Economic Weekly Wrap
30 September 2024 - 04 October 2024

US PCE moderated to 0.1% from 0.2% in Jul’24 (MoM), suggesting a further dip in underlying price pressures. Consumer spending decelerated to 0.2%, after increasing by 0.5% in Jul’24, but remained on a strong footing. The data vindicates the Fed’s assertion of a soft landing and opens room for more rate cuts. In Japan, the incoming Prime Minister is widely believed to be antagonistic to the BoJ’s longstanding ultra-dovish monetary policy. This comes on heels of data showing a drop in Japan’s industrial production (-3.3% vs. -0.5% est.), even as retail sales posted a robust growth (0.8% vs. 0.3% est.) on a MoM basis. Separately, China’s official PMIs painted a grim picture of the economy. Non-manufacturing PMI dropped sharply to 50.3 in Sep’24 from 51.6. On the other hand, manufacturing PMI remained in the contraction zone for the 5th straight month at 49.8, edging up from 49.1 in Aug’24.

Barring S&P 500, global markets ended higher. Easing liquidity conditions amid positive inflation data in the US and stimulus measures in China, boosted equity indices. Asian stocks rose the most. However, some downside movement in Nikkei is expected on the back of the elections results and the surge in yen. Sensex moderated, led by real estate and banking stocks. It is further trading lower today, while Asian stocks are trading mixed.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Except JPY, other global currencies broadly depreciated. DXY was lower on anticipation of further rate cuts. JPY rose by 1.8% on expectations of higher rates after the election of the new Prime Minister. INR depreciated by 0.1%. It is trading further weaker today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

US 10Y yield fell the most as core PCE data highlighted further softening in inflation, supporting further Fed cuts. The impact was felt in 10Y yields of Germany and UK as well. This was further supported by macro data (sticky unemployment rate in Germany and modest growth in retail sales in UK). India’s 10Y yield witnessed some correction and is trading at 6.75% 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 24 Sep and 25 Sep 2024

Oil prices inched up amidst supply side disruptions from Middle East conflict.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Investors reassessed the path of US monetary policy, as the Fed Chair quashed hopes of another jumbo rate cut. Attesting to the strength of the US economy and the ongoing slowdown in inflation, the Fed Chair said that the FOMC is in “no hurry to cut rates quickly”. As a result, bets of a 50bps rate cut in Nov’24 have declined. The Fed’s decision is likely to be dependent on incoming data which includes PMIs and jobs report, due this week. Separately, CPI inflation in Germany eased to 1.6% in Sep’24 from 1.9% in Aug’24, strengthening the case for more rate cuts by the ECB. In UK, GDP growth estimate for Q2 CY24 was revised lower to 0.5% from 0.6% estimate earlier. In India, core sector output declined by 1.8% in Aug’24, led by an unfavourable base effect. CAD widened to 1.1% of GDP in Q1 FY25, on a sequential basis due to higher merchandise trade deficit.

Global markets monitored Fed Chair’s speech which hinted at cautious approach and gradual move towards a neutral stance. However, reaffirmation on inflation lifted stocks of the region. In Asia, Shanghai Comp rose the most, supported by technology stocks and stimulus measures. Nikkei fell amidst recent political developments. Sensex fell by 1.5%, led by auto, banking and real estate stocks. It is trading higher today, in line with Asian stocks.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Global currencies depreciated against the dollar as the Fed Chair dampened expectations of another outsized rate cut. DXY was 0.4% higher. JPY depreciated the most amongst major currencies. INR too declined by 0.1%. It is trading further weaker today, in line with other Asian currencies.

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: Data for Mutual Funds as of 24 Sep and 25 Sep 2024

Oil prices moderated led by a firmer dollar.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US private payrolls increased by 143,000 in Sep’24 beating estimates of a 120,000 increase. This followed an increase of 103,000 in Aug’24 and signals continued strength in the labour market. The data has reinforced view that another super-sized rate cut in unlikely. Similar comments were also echoed by Richmond Fed President, who remained cautious on inflation outlook. The probability of a 50bps rate cut in Nov’24 has declined to 36% from 57% last week. Separately, Japan’s services PMI dipped marginally to 53.1 from 53.7 in Aug’25, led by a dip in business confidence. Earlier, Japan’s Prime Minister pushed back against the possibility of further rate hikes after a meeting with BoJ Governor, hinting that rate hikes in 2024 are unlikely. Tensions in Middle East continued to simmer which can have potential impact on oil prices, which have so far remained largely range-bound.

Barring Nikkei, global markets broadly closed higher. A positive surprise in the ADP private payroll data reinforced confidence in US labour market. This supported the narrative of a soft landing. Stimulus measures in China have also uplifted global stocks worldwide amidst hopes of revival in demand. However, Nikkei fell sharply, led by anticipation of break in monetary policy normalisation. Sensex is trading lower, while Asian stocks are trading mixed.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Global currencies depreciated against the dollar. DXY rose by 0.5% as ADP data showed higher than expected increase in US private payrolls. JPY depreciated sharply amid dovish comments from the new PM. INR is trading weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Barring Japan, global yields inched up. Robust increase in US private payrolls has pared back expectations of aggressive easing by Fed. Richmond Fed President also spoke of uncertainty over inflation and unemployment. Fairly robust consumption demand led to a rally in UK’s 10Y yield. Japan’s 10Y yield reflected dovish rhetoric of new PM. India’s 10Y yield is trading at 6.75% today.

Fig 3 – Bond 10Y Yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India were closed on 2 Oct 2024, Markets in China are closed since 30 Sep 2024

Fig 4 – Short Term Rates

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India were closed on 2 Oct 2024

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Note: Markets in India were closed on 2 Oct 2024

Fig 6 – Capital Market Flows

Source: Bloomberg, Bank of Baroda Research

Note: Data for Mutual Funds as of 26 Sep and 27 Sep. Markets in India were closed on 2 Oct

Oil prices rose amid increased tensions in Middle East.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Geo-political tensions in the Middle East remained a top focus for investors amid an escalation in hostilities between Israel and Iran. Global markets witnessed a sharp self-off amid increased risk aversion, and oil prices inched up. Investors also assessed comments from US President, as a wider conflict is likely to lead to more volatility in the global markets. Separately, Services PMI in both the Eurozone and the UK inched lower. In US, macro data signalled a mixed picture. US ISM services PMI inched up to a 19-month high at 54.9 in Sep’24 from 51.5, led by strong growth in new orders. However, factory orders declined unexpectedly by -0.2% in Aug’24 (est. 0%) versus an increase of 4.9% in Jul’24. Jobless claims inched up marginally by 6,000, but the underlying momentum signals continued strength. US jobs report due later today is likely to shed more light on the labour market conditions and drive the path of monetary policy.

Investors assessed a mix of macro and geopolitical factors. US stocks moderated tracking mixed data in the region. Nikkei was supported by expectations of fiscal stimulus from the new PM. Hang Seng fell, as EU is set to vote on tariff concerning EV from China. Sensex inched down amid a risk-off sentiment. It is trading further lower, while Asian stocks are trading mixed.

Fig 1 – Stock Markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India and Hong Kong were closed on 2 Oct. Markets in China are closed since 30 Sep.

Global currencies ended weaker. DXY rose by 0.3% supported by safe-haven demand and positive data. GBP fell the most by 1.1% as the BoE is expected to cut rates more swiftly than the Fed. INR depreciated tracking a rise in oil prices. It is trading at similar levels today while Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda

Note: Markets in India were closed on 2 Oct. Markets in China are closed since 30 Sep.

Except UK (tad lower), global yields closed higher. Growth indicators in the US hinting at soft landing led an increase in US 10Y. Germany’s 10Y yield also inched up by 5bps. UK’s 10Y yield got marginal comfort from strengthening expectations of monetary easing from BoE. India’s 10Y yield rose by 4bps, as oil prices inched up. It is trading at 6.79% today.

Fig 3 – Bond 10Y Yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India were closed on 2 Oct 2024, Markets in China are closed since 30 Sep 2024

Fig 4 – Short Term Rates

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India were closed on 2 Oct 2024

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

Note: Markets in India were closed on 2 Oct 2024

Fig 6 – Capital Market Flows

Source: Bloomberg, Bank of Baroda Research

Note: Data for Mutual Funds as of 27 Sep and 30 Sep. Markets in India were closed on 2 Oct

Oil prices rose amid supply concerns due to the widening conflict in Middle East.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research