Economic Weekly Wrap
04 March 2024 - 08 March 2024

Delayed start to the rate cut cycle by major central banks led to rally in global stocks buoyed by risk on sentiments. Yields continued to paint a volatile picture. In the US, a weaker ISM manufacturing print has led to fall in 10Y yield. Even for other economies, yields traded in a narrow range monitoring comments of major central bank officials. Amongst other major macro releases were University of Michigan’s inflation expectations index, which still showed some stickiness in inflation. In the Euro area, inflation print especially the core inflation data provided some discomfort. In UK, house price index firmed up in Feb’24, while PMI reading still trailed below the 50 mark. On domestic front, PMI data rose to its 5 month high supported by both domestic and external demand. Even inflationary pressures moderated.

Global stocks rallied amidst expectations of lower policy rates. Weak manufacturing PMI in US has reignited the debate on timing of Fed rate cuts. Even in Eurozone and Asia, manufacturing PMIs painted a sombre picture. Amongst major indices, Nikkei surged the most to close at a record-high. Robust GDP numbers, pushed Sensex to an all-time high. It is trading further higher today in line with other Asian stocks.

Global currencies ended mixed. DXY fell by 0.3% as US ISM manufacturing PMI slipped further in the contractionary zone in Feb’24. EUR gained as inflation in Eurozone was higher than expected led by elevated core. GBP too gained as UK’s manufacturing PMI showed improvement. INR closed flat. It is trading weaker today, while Asian currencies are trading stronger.

Global yields closed mixed. US 10Y yield fell by 7bps as ISM manufacturing data softened. Germany’s 10Y yield closed stable as member of the Governing Council of ECB hinted at a more cautious approach before embarking on rate cut cycle. China’s 10Y yield rose by 3bps supported by better macro data. India’s 10Y yield fell by 2bps. It is trading at 7.05% today

Oil prices moderated as fear of weaker demand conditions reigned in.

Global markets are eyeing China’s official economic target for CY24. GDP growth target has been set at 5%, in line with last year. Fiscal deficit as % of GDP has been kept at 3%. CPI and unemployment rate has also been retained at 3% and 5.5% respectively. Broadly, Asian stocks reacted negatively, as investors were anticipating more fiscal measures. Elsewhere, investors are awaiting Fed Chair’s comments who is likely to reiterate the delay of rate cut cycle. Even Atlanta Fed President said that a rate cut might only be pencilled in Q3.On macro front, UK’s BRC sales data reflected some comfort on inflation. In Japan, CPI firmed up, ever core remained sticky. In China, Caixin services PMI inched a tad down to 52.5 from 52.7 in Jan’24. On domestic front, system liquidity moved to surplus of Rs 40,902 crore.

Except US and UK, stocks elsewhere ended higher. Stocks in US receded from record-highs as investors await labour market data and Fed Chair’s testimony. Comments from Atlanta Fed President supporting a delay in rate cuts also impacted investors’ sentiments. Asian markets rose, with Japan’s Nikkei rising to a fresh record-high. Sensex too rallied led by gains in metal and oil&gas stocks. However it is trading weaker today, in line with other Asian stocks.

Global currencies closed mixed against the dollar. DXY was broadly unchanged as investors await comments from Fed Chair and US payroll report. JPY depreciated further. EUR rose ahead of ECB meeting, while GBP awaited UK’s Budget announcement. INR is trading weaker today, while other Asian currencies are trading mixed.

Global yields closed mixed and traded in a narrow range. Investors remained cautious looking for cues ahead of Fed Chair’s testimony before Congress. The expectation is to carry the same undertone of a delayed start in rate cut cycle. India’s 10Y yield closed stable and is trading at the same level today

Oil prices moderated as OPEC+ retained the same level of cut.

US macro data again raised doubts about the timing of rate cut. ISM services index softened to 52.6 in Feb’24 from 53.4 in Jan’24. Even prices and employment index moderated. This led US 10Y yield close lower by another 6bps. The reverberation was felt in 10Y yield of other economies. Elsewhere, equity markets reacted negatively to China’s bullish growth target. Investors were anticipating more sector specific fiscal measures. In Japan, OIS traders are pricing in 53% probability of a pivot by BoJ. On domestic front, India was included in the Bloomberg EM Local Currency Government Bond Index. This holds positive for yields, already FII inflows into debt has been at US$ 5.1bn in CYTD24. From Jun’24 onwards (JP Morgan Index) with more flows, India’s 10Y yield may reach below the 7% mark as well.

Except China and UK, stocks elsewhere closed weaker. US stocks fell amidst weak macro data (ISM services PMI and factory orders). Tech stocks led the fall. Focus was also on China’s annual policy meeting which failed to buoy market sentiments. Amongst other indices, Hang Seng fell the most by 2.6%. Sensex declined by 0.3%, led by fall in tech stocks. However it is trading stronger today, while other Asian stocks are trading mostly lower.

Global currencies traded in thin ranges as investors’ focus remained on Fed Chair’s testimony. DXY was marginally lower as US ISM services activity moderated. JPY strengthened by 0.3% after a firm CPI reading. INR, EUR and CNY ended flat. INR is trading broadly flat today as well, while other Asian currencies are trading higher.

 Global yields closed lower tracking weaker macro prints in the US (ISM index and durable goods orders). UK’s 10Y yield has fallen sharply as investor’s remained cautious ahead of Budget announcements. India’s 10Y yield closed stable but may see a downward bias going forward. It is trading at 7.05% today.

Oil prices fell as investors remained pessimistic on China’s growth prospects.

Global markets monitored Fed Chair’s speech which hinted at delayed start to the rate cut cycle, probably later this year. However, Fed Chair’s comments that inflation has eased has provided some degree of comfort. Added to this was the less than expected change in private payroll number. Even wages increased at the slowest pace in more than two years. All this led DXY and US 10Y yield close lower. On macro front, trade data in Germany showed some momentum with both exports and imports picking up on seasonally adjusted sequential basis. Even in China, exports picked up for the first two months of CY24. Elsewhere, in Japan, wage data firmed up, raising hopes of a pivot from BoJ. On domestic front, RBI governor reiterated its focus on bringing inflation to the targeted 4% level.

Except China and Japan, stocks elsewhere closed stronger as Fed Chair acknowledged the possibility of rate cuts this year. This came on the heels of data showing weakening momentum in the US labour market. FTSE rose after UK’s budget announcements. Sensex rose to a fresh record-high led by a rally in banking and technology shares. It is trading further stronger today, in line with other Asian stocks.

Except CNY (flat), other global currencies ended stronger against the dollar. Comments from Fed Chair alluding to rate cuts this year, weighed on DXY which fell by 0.4%. EUR rose by 0.4%, buoyed by positive macro data (retail sales and Germany’s exports). INR strengthened by 0.1% and is trading near a 6-month high today. Other Asian currencies are also trading stronger.

Global yields closed mixed. 10Y yields in US and UK moderated. This was followed by less than hawkish comments of Fed Chair and also supported by softening macro data in the US. In UK, investors assessed the budget statement. India’s 10Y yield closed stable. It is trading at 7.05% today.

Oil prices rose by 1.1% as US crude inventories rose less than expected