Economic Weekly Wrap
01 April 2025 - 04 April 2025

Uncertainty over US tariffs continues to weigh on investor sentiments ahead of the 2nd Apr deadline. Reports indicate that the US President is likely to go ahead with reciprocal tariffs, even as finer details are awaited. Fed officials struck a cautious tone, amidst tariff related uncertainty. In China, both manufacturing and nonmanufacturing PMI ticked up marginally in Mar’25. On the other hand, manufacturing PMI in rest of Asia, including Japan and South Korea, stalled led by a sharp decline in new orders and output. Separate data showed an increase in both retail sales and industrial production in Japan in Feb’25. Separately, Reserve Bank of Australia held its policy rate steady at 4.10%, citing substantial progress in keeping inflationary pressures contained.

Except US stocks, global indices ended lower. Investors remained wary of reciprocal tariffs both country wise and on a sectoral basis. Nikkei fell the most amidst concerns over widening rate differential with the US. Some frontloading in US stocks happened before tariff deadline. Sensex is trading lower today, while Asian stocks are trading higher tracking upbeat China PMI data

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India were closed on 31 Mar 2025

Global currencies ended mixed. DXY rose by 0.2% ahead of US tariff deadline. EUR declined as a fall in Germany’s inflation strengthened the case for more rate cuts. CNY appreciated tracking an uptick in official PMIs. INR appreciated in the last trading session. Asian currencies are trading mixed today.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Brackets indicate depreciation against the dollar

Markets in India were closed on 31 Mar 2025

US 10Y yield fell by 4bps amidst risk off sentiments due to the ongoing tariff turmoil. Japan’s 10Y yield dipped by 5bps despite anticipation of BoJ’s trimming down demand for 10-25 years paper. Germany’s 10Y yield inched up a tad eyeing the CPI data. India’s 10Y yield softened, tracking liquidity conditions.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India were closed on 31 Mar 2025

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India were closed on 31 Mar 2025

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

*Includes LTRO

Note: Markets in India were closed on 31 Mar 2025

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 25 Mar and 26 Mar 2025

Markets in India were closed on 31 Mar 2025

Oil prices stiffened amidst worries over higher tariff by the US on Russian oil.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Market focus remains firmly on developments surrounding President Trump’s proposed reciprocal tariffs. News reports indicate that the US is considering a possible 20% blanket hike in duties for nearly all countries. This raises the possibility of retaliatory measures by other countries, resulting in a full-blown trade war, which will weigh on global growth prospects. Separately, US macro data signalled a further loss of economic momentum. US ISM manufacturing PMI slipped to 49.0 in Mar’25 from 50.3 in Feb’25. This was led by a sharp fall in new orders, while input price inflation picked up. Labour market also weakened with, JOLTS data showing a 794,000 drop in job openings in Feb’25. Domestically, RBI announced fresh OMO purchase of Rs. 80,000 crores in Apr’25, in 4 equal tranches to manage domestic liquidity conditions

Global indices traded in a narrow range as investors refrained from holding any strong positions awaiting fine prints of US tariff plan. Asian stocks were buoyed by positive PMI data in China. Shanghai Comp and Hang Seng both rose by 0.4%. Sensex fell by 1.8%, led by decline in real estate and consumer durables stocks. It is trading higher today, while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY ended flat ahead of US Liberation Day deadline. EUR depreciated by 0.2% as moderating inflation in the Euro Zone opens room for more rate cuts by ECB. JPY ended higher by 0.4% on safehaven demand. INR is trading weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Brackets indicate depreciation against the dollar

Note: INR trading was closed on 1 Apr 2025

Risk off sentiments dominated sovereign bond demand. Germany’s 10Y yield fell by 5bps amidst cooling inflation in the Euro Zone which created headroom for ECB. US and UK’s 10Y yield also fell by 4bps, each amidst softer job data (in the US) and BRC shop price data (UK). India’s 10Y yield is trading lower at 6.54% today, as expectations of rate cut by RBI builds up.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: India’s G-sec trading was closed on 1 Apr 2025

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

*Includes LTRO

Note: Markets in India were closed on 31 Mar 2025

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Oil prices moderated as demand concerns outweighed supply jitters.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

US President made good of his election promise as he announced sweeping tariffs on a majority of US’ trading partners. As a first step, an additional ad valorem duty of 10% was imposed on all US imports, starting from 5 Apr 2025. Apart from this, additional duties were also announced country wise which will be applicable from 9 Apr 2025. As per these announcements, tariff rate on China was raised to 34%, EU to 20%, Vietnam to 46%, Taiwan to 32% and India to 26%. With the announcement of higher-than-expected tariffs, global investor sentiment is likely to take a hit leading to heightened volatility, even as some countries may seek to negotiate a deal. On the other hand, some countries are likely to reply with retaliatory tariffs, which can have dire consequences for the global economy. Hence, uncertainty is likely to remain the operative word for global markets in the coming days as well.

Global indices traded cautiously as majority of the markets were closed before White House release of detailed tariff rollout. The impact will be felt more profoundly in today’s session. Asian stocks are already trading sharply lower, with Nikkei, Hang Seng seeing a major downward bias. Sensex is also trading lower today, following news of 26% tariff on India’s exports by the US.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR, other global currencies broadly ended higher. DXY slid by 0.4% as latest US tariff salvo spooked investors. Safe-haven demand drove JPY to rise by 0.2%. Both EUR and GBP also appreciated. INR depreciated a tad, and is trading further weaker today. Asian currencies are also trading weaker.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Brackets indicate depreciation against the dollar

US 10Y yield fell the most among major global yields. This was driven by deteriorating risk appetite in a volatile global policy space. Even Japan and China’s 10Y yield dipped. For India, the fall was sharpest as RBI’s system liquidity returned to surplus. 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

*Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual funds data as of 26 Mar and 27 Mar 2025

Oil prices inched up ahead of US tariff announcements

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets reacted negatively to the new set of tariffs announced by the US, with a sharp sell-off visible in global equity and bonds market. In fact, equity markets witnessed the steepest single-day fall since the Covid-19 pandemic. Risk-off sentiment prevailed with investors fleeing to safe-haven assets such as JPY and gold. DXY nursed steep losses, as fears of a recession in the US have increased. This was also underscored by macro data, with US ISM services PMI falling to a 9- month low of 50.8 in Mar’25 (est. 53) from 53.5 in Feb’25. This also lends a degree of uncertainty to Fed’s future rate path, with investors now expecting more rate cuts. BoJ Governor stated that US tariffs are likely to have a negative impact on Japan’s growth. In India, the market reaction to the tariff announcement was largely muted, with the exclusion of pharma products being a big positive for India’s exports.

Global markets witnessed widespread sell-off. Fears of economic downturn led to a realignment of risk in favour of safer asset classes. US stocks fell the most amidst concerns of tightened financial conditions. Amongst Asian stocks, Nikkei fell sharply. In relative terms, Sensex losses were largely capped. It is trading lower today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except CNY, other global currencies appreciated. DXY fell 1.7% as sweeping tariff imposed by the US have reignited fears of a recession. Both EUR and JPY climbed to 6-month peaks against the dollar. INR also appreciated. It is trading further stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Brackets indicate depreciation against the dollar

Except India, global yields witnessed a broad-based decline. UK’s 10Y yield fell at the sharpest pace, followed by US and Japan. Risk off sentiments resulted in creating higher demand for sovereign asset classes. Muted data print in the US (ISM services PMI) also supported lower yields. India’s 10Y yield traded cautiously ahead of RBI policy meet. It is trading at 6.49% 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

*Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual funds data as of 28 Mar and 01 Apr 2025

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research