global markets were closed on 25 Dec 2024

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research

Note: Global markets were closed on 25 Dec 2024

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Note: Markets in India were closed on 25 Dec 2024

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Funds data as of 19 Dec and 20 Dec 2024

Oil prices ended higher amidst a stronger dollar.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Note: Global markets were closed on 25 Dec 2024

US jobless claims fell by 1,000 to 224,000 in the week ended 14 Dec 2024. However, continuing claims rose to 1.9mn-the highest level in 3 years. In Japan, Industrial production declined by 2.3% (MoM) after increasing 2.8% in Oct’24, due to weak exports. On the other hand, core CPI inflation in Tokyo, rose to 2.4% in Dec’24 compared with 2.2% in Nov’24 bolstering the case for a rate hike. Minutes of BoJ’s Dec’24 meeting suggested that the central bank awaits more clarity on wage negotiations and US tariffs before hiking rates. Separately, industrial profits in China declined at a softer pace of 7.3% in Nov’24 vs 10% in Oct’24. India’s growth is likely to pick up in H2 FY25, with GDP growth expected at 6.5% in FY25 as per Ministry of Finance’s monthly review. RBI data showed a further improvement in SCBs’ asset quality with both GNPA and NNPA ratio moderating to 2.5% and 0.57% respectively in Sep’24 from 2.7% and 0.62% in Mar’24.

Global indices broadly ended higher. A rise in continued jobless claims print has raised expectations of more monetary stimulus from Fed, which would be conducive for stocks. Nikkei rose the most supported by a weak currency amidst no clear signals from BoJ Governor on future policy action. Sensex closed stable and is trading higher today while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Global markets were closed on 25 Dec 2024

Global currencies ended mixed. DXY was marginally weaker tracking a pickup in continuing jobless claims. JPY depreciated to its weakest since Jul’24 amidst uncertainty over timing of BoJ’s rate hike. INR depreciated to another low and is trading further weaker today. Other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Global markets were closed on 25 Dec 2024

Global yields closed mixed. UK’s 10Y yield continued to rise as mixed macro data has raised doubts surrounding the trajectory of policy rate. Weakness in yen has led to a rise in Japan’s 10Y yield. US 10Y yield edged down monitoring jobless claims data. India’s 10Y yield rose a tad and is trading at 6.77% today ahead of auction results.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Global markets were closed on 25 Dec 2024

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research

Note: Global markets were closed on 25 Dec 2024

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Funds data as of 19 Dec and 20 Dec 2024

Oil prices ended weaker as markets await more clarity on China’s stimulus.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research