Economic Weekly Wrap
24 June 2024 - 28 June 2024

Flash PMI data of US showed that the economy is holding ground with services index expected to climb up to its 26-month high. Business confidence and employment scenario also improved. Investors are closely eyeing the PCE data, widely gauged by Fed, where some softening is anticipated (est.: 2.6%). Flash PMI readings of other economies such as Eurozone and UK showed some strain. Elsewhere, in Japan, yen continued to reel under pressure amidst officials’ comments to take appropriate steps, to control excessive foreign exchange movement. On domestic front, MPC members remained confident on growth and raising doubts on the pace of disinflation. Some members spoke of normalisation in policy. In a separate news, GST Council announced few measures for easing compliance.

Barring Dow Jones (flat), other global indices ended lower. S&P 500 closed in the red and was dragged down by losses in the technology sector. Amongst other indices, Hang Seng (1.7%) dropped the most followed by FTSE (0.4%). Sensex too ended lower amidst subdued global cues and selling pressure from oil & gas and FMCG stocks. It is trading lower today in line with Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except CNY (flat) and INR (higher), other global currencies ended lower against the dollar. The greenback strengthened (0.2%) and the focus now shifts towards upcoming PCE data. The yen continued to weaken further and remained under pressure. INR appreciated amidst the dip in oil prices. It is trading stronger today while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

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 14 June and 18 June 2024

Oil prices moderated weighed in by stronger dollar.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research, Note: Copper, Zinc and aluminium as of previous trading day

In a data light trading day, investors remained cautious. Political events are also at play. The first US Presidential debate is scheduled this week. The first round of voting in the French election is due. On economic front, summary of BoJ’s opinions suggested that central bank is eyeing for calibrated rate hike amidst anticipation of inflation overshooting its target level. Elsewhere, San Francisco Fed President expressed her reservations over early rate cuts before getting necessary comfort on the trajectory of inflation. Elsewhere, ECB official said that interest rates are unlikely to diverge with the US. On domestic front, India’s current account balance recorded a surplus of US$ 5.7 bn (0.6% of GDP) in Q4:FY24 as against a deficit of US$ 8.7 bn (1.0% of GDP), led by a lower trade deficit.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies closed higher against the dollar. DXY slid by 0.3% ahead of key inflation reading. EUR rose the most by 0.4% as focus shifted towards French Elections. JPY appreciated a tad but remained close to 160/$ mark, a level likely to be guarded by the BoJ. INR appreciated, following global cues. It is trading further stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

US 10Y yield showed some moderation ahead of PCE data. Absence of fresh data led 10Y yields of other economies to trade in a narrow range. India’s 10Y yield closed stable. All eyes this week will be on the frontloading of FPIs in debt. The FAR holdings of the benchmark security are at 4.43% which was at 3.73% a week before. India’s 10Y yield is trading at the same level today (6.97%).

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 19 June and 20 June 2024

Expectations of demand revival pushed global oil prices upwards.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Markets kept close eye tracking comments from several Fed officials, which gave conflicting signals. Chicago Fed President spoke of potential rate cuts amidst slowing consumer spending and improvement in labour market conditions. Fed Governor Lisa Cook said current policy being well positioned. Fed Governor Michelle Bowman on the other hand, flagged upside risks to inflation sustainably returning towards the 2% target, hence suggested a restrictive approach. Elsewhere, speculation reigned over BoJ’s intervention, to support yen. Similar speculation persisted over PBOC, where CNY weakened and traded close to its lower end of fixed daily trading band. On domestic front, external debt to GDP ratio fell to 18.7% in Mar’24 from 19% in Mar’23 and debt service ratio improved.

Global indices ended mixed Dow Jones closed lower as investors monitored subdued data print (consumer confidence moderated marginally) and awaited the crucial PCE report. FTSE slid as investors awaited the UK's GDP print and remained cautious ahead of the parliamentary elections. Sensex jumped by 0.9% to a record high, led by a strong rally in IT and banking stocks. It is trading lower today while other Asian indices are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies traded in thin ranges. DXY rose by 0.1% led by hawkish comments from Fed Governor Bowman. However, gains were limited by a moderation in the US consumer confidence index. Both EUR and JPY continued to decline further. INR appreciated, amidst improved external position. However, it is trading weaker today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields traded thinly US 10Y yield rose a tad tracking mixed comments from Fed officials. All eyes are on US PCE data where some softening is anticipated. UK 10Y yield closed stable. Germany’s 10Y yield softened a tad bit. India’s 10Y yield closed stable as reports suggested much of the frontloading by FPIs has already happened. It is trading at 6.99% 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 19 June and 20 June 2024

Oil prices eased amidst reports of a build-up in US crude oil inventories.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Markets monitored a slew of macro data releases. Commentaries from Fed officials kept dollar elevated. Firmer dollar impact yen which dropped to its lowest since 1986. Official of the region raised concerns about the Fx impact on the economy. Among major macro prints, US new home sales showed moderation (619K against est.: 633K, sequential drop: -11.3%). Germany’s GFK data showed waning consumer confidence. In UK, CBI retailing reported sales fell, signalling softer retail sales and likely impact on inflation, whereas in Japan, retail sales rose more than anticipated (1.7%, MoM, est.: 0.8%). In China, industrial profits slowed down hinting uneven recovery. In a separate news, World Bank’s report on remittances highlighted that India received US$ 120bn in 2023, growing at 7.5%, and is expected to increase further to US$ 124bn in 2024.

Except FTSE, other global indices ended higher. US stocks ended marginally higher as focus remained on US Presidential debate and PCE data. On the other hand, a higher-than-expected decline in UK’s retail sales weighed on FTSE which fell by 0.3%. Sensex rose by 0.8% led by gains in oil and gas and banking stocks. However, it is trading lower today in line with its Asian peers

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies depreciated against the dollar. DXY rose by 0.4%. JPY depreciated sharply to its weakest level since 1986, fuelling expectations of an intervention by the BoJ. INR too depreciated amidst higher oil prices and a stronger dollar. However, it is trading stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Except China (tad lower), global yields inched up. US 10Y yield has risen the most ahead of PCE data. In UK and Germany as well, 10Y yield firmed up. Comments of ECB policymaker of a gradual reduction in rates, also could not support yields. India’s 10Y yield inched up by 1bps. It is trading at 6.99% 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 20 June and 24 June 2024

Oil prices rose amidst escalation in tensions in Middle-East.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Slew of data releases were scheduled in the US. The third estimate of Q1GDP was marginally higher at 1.4%, QoQ (1.3%, earlier). However, personal consumption was a tad lower at 1.5% (previous estimate: 2%). Initial jobless claims moderated a bit, albeit continuing claims remained higher. Durable goods orders inched up, despite core orders softening. Elsewhere, Tokyo CPI data remained firm with core inflation inching up, signalling monetary policy normalisation. On domestic front, all eyes will be on India’s inclusion to the global bond index and its impact on FPI flows which is likely to happen in a calibrated manner. CY24 has already seen FPI debt inflows of US$ 8.2bn, which might steepen in the coming days. Favourable domestic conditions in terms of liquidity, well-tuned government borrowing program and favourable fiscal dynamics, all favour softening domestic yields.

Global indices ended higher. Stocks in US edged up as Q1 GDP was revised higher. Investors now await fresh cues on monetary policy from core PCE report due later today. Amongst other indices, Hang Seng dropped sharply by 2.1%. In India, Sensex rose by 0.7% to a fresh record high. Power and technology stocks gained the most. It is trading further higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies traded in thin ranges as focus remained on US core PCE report. DXY declined by 0.1% tracking mixed economic data. JPY strengthened a tad but remained above the 160/$ mark. INR appreciated by 0.1% amidst expectations of higher FPI inflows ahead of bond inclusion. It is trading further stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Global yields closed mixed. US 10Y yield moderated tracking comments from Atlanta Fed President who affirmed that deflation pace is ongoing. UK and Germany’s 10Y yield closed stable, in absence of fresh cues. India’s 10Y yield closed stable ahead of historic bond inclusion. 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 21 June and 25 June 2024

Oil prices inched up further amidst geo-political tensions in the Middle-East.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research