Economic Weekly Wrap
01 April 2024 - 05 April 2024

Recently comments by fed officials have made a case for divided house as far as the interest rate cuts is expected in Jun’24. Fed official, Waller made a case of postponing rate cuts than was initially anticipated (in Jun’24). Fed Chair Powell, noted that Fed is not getting tolerant to higher inflation and hinted rate cuts very much remain on table. Recently, PCE index (Fed’s preferred gauge of inflation) rose by 2.5% in line with expectations with core PCE at 2.8%. On a monthly basis, headline PCE moderated to 0.3% in Feb’24 (0.5% in Jan’24). Additionally, US GDP slowed down to 3.4% in Q4CY24 (4.9% in Q3). Separately, in Europe, Germany’s employment levels edged up along with improvement in retail sales.

Global stock indices ended higher. FTSE ended in green despite poor macro data confirming the economy had actually slipped into recession in CY23 (-0.3% in Q4). Amongst US indices, S&P500 in Q1CY24 performed the best in over 5- years. Sensex climbed up by 0.9% led by gains in power and cap goods stocks. It is trading higher today while other Asian indices are trading mixed.

Global currencies closed mixed against US$. DXY gained by 0.2% amidst comments by Fed officials. Investors will monitor the crucial PCE data to gauge the future path of the Fed’s rate cycle. JPY ended flat as it inched close to the 152 mark, and this might propel some government intervention. Asian currencies are trading mixed today.

Global 10Y yields ended mixed. Yields in US, Germany and China inched up by 1bps each. Fed official Waller, noted given the disappointing inflation print, Fed might have to delay rate cuts. Investors have already priced in a 64% chance of rate cut in Jun’24. India’s 10Y yield softened by 1bps.

Oil prices rose by 1.6%, amidst greater prospects of higher supplies.

US ISM manufacturing index rose to 50.3 in Mar’24, defying expectation of 48.3. The input cost of manufacturers also firmed up with prices paid index rising to 55.8 from previous month’s level of 52.8. This has again led to some bit of repricing about future course of Fed rate. Fed Chair also reiterated that there is no rush for a pivot and is contingent on the evolution of growth-inflation matrix. Elsewhere, investors monitored comments of China’s President which urged PBOC to go in for bond buying and selling operation to regulate liquidity. In Japan, weakness in Yen again spurred speculation of an intervention by BoJ. On domestic front, GST collections reached second highest record collection of Rs 1.78 lakh crore in Mar’24.

Global equity markets ended mixed. Stocks in US ended lower as strong PMI data dented expectations of a Jun’24 rate cut by the Fed. On the other hand, stocks in China and Hong Kong rose sharply buoyed by improvement in China’s official PMIs. In India, equity indices started the new fiscal year on a positive note with the Sensex rising by 0.5%. Gains were led by real estate and metal sectors. It is however trading weaker today, while other Asian stocks are higher.

Global currencies ended broadly weaker against the dollar. DXY rose by 0.5% as manufacturing activity in the US expanded for the first time since Sep’22. JPY continued to trail near a 34-year low with the government citing the currency’s move as “speculative”. CNY depreciated despite a pickup in both manufacturing and non-manufacturing PMI. INR is trading a tad stronger today, while other Asian currencies are trading mixed.

Except UK (stable) and India (tad lower), global yields closed higher. US 10Y yield rose at the sharpest pace by 11bps as ISM manufacturing index rose unexpectedly in Mar’24. 10Y yield in Germany, Japan and China remained range bound in absence of fresh cues. India’s 10Y yield got comfort from a lower-than-expected H1 borrowing. It is trading at 7.08% today.

Oil prices remained steady as investors monitored supply demand dynamics

In the data heavy week, markets traded cautiously. Amongst major macro prints, in the US, JOLTS job openings rose by 8,756K (est.: 8,730K). Factory orders of the region also rose more than expected by 1.4% (est.: 1%) in Feb’24. Two Fed officials (San Francisco and Cleveland Fed President) spoke of easing albeit no rush to lowering borrowing cost. Swap traders have also pared down expectations of their earlier quantum of rate cuts. Elsewhere, in UK, manufacturing PMI entered expansion recording 50.3 (est.: 49.9). In Germany, CPI moderated. In China, Caixin services PMI inched up to 52.7 from 52.5, supported by fastest pace of increase in new business in the last three months. On domestic front, India’s manufacturing PMI rose to its 16 year high supported by buoyant production and sales.

Barring Nikkei and Hang Seng, other global indices ended in red. Strong macro data from US has led to speculation of a delay in Fed rate cut cycle. This view was also reinforced by an uptick in global commodity prices. Stocks in US fell the most, with investors awaiting comments from Fed Chair. Despite a strong pickup in manufacturing PMI, Sensex fell by 0.1%. Technology shares led the decline. It is trading further weaker today, following its Asian peers.

Except CNY, other currencies appreciated broadly against the dollar. DXY fell by 0.2% despite stronger than expected macro data (job opening and factory orders). Investors await comments from Fed Chair later in the day. EUR gained even as manufacturing PMI slipped further to 46.1 from 46.5 in Feb’24. INR is trading at similar levels today, while other Asian currencies are trading mixed

Except China (tad lower), global yields closed higher. Germany and UK’s 10Y yield rose the most. In Germany, even a moderation in CPI and inflation expectation data of Eurozone could not arrest the increase in yields. 10Y yield in the US also rose tracking macro data. India’s 10Y yield also inched up monitoring higher crude prices. It is trading at 7.11% today.

Oil prices rose to near 5-month high as Russia-Ukraine tensions escalated.

Oil prices rose to near 5-month high as Russia-Ukraine tensions escalated.

Fed Chair in his remarks pointed out that recent macro data reading has not ‘materially changed’ the interest rate picture. This has raised hopes amongst market participants that the base case of Jun’24 cut remains, whose probability was dialled down to some extent. To support this, recent ISM services reading in the US also showed some softening, recording 51.4 (est.: 52.8). Added to this, was far lower than expected reading of prices paid index at 53.4 (est.: 58.4). Thus, DXY moderated and global yields showed comfort. Elsewhere in Eurozone, inflation softened. ECB Governing Council member also spoke of rate cut in Jun’24. On commodity market, OPEC+ retained its output cut and the pressure was felt in crude prices to some extent. On domestic front, RBI policy remains key watchable.

Global stocks ended broadly weaker. Investors assessed comments from Fed officials to ascertain the timing and magnitude of Fed rate cuts. US macro data was mixed with services PMI inching down and ADP employment report showing a robust increase in private payrolls. Stocks in Asia were lower led by a risk-off sentiment. Sensex ended marginally weaker, amidst sharp losses in real estate stocks. It is trading higher today in line with other Asian stocks.

Global currencies ended mixed. EUR and GBP gained against the dollar supported by views that the Fed remains on course to lower rates later in the year. DXY fell by 0.5%. Asian currencies however ended weaker. Higher oil prices weighed on the INR, pushing it to a fresh record low. It is trading further weaker today, while other Asian currencies are trading mostly higher.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except Japan (higher), global yields closed lower. Fed Chair’s remarks have supported the downward momentum. The impact was mostly fell in UK’s 10Y yield, while in US and Germany, it broadly remained range bound. Japan’s 10Y yield traded cautiously over the continued speculation surrounding currency intervention. India’s 10Y yield fell a tad and it is trading at the same level today

Oil prices inched closer to US$ 90/bbl mark, on expectations of tighter supply.

Global markets monitored comments of several Fed officials who again gave conflicting signals. Minneapolis Fed President spoke of not needing any rate cut if inflation progress stalls. Cleveland Fed President said that the central bank is nearing its confidence level to embark on an easing cycle. Chicago Fed Chief also spoke of the fact that higher than expected inflation readings in Jan’24 and Feb’24, will not change the interest rate outlook. On macro front, US jobless claims rose more than expected to 221K (est.: 214K), while continuing claims moderated. Elsewhere, in Japan, Yen traded cautiously following comments from BoJ Governor that rate hike might be on the cards in H2CY24. Among major PMI reading, Germany’s services activity expanded, while UK’s slightly softened. On domestic front, RBI is likely to maintain status quo on rates while remaining bullish on growth.

Global stocks ended mixed. US indices ended sharply lower after hawkish comments from Minneapolis Fed President. With rate cuts contingent on incoming data, US jobs report is eagerly awaited. A sustained increase in oil prices also weighed on investors’ sentiments. However, FTSE and Nikkei edged up. In India, Sensex rose by 0.5% led by gains in consumer durables and banking stocks. It is however trading lower today, in line with other Asian stocks.

Global currencies traded in thing ranges as focus shifted to US jobs report. Fed speakers reiterated the need for caution before cutting rates. Even so, DXY fell by 0.1%. JPY was 0.2% higher. INR depreciated to a fresh record low as oil prices rose further. It is trading stronger today, in line with its Asian peers.

Global yields broadly closed lower ahead of the release of US payroll numbers where some softening in labour market is expected. However, Fed officials gave divergent views on the path of Fed fund rate in future. US and UK’s 10Y yield fell by 4bps each, followed by Germany’s (3bps fall). India’s 10Y yield fell a tad and it is trading at 7.10% today awaiting RBI policy and its guidance on liquidity.

Oil rose further amidst ongoing geo-political tensions and supply concerns.