Economic Weekly Wrap
25 November 2024 - 29 November 2024

Flash PMIs signalled a sharp deterioration in economic activity in both the Eurozone and UK, even as US economy continued to power ahead led by the buoyant services sector. Flash composite PMI for Eurozone and UK dipped to a 10-month and 13-month low respectively in Oct’24, falling below the 50-mark. Additionally, retail sales in the UK declined more than expected by 0.7% in Oct’24 versus an estimated 0.3% drop, providing further signs of economic stress in the country. In Japan, the flash PMI signalled a marginal uptick led by a pickup in services sector. Separately, the government also announced a ¥ 21.9tn stimulus package to support growth. In India, flash composite PMI rose to 59.5 in Oct’24 from 59.1 in Sep’24, led by sustained demand in the service sector.

Global indices ended mixed. Investors remained cautious ahead of slew of macro releases in US, Eurozone and Japan. ECB and BoE officials are also due to speak along with the release of US Fed minutes. Hang Seng and Shanghai Comp edged down as policy measures in China still fell short of expectations. UK and US stocks firmed up. Sensex was supported by technology stocks. It is trading higher today while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields softened as global data (PMI reading in UK and Eurozone, GDP data in Germany and retail sales in UK) showed loss of momentum. Germany’s 10Y yield softened the most, followed by UK. India’s 10Y yield inched a tad by 1bps. It is however trading lower 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: Mutual Funds data as of 8 Nov and 11 Nov 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Investor focus remained firmly on developments in the US. Markets favourably viewed President Elect’s pick for the Treasury secretary post, with stocks in the US inching up and treasury yields cooling off. However, global markets are likely to see increased volatility as the incoming President reiterated his promise of increasing tariffs on imports from China, Mexico and Canada. With prospects of a full-blown trade resurfacing, global growth and inflation dynamics will once again be brought into question. Separately, growth concerns continue to linger for the Eurozone as Germany’s Ifo business climate index dipped more than expected to 85.7 in Nov’24 (est. 86) from 86.5 in Oct’24. In India, the government remains “cautiously optimistic” on the growth outlook led by improvement in agriculture sector. The monthly report also noted an improvement in high-frequency indicators in Oct’24.

Global indices monitored US President elect’s move on tariffs with reports indicating additional/higher tariffs on imports from China, Mexico and Canada. Thus, stocks in Hang Seng and Shanghai Comp took the hit. US stocks rallied supported by selection of new Treasury Secretary. Sensex inched up led by real estate stocks. It is trading higher today, while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields softened with US 10Y yield falling at the sharpest pace. This was supported by US President elect’s new choice of Treasury secretary which was viewed as largely positive for financial stability by investors. Yields in UK and Germany also felt the ripple effect. India’s 10Y yield moderated and is trading at 6.84% 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

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Fed minutes indicated the FOMC members broadly agree on going easing on future rate cuts. While welcoming the moderation in inflation and the resilient labour market, Committee members remained cautious over the outlook and are likely to continue with a data dependent approach. Market participants still expect the Fed to lower rates by 25bps in Dec’24, however rate cut expectations in 2025 have been scaled back. Separate data showed a sharp increase in US Conference Board consumer confidence index to a 16-month high of 111.7 in Nov’24 (est. 111.3) from 108.7 in Oct’24. On the other hand, new home sales declined by 9.4% in Oct’24 as high mortgage costs dented demand. In China, industrial profits declined by 10.1% in Oct’24, after a 27.1% decline last month. The marginal improvement was attributed to the stimulus measures announced by the government.

Global indices closed mixed monitoring US President elect’s Cabinet appointments and Fed’s minutes cautious approach. Stocks in Japan moderated amidst fear of rising rate differentials. In China, stocks declined due to risks from higher US tariffs. US stocks gained. Sensex edged down led by power stocks. It is trading higher today, while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed. US 10Y yield inched up as Fed minutes reflected some restrictiveness in future policy course. Germany’s 10Y yield softened as a key ECB official spoke of the need for looser monetary policy. 10Y yields in Japan, China and India’s traded in a narrow range in absence of fresh cues. India’s 10Y yield 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: Mutual funds data as of 21 Nov and 22 Nov 2024

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US GDP growth was left unchanged at 2.8% in Q3CY24 led by buoyant consumer spending (3.5%). Inflationary concerns were reignited as PCE index advanced 2.3% in Oct’24 from 2.1%. Core PCE index, Fed’s preferred gauge of inflation also picked up to 2.8% (2.7% in Sep’24). Separately, jobless claims rose by 9,000 to the highest level since Nov’21. Core capital goods orders declined by 0.2% in Oct’24, after rising by 0.2% in Sep’24 (MoM). While the data has not dented hopes of a rate cut in Dec’24, analysts are likely to rejig their rate cut expectations in 2025. Separately, Bank of Korea surprised markets by effecting a first back-to-back rate cut since 2009. Policy rate was reduced by 25bps to 3%, citing moderation in inflation and stalling growth. In Australia, a strong labour market is likely to delay the possibility of a rate cut by the RBA. In the Eurozone as well, a key ECB member emphasised the need for gradual rate cuts, allowing the policy rate to move towards a ‘neutral’ rate.

Global indices closed mixed monitoring host of macro releases in the US which gave diverging signals. Stickiness in US core PCE led to a fall in US stocks. Hang Seng and Shanghai Comp firmed up assessing China’s macro data. Sensex was supported by power stocks. It is trading lower today, while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields softened. UK’s 10Y yield fell the most supported by a strengthening currency which led to some asset allocation. Mixed data in the US led to some tilt towards sovereign debt. In Germany as well, yields moderated despite hawkish comments from ECB board member. India’s 10Y yield fell a tad and is trading further lower at 6.83%.

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 22 Nov and 25 Nov 2024

Oil prices were stable eyeing geopolitical developments and OPEC+ meeting

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Trading volumes in global markets were largely muted as US markets remained closed for Thanksgiving holidays. In the Eurozone, CPI inflation in Germany rose to 2.2% in Nov’24 (est. 2.3%) from 2% in Oct’24. However, in sequential terms, inflation declined by 0.2%, marking the largest monthly drop in 12-months and suggesting that the disinflationary trend remains intact. On the other hand, core CPI in Tokyo rose by 2.2% in Nov’24 (est. 2.1%) from 1.8% in Oct’24. With underlying price pressures intensifying, expectations of a rate hike by BoJ in Dec’24 have increased. Separate data also showed an improvement in both retail sales and industrial production in Japan, even as the jobless rate inched up. In India, release of the GDP estimate for Q2 FY25 is scheduled today (BoB estimate 6.9%).

Global indices closed mixed. US stocks moderated monitoring US President elect’s political moves and assessing macro data. Nikkei inched up, supported by a weakening yen. Hang Seng fell the most as fears of US tariff fears continued to linger. Sensex ended weaker, led by losses in technology and auto stocks. It is trading higher today, while Asian stocks are trading mixed evaluating Japan’s CPI data

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in US were closed on 28 Nov 2024

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields softened. US 10Y yield fell the most as rate cut expectations for Dec’24 policy remained intact. 10Y yields of UK and Germany also moderated despite central bank officials hinting at risks from excessive easing. Risk off sentiments are at play, driving direction of global yields at this juncture. India’s 10Y yield fell a tad and is trading at the same level today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in US were closed on 28 Nov 2024

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 25 Nov and 26 Nov 2024

Oil prices inched up tracking reports of Israel-Hezbollah ceasefire violations.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research