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US PCE inflation came in at 0.3% in Apr’24 (MoM), unchanged from Mar’24. Core inflation eased to 0.2% from 0.3%. Goods inflation inched up (0.2% from 0.1%), while services inflation came down (0.3% from 0.4%). Further, consumer spending, adjusted for inflation, fell by (-) 0.1% in Apr’24, following 0.4% increase in Mar’24. Spending on goods fell by (-) 0.4%, while that on services moderated to 0.1%. These data points indicate that Fed is likely to maintain status quo in the next policy meeting, but may cut rates towards the end of this year. Separately, in Europe, higher than expected inflation print for May’24 (2.6% versus est.: 2.5% and 2.4% in Apr’24), is unlikely to dent hopes of a rate cut by ECB this week. However, after this, analysts expect a pause in Jul’24. Domestically, revised GDP data shows that growth settled at 8.2% (7.6% earlier estimate) in FY24, up from 7% in FY23.
Barring Hang Seng and Shanghai Comp, other global indices ended higher. Investors monitored global developments and economic data form across the globe, including US PCE, and inflation in Europe, ahead of the ECB policy. Sensex ended in green led by gains in real estate and power stocks. It is trading higher today ahead of the elections result. Asian stocks are also trading higher.
Source: Bloomberg, Bank of Baroda Research
Global currencies ended mixed. The dollar remained steady after PCE data weighed on investor sentiments. There is a likelihood of at least one rate cut this year, possibly in Sep'24. INR depreciated despite lower oil prices. However, it is trading stronger today, while other Asian currencies are trading mixed.
Global yields closed mixed. US 10Y yield fell the most by 5bps, as PCE inflation data came in line with expectations, and consumer spending is beginning to ease. As a result, hopes of a rate cut by Fed this year, still remain. Following global cues, and dip in oil prices, India’s 10Y yield also declined by 2bps. It is trading further lower today at 6.94%.
Source: RBI, Bank of Baroda Research
Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 28 May and 29 May 2024
Oil prices fell, amidst news of weak demand in the US and increased stockpiles.
US ISM manufacturing index slipped to 48.7 (est.: 49.6) in May’24 from 49.2 in Apr’24, on account of contraction in new orders and production. Employment and new export orders improved. Further, government data shows that construction spending fell by (-) 0.1% in Apr’24 (est.: +0.2%), following (-) 0.2% decline in Mar’24. Both private construction (mainly commercial) public construction spending was down. These data points have revived hopes of rate cut by Fed in Sep’24 (CME FedWatchTool reflects 51% probability of 25bps cut). Separately, in Eurozone and Australia, manufacturing activity continued to contract, albeit at a softer pace, signalling some stabilization in conditions. In UK, activity rebounded in May’24. Domestically, results of general elections are awaited today.
Global indices ended mixed. Dow Jones ended lower as investors monitored softer US manufacturing data. FSTE too ended in red with the focus shifting towards the ECB's policy decision. Sensex surged to a record high led by strong GDP print and the exit poll trends. However, Sensex is trading lower today in line with other Asian indices.
Barring CNY (flat), other global currencies ended lower against the dollar. The greenback retreated amidst subdued data print (slowdown in US manufacturing for 2nd straight month) and this raised hopes of a possible rate cut. JPY and EUR strengthened. INR appreciated after oil prices slipped. However, it is trading weaker today while other Asian currencies are trading mixed.
Except Japan (flat), global yields closed sharply lower. US 10Y yield fell the most (-11bps), followed by UK and Germany. Weaker than expected manufacturing survey data has revived hopes of a Fed rate cut in Sep’24. Following a steep decline in oil prices, India’s 10Y yield also fell by 4bps. However, it is trading higher today at 7.02%, ahead of general election results.
Source: Bloomberg, Bank of Baroda Research| Note: Mutual Fund data as of 29 May and 30 May 2024
Oil prices fell sharply over fears of excess supply from Oct’24 onwards.
JOLTS data released by the US labour department, shows that job openings in Apr’24 fell by 296k to 8.06mn (est.: 8.36mn)—lowest level since Feb’21. This implies fewer jobs available per unemployed person. As labour market begins the process of normalisation, chances of a Fed rate cut in Sep’24 have increased to ~55% (per CME FedWatchTool). Some are even anticipating a second cut in Dec’24. New orders for manufactured goods in Apr’24 rose for the 3rd consecutive month (0.7%, unchanged from Mar’24; est.: 0.6%). However, core order (non-defence cap goods excl aircraft) growth eased, to 0.2% from 0.3% estimated earlier. In India, election results show that BJP-led NDA government is set for its 3rd term, thus signalling policy continuity at the centre. Third advanced estimates show, food grain production is pegged to be lower at 3288.5 lakh ton versus 3296.9 lakh ton last year.
Global indices ended mixed. Stocks in US rose as bets of a Fed rate cut in Sep’24 solidified after data showed a weakening momentum in US labour market. Sensex fell sharply by 5.7%, registering its sharpest decline since Apr’20, after the election results. With this, Sensex has erased all of its gains for 2024. However, it is trading higher today, in line with other Asian indices.
Except JPY and CNY, other global currencies depreciated. DXY was marginally weaker tracking a drop in US job openings (JOLTS). EUR depreciated by 0.2% ahead of ECB policy. JPY rose as BoJ officials cautioned against excessive volatility in the currency. INR closed just shy of a record low, tracking election results. However, it is trading stronger today, in line with its Asian peers.
Source: Bloomberg, Bank of Baroda
Source: Bloomberg, Bank of Baroda Research| Note: Mutual Fund data as of 30 May and 31 May 2024
Oil prices fell further, following the news of higher than expected US stockpiles.
Private payroll data (ADP employment) in the US shows that employers added 152k jobs in May’24—slowest in 4 months and lower than est.: 175k and 188k in Apr’24. Large firms (500 or more employees) added ~98k jobs, while smaller firms (less than 50 workers) reported 10k job cuts (1st since Nov’23). Manufacturing sectors reported 20k job cuts (highest since Jul’22). Softer than expected labour market trends have fired up Fed rate cut bets. In contrast, US ISM service activity index showed improvement as the index rose to 53.8 in May’24 from 49.4 in Apr’24, led by rise in new export orders and business activity. In Europe, services sector activity seems to be holding ground with PMI for May’24 at 53.2 versus 53.3 in Apr’24. In Germany while activity improved to 12-month high, in France it is at 4-month low. ECB’s rate decision is awaited today. In India, services PMI moderated to 60.2 from 60.8.
Global indices ended mixed. US indices ended in green with S&P 500 hitting a record high led by gains in technology stocks. Investors monitored May’s private payroll data and the growing plausibility of 2 rate cuts by Fed this year. Sensex rebounded and settled 3% higher with auto, IT and FMCG amongst the top gainers. It is trading higher today, in line with other Asian indices.
Global currencies ended mixed. DXY strengthened by 0.2% supported by stronger than expected services PMI data (53.8 in May from 49.4). Investors will turn their focus towards ECB policy decision, with 25bps rate cut possibility. INR recovered, but it is trading weaker today, while other Asian currencies are trading mixed.
Except China (flat) and UK (higher), other global yields continued to decline. US 10Y yield fell by another 5bps, tracking softer labour market data. In UK, continued expansion in the services sector, albeit at a slower pace, kept investors on edge regarding the timing of BoE’s 1st rate cut. India’s 10Y yield fell by 1bps, and is trading even lower today at 7.02%.
Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 30 May and 31 May 2024
Oil prices rose, supported by optimism surrounding Fed rate cuts this year.
In line with market expectations, ECB decided to lower its key policy rates (1st since Sep’19) by 25bps (main refinancing rate at 4.25% now). This was driven by weaker price pressures and decline inflation expectations. However, as the pace of inflation coming down is slowing, and rate differential between EUR and USD will add pressure to the Euro and thus hurt inflation prospects, analysts do not believe that ECB will be on a rate cut spree. Now all eyes are on Fed and BoE. Initial jobless claims in the US rose by 8k to 229k in the week ending 1 Jun. 4-week average of the continuing claims remained broadly unchanged at 1.79mn. Markets await the release of non-farm payroll data for more guidance. Domestically, RBI will announce its policy decision today, and is expected to keep rates on hold.
Barring S&P 500 (flat) and Shanghai Comp (lower), other global indices ended higher. Investors monitored the inching up of weekly jobless claims in the US. European stocks registered gains after ECB reduced rates in line with expectations. Sensex surged further with all the sectors ending in green. It is trading higher today, while other Asian indices are trading mixed.
Global currencies ended mixed. DXY retreated by 0.2% ahead of the US jobs report, which will provide guidance towards interest rate outlook. EUR gained after ECB cut rates. INR depreciated amidst higher oil prices. It is trading weaker today, while other Asian currencies are trading mixed.
Global yields closed mixed. While 10Y yield in US and Germany rose, they fell in Japan, UK and India. Markets await the release of US non-farm payroll data Germany’s yield rose by 4bps as analysts do not expect ECB to be on a rate cut spree, following yesterday’s 25bps cut announced by the central bank. India’s 10Y yield fell by 2bps, however, it is trading a tad higher today at 7.02%.
Source: Bloomberg, Bank of Baroda Research| Note: Mutual Fund data as of 3 Jun and 4 Jun 2024
Oil prices jumped, as Russia and Saudi Arabia reassured markets of supply cuts in case it is necessary.
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