Economic Weekly Wrap
23 September 2024 - 27 September 2024

Global Central Banks sprung in to action after Fed kick-started the monetary easing cycle after a span of 4-years by aggressively reducing rates by 50bps and bringing the benchmark rate to 4.75-5%. ECB had also delivered 25bps rate cut, a second reduction this year. According to the CME Fed watch tool there is a likelihood of 25bps cut in Nov’24. On the other hand, BoE, BoJ and PBoC maintained status quo. In the coming week, investors will turn their focus towards key data prints from US including consumer confidence, PCE index and report on manufacturing. On the domestic front, RBI’s bulletin noted the food price volatility continues to remain a contingent risk. It also noted the household consumption is expected to grow at a faster pace in Q2 amidst revival in rural demand and easing of headline inflation.

Global markets ended mixed as investors continue to monitor the slew of decisions by global Central Banks. FTSE closed lower despite better than expected retail sales data. Sensex rose further by 1.6%, led by strong gains in real estate and capital goods stocks. It is trading further higher today, in line with other Asian markets.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Major global currencies ended mixed. JPY fell the most, while GBP and CNY gained and EUR ended flat. DXY was also unchanged. Yen depreciated as BoJ signalled that it was in no hurry to hike rates. GBP was supported by higher yields. INR rose by 0.1%, as oil prices eased. It is trading much stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Except yields in Asia (flat), 10Y yields elsewhere inched up. US 10Y yield rose the most, by 3bps. Lesser likelihood of a recession in the US (decline in jobless claims) fuelled the rally. BoE’s cautionary tone also impacted sentiments in the UK. India’s 10Y yield ended flat, even as oil prices fell. It is trading flat even 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: Data for Mutual Funds as of 17th and 18th Sep 2024

Oil prices fell, as concerns regarding muted demand from China remain.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

In a surprise move, PBoC announced a slew of measures, including cutting down of the short term 7-day reverse repo rate to 1.5% (from 1.7%) and lowering down the reserve requirement ratio (RRR) by 0.5%. This is expected to add liquidity of around US$140bn in the market. These measures have been announced with the objective to spur economic growth. In US, next non-farm payrolls report might offer more guidance in terms of assessing Feds’ rate cut expectations, with investors pricing in at least a 25bps cut in Nov’24. Eurozone business activity slipped in to contraction (48.9 from 51.2) owing to lower new orders and falling confidence. This in turn raised risk of hard landing. The focus will shift towards upcoming RBA’s decision and BoJ’s Governor speech scheduled later today.

Barring Hang Seng, other global markets ended higher. US indices climbed higher amidst dovish commentary by Fed policymakers and steady business activity (Flash composite PMI: 54.4 in Sep from 54.6 in Aug). Sensex ended in green, supported by a rally in oil & gas and real estate stocks. It is trading lower today, while other Asian indices are trading higher.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Except GBP and INR, other major global currencies fell against the US$. DXY was up by 0.1%, as investors turned cautious tracking tensions in the Middle East and signs of price build-up in PMI survey data. EUR fell by 0.5% as PMIs indicate worsening economic situation. INR ended flat, even as oil prices eased. It is trading lower today, while other Asian currencies are trading higher.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Global yields closed mixed. Both US and UK 10Y yield inched up, while it fell in Germany. US 10Y yield was impacted by PMI data showing signs of build-up in price pressures. Continued weakness in Eurozone (PMIs) is pointing towards need for more rate cuts by ECB to support growth. India’s 10Y yield rose by 1bps, and is trading at similar levels 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: Data for Mutual Funds as of 18th and 19th Sep 2024

Oil prices rose amidst escalating geopolitical tensions in the Middle East.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Policy announcement by PBoC was amongst the biggest stimulus measures since the pandemic and included more rate cuts along with funding packages. These measures by China fuelled global rally. Separately, US consumer confidence declined to 98.7 in Sep’24 (largest dip since Aug’21) from 105.6 in Aug’24. According to the CME Fed watch tool, the probability of 50bps rate cut in Nov’24 jumped to 60.4% (53% earlier). RBA in its latest policy meet has kept the rates on hold (at 4.35%) and maintained hawkish stance amidst higher inflation and uncertainty on economic outlook. On domestic front, Moody’s has revised India’s growth forecast from 6.8% (earlier 7.1%) in CY24 amidst expectation that growth in APAC region will outpace global economy.

Barring Sensex, other global markets ended higher. The announcement of stimulus measures by China boosted global sentiments. US indices continued the uptrend despite lower than expected consumer confidence data (98.7 from 105.6).Amongst other indices, Shanghai Comp rose the most followed by Hang Seng. Sensex ended flat. However, it is trading lower today while other Asian indices are trading higher.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Except INR (lower), other major global currencies rose against the US$. DXY fell by (-) 0.4%, tracking a decline in treasury yields. EUR and GBP appreciated the most. GBP rose to the highest levels since Mar’22, as BoE is expected to cut rates less aggressively than the Fed. INR depreciated as oil prices rose. However, it is trading sharply higher today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Except UK and China (higher), other global yields inched down. Japan’s 10Y yield fell the most, followed by US. Sharp decline in US consumer confidence impacted yields. In case of Japan, analysts expect delay in rate hike, as BoJ continues to signal a dovish stance. India’s 10Y yield also fell by 1bps. It is trading even lower today, at 6.75%, 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: Data for Mutual Funds as of 19th and 20th Sep 2024

Oil prices rose, led by China’s stimulus announcement.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

OECD in its economic outlook report for Sep’24 noted that global growth is likely to stabilize with a forecast of 3.2% in CY24 and CY25. It noted the headline inflation will decline in most countries led by lower prices of food, energy and goods. Following other Central Bank, Swiss Central Bank also reduced interest rates by 25bps to 3.25% with a dovish hint of 2 more rate cuts. The focus will shift towards the upcoming speech by Fed Chair which will offer guidance on rate outlook along with key data releases US GDP, PCE and jobless claims data. On domestic front, the ministry of agriculture released the final estimates of foodgrain production for 2023-24 indicating higher wheat and rice production. ADB has retained its India’s growth forecast for FY25 and FY26 at 7% and 7.2% from Apr’24.It was stated the economy is expected to grow at a steady pace despite geopolitical challenges.

Global indices ended mixed. US markets retreated from a recent record high as investors turned their attention towards upcoming key data releases. Hang Seng and Shanghai Comp continued to advance amidst announcement of economic stimulus measures. Sensex ended in green led by strong gains in power and real estate stocks. It is trading higher today in line with other Asian indices.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Global yields closed mixed. Asian bond yields closed lower/flat, while they inched up in US/Europe. US 10Y yield rose the most, followed by UK. Investors turned cautious as they await release of labour market (jobless claims) and price (PCE index) data. India’s 10Y yield fell by 2bps to reach its lowest level since Feb’22. It is trading even lower today, at 6.73%, tracking dip in oil prices.

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: Data for Mutual Funds as of 20th and 23rd Sep 2024

Oil prices fell as concerns regarding supply disruptions in Libya eased.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Upbeat data from the US reaffirmed resilience in the world’s largest economy. The weekly jobless claims dropped down more than anticipated to a 4-month low to 218k signalling strength in the labour market. US GDP growth rose by 3% (final estimate) in Q2 from 1.6% in Q1CY24. Additionally, a report highlighted about robust corporate profits (3.6% in Q2 against -1.7% in Q1 on QoQ basis). Against this backdrop, the expectations of 50bps rate cuts by Fed has been tempered down. In China, PBoC began the rate cut measures and authorities noted that more stimulus measures can be applied if needed in order to spur growth. Moreover, owing to unfavourable base, China’s industrial profits declined to 17.8% in Aug’24 after increasing by 4.1% in Jul’24. Separately, Tokyo’s headline inflation moderated down to 2.2% (2.6% in Aug’24) with core inflation easing further to 2% (2.4% inAug’24)

 Global indices ended higher. US markets rebounded and closed at a record high, supported by strong economic releases. Amongst other indices, Hang Seng and Shanghai Comp advanced the most after the stimulus package was rolled out. Sensex notched up further led by strong rally in metal and auto stocks. It is trading higher today in line with other Asian indices.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Except India, other global yields inched up. US 10Y yield rose a tad by 1bps, tracking macro data (GDP data and better than expected jobless claims and durable goods orders). China’s 10Y yield rose the most, and is trading even higher today, despite PBOC’s 50bps RRR cut. India’s 10Y yield fell by 2bps (lowest since Feb’22). However, it is trading higher today, at 6.73%.

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: Data for Mutual Funds as of 23rd and 24th Sep 2024

 Oil prices fell, following news that Saudi Arabia is planning to increase output.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research