Economic Weekly Wrap
26 February 2024 - 01 March 2024

Germany confirmed that GDP contracted by (-) 0.3% in Q4CY23, following stagnation in Q3 (0% growth versus -0.1% decline estimated earlier). Government has also lowered its estimates for CY24 growth to 0.2% from 1.3% projected earlier, and expects a recovery in CY25 with 1% projected increase in GDP. Germany’s IFO business sentiment index also shows no major signs of optimism as the current situation index remained unchanged at 86.9 in Feb’24, and expectation index rose only marginally to 84.1 from 83.5 in Jan’24. In the US, as economic momentum remains strong (labour market, home sales), Fed officials are now signalling that Fed may want to keep the rates elevated for longer, thus pushing back on rate cut expectations. This has also impacted oil prices, as conscious measures to slowdown US economy will impact oil demand.

Global stocks closed mixed. Stocks in US rose led by upbeat tech results and optimism over growth. Both Dow Jones and S&P 500 rallied to a new recordhigh. FTSE too surged supported by gains in large cap stocks. Sensex fell marginally, amidst losses in oil & gas and metal stocks. It is trading further lower today, while other Asian stocks are trading mixed.

 Global currencies traded in thin ranges as investors focussed on global monetary policy. DXY, EUR, CNY and JPY closed flat. ECB President accepted that weakening wage growth was positive, but still not sufficient to warrant rate cuts. INR fell amidst weakness in domestic equities and increased dollar demand. It is trading flat today, while other Asian currencies are trading mixed.

Barring Japan and India, other global 10Y yields ended lower. 10Y yield in Germany fell the most. Confirmation of contraction in GDP in Q4CY23 and downward revisions to growth estimates for CY24 impacted investor sentiments. India’s 10Y yield rose a tad by 1bps. However, following global cues and decline in oil prices, it is trading lower today at 7.05%.

Oil prices fell, as Fed officials hinted at possibility of delaying its rate cut cycle.

New home sales in the US rose by 1.5% (MoM) in Jan’24, slowing from 7.2% increase in Dec’23. The slowdown is attributed to seasonal factors-cold weather impacting both sales and construction. Sales are expected to get impacted in the coming months as 30Y fixed mortgage rate is again up as Fed’s rate cut expectations have been pushed back from May to June. However, as supply-side crunch persists in existing home markets, there might be scope for new home sales to improve. Markets also await data on labour markets, PCE, production, retail sales, for more guidance on rates. Separately, in Japan core CPI rose by 2% in Jan’24 (est.: 1.8%), slowing from 2.3% in Dec’23, mainly reflecting base effect and dip in energy costs. Higher than expected CPI print signals pressures due to wage growth and investors continue to anticipate end of negative rates in BoJ’s Apr’24 meeting.

Global indices closed lower. US indices retreated as the focus shifted towards upcoming macro data for more guidance on Fed’s next move. Amongst other indices, Shanghai Comp, dropped the most. Sensex too ended in red led by losses in metal & consumer durable stocks. However, it is trading higher today, while other Asian stocks are trading lower

Except JPY (lower) and CNY (flat), other major currencies closed higher against the dollar, with EUR gaining the most. DXY fell by 0.1%. Investors will closely monitor the upcoming macro print from the US. INR strengthened amidst inflow of foreign funds and despite an increase in international oil prices. It is trading flat today, while other Asian currencies are trading mixed.

Barring yields in Asia, other global 10Y yields ended higher. Investors await ECB President Lagarde’s remarks for policy guidance. Wage growth in UK and declining GfK consumer confidence has also raised uncertainty over timing BoE’s rate cut cycle. India’s 10Y yield fell by 1bps. However, it is trading a tad higher today at 7.07%.

Oil prices rose, owing to supply side concerns (dip in US refinery output).

Durable goods orders in the US fell by (-) 6.1% in Jan’24 versus est.: (-) 4.5% decline, and down from (-) 0.3% in Dec’23. This was largely led by (-) 58.9% decline in civilian aircraft orders. However, core capital goods orders (non-defence excl aircrafts) rose by 0.1% in Jan’24, following (-) 0.6% decline in Dec’23, supported by orders for computers, electronic products, appliances, and electrical equipment. US conference board consumer confidence data showed that sentiment fell in Feb’24 to 106.7 from 110.9 in Jan’24. This was driven by dip in both present situation and expectations index. Mixed macro data has further raised uncertainty around the timing and quantum of Fed’s rate cuts. PCE data is awaited for more guidance

Global indices ended mixed. Dow Jones gave up gains and closed lower as investors cued in on the monthly PCE which is Fed’s preferred inflation gauge. Nikkei ended flat. Shanghai Comp advanced ahead of the key manufacturing PMI reading. Sensex also ended in green pushed by gains in real estate and consumer durable stocks. It opened higher today, while other Asian stocks are trading lower.

Global currencies ended mixed. Dollar was steady as investors awaited for fresh cues. US Durable goods order declined at a much faster pace than anticipated (-6.1% vs est.: -4.5%). Yen strengthened amidst news of sticky inflation and raised expectation of possible pivot by BoJ. INR ended flat. It is trading at similar levels today, while other Asian currencies are trading mixed.

Except China, other global 10Y yields edged higher. Investors are expecting stronger US PCE data, due later this week. However, the gains in US treasury yield were limited by weakness in production and consumer confidence data. India’s 10Y yield rose by 1bps, as oil prices inched up. However, it is trading a tad lower today at 7.06%.

Oil prices continue to inch up, as tensions in Red Sea region persist.

US GDP growth for Q4CY23 has been revised downward to 3.2% from 3.3% estimated earlier. This was largely due to lower than expected private inventory investment. However this was somewhat offset by upward revisions made to consumer and government spending. Stronger than anticipated consumption trends have revived fears of PCE probably coming in hotter than expected. Investors await more details on this, to gauge timing and quantum of Fed’s rate cuts. Dip in weekly volume of mortgage applications (-5.6% for week ending 23 Feb) due to elevated mortgage rates is expected to hamper real estate sector’s growth. Elsewhere, in Japan and Australia, stronger than expected retail sales in Jan’24 is likely to keep pressure on their respective Central Banks to keep their policy stance unchanged. Domestically, we expect GDP growth to come in at 6.4% for Q3FY24.

Global indices ended mixed as investors remained cautious ahead of the release of key macro prints (US PCE, Eurozone inflation and China’s PMI). Amongst other indices, Shanghai Comp dropped the most followed by Hang Seng. Sensex ended in red and was dragged down by losses in power and oil & gas stocks. It opened lower today, while other Asian stocks are trading lower

Barring INR and CNY (flat), other global currencies ended lower. Dollar firmed up by 0.1% with PCE data expected to influence timing of rate cut by Fed. Yen weakened as investors remained cautious of any possible intervention by the authorities. INR ended flat. It is trading stronger today, while other Asian currencies are trading mixed.

Global 10Y yields closed mixed. US 10Y yield fell the most, following downwardly revised Q4CY23 GDP print. Investors also await PCE report for more cues on Fed’s rate trajectory (~63% chance of rate cut in Jun’24). India’s 10Y yield ended flat, awaiting domestic growth data. It is trading a tad lower today at 7.06%.

Oil prices remain flat, dragged by build-up in US crude stockpiles.

Fed’s preferred inflation gauge, PCE index rose by 0.3% (MoM) in Jan’24 up from 0.2% in Dec’23. Core PCE was up by 0.4% from 0.1%. Pressure was visible in case of food, recreational activities and vehicles. As the print was in line with expectations, analysts continue to attach ~62% probability of rate cut by Fed in Jun’24. CPI in Germany eased to 2.5% (YoY) in Feb’24 (est.: 2.6%) from 2.9% in Jan’24, thus raising hopes of rate cut by ECB in Apr’24. Separately, in China, official data shows that manufacturing PMI fell to 49.1 in Feb’24 from 49.2 in Jan’24, dragged by lower new-export orders. However, non-manufacturing PMI rose to 51.4 from 50.7 in Jan’24, supported by Chinese New Year festival spend. Domestically, India’s GDP surprised positively as it registered 8.4% growth in Q3FY24, up from 8.1% in Q2. Full year (FY24) growth is also expected at 7.6% (7.3% as per AE).

Except Nikkei and Hang Seng, other global stocks edged higher. US indices rose as core PCE data was in line with market expectations, suggesting that rate cut bets in Jun’24 remain intact. Amongst other indices, Shanghai Comp rose the most by 1.9%. Sensex rose by 0.3%, led by gains in power and metal stocks. It is trading further higher today, in line with other Asian stocks