Economic Weekly Wrap
07 April 2025 - 11 April 2025

Tensions of global trade war escalated further after China responded with retaliatory measures by imposing 34% tariffs on US imports. This was in response to the US levying a total of 54% tariffs against China. US Fed Chair stated that the US tariffs have been ‘larger than expected’ and raise concerns of elevated inflation and slower growth. Analyst have also raised prospects (60% from 40% earlier) of global economy possibly slipping in to recession in CY25. Separately in a positive news, the non-farm payrolls in the US jumped higher than expected by 228k against an estimate of 135k, though unemployment inched up to 4.2% (from 4.1% earlier). On domestic front, markets will closely track the RBI’s policy decision this week. We expect a 25bps rate cut, followed by atleast 2 more cuts this year.

Global stocks slumped further after China announced reciprocal tariffs on US goods. Escalated concerns of economic slowdown weighed on investor sentiments. Amongst other indices, US stocks declined the most followed by losses in FTSE and Nikkei. Domestic markets also ended in red led by subdued global cues with deep losses in metal and capital good stocks. It is trading lower today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR (higher), other global currencies depreciated. DXY rose 0.9% as tariff announcement by the US has raised global economic uncertainties, thereby fuelling safe haven demand. INR appreciated, helped by decline in oil prices. However, it 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

Global bond yields continue to slide. Japan’s 10Y yield fell most steeply (- 17bps) as BoJ is unlikely to hike rates now amidst economic uncertainties. US 10Y yield has fallen below 4% mark (lowest since Oct’24). US tariff plans and increased risk of recession have impacted market sentiments. India’s 10Y yield fell by 3bps, tracking global cues. It is trading at 6.48% 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 1 Apr and 2 Apr 2025

Oil prices decline further, as China escalates trade war with retaliatory tariffs.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

In a tit-for-tat approach, US has threatened China with additional tariffs of 50% if China doesn’t withdraw its retaliatory levy of 34% tariff. As fear of global trade war mounted, global market witnessed extreme volatility. Separately, members of PBoC noted that they will provide funding support in order to ensure stability in capital market. Additionally, in order to thwart the tariff blow on exports, the central bank allowed some weakness in Yuan by setting the midpoint rate at 7.2038/$ (weakest since Sep’23). However, analyst expect this could have far adverse consequences including capital outflow and overall bearish outlook for the economy. In India, the government has raised the excise duty on both petrol and diesel by Rs 2 per litre each, though the retail prices are expected to remain unchanged. Additionally, LPG price of a domestic cylinder has been hiked by Rs 50.

Global indices recorded extended sell-off as investors monitored the impact of tariffs with escalated fears of a global trade war. Asian stocks declined the most, with Hang Sang leading the pack, as Asian markets have been hit with highest tariffs. Sensex plunged by 3% with metal and real estate stocks amongst the worst hit. However, it is trading higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies fell against the US$ and DXY rose 0.2%, supported by rise in treasury yields and safe haven demand. GBP declined the most. INR fell by 0.7%, despite dip in oil prices. However, it is trading a tad stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Brackets indicate depreciation against the dollar

Global bond yields closed mixed. 10Y yields in US (19bps) and UK (17bps) rose most sharply as investors fear significant risks to inflation amidst escalating trade war. US has threatened China with additional 50% tariffs. Yields in Japan and China declined steeply. India’s 10Y yield rose by 2bps, tracking global cues, and is trading further higher today at 6.50%

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 2 Apr and 3 Apr 2025

Oil prices decline further, amidst rising tensions between US and China.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

As the timeline of new tariff draws closer, hopes of any possible concession on tariffs faded. The conflict between US and China escalated further after US imposed additional 50% tariff (earlier 54%) on China, taking the total tariffs to 104% on all Chinese goods. This was in response to the retaliatory 34% tariffs levy by China on US. As a result, oil prices dropped to 4-year low amidst growing concerns of subdued demand. As a counter measure to tariff, EU has proposed 25% tariff on US goods. Separately, New Zealand central bank has lowered rates by 25bps to 3.5% in order to manage the impact of tariffs. In India, investors will turn their focus towards RBI’s monetary policy decision today. We expect a 25bps cut in repo rate as per our base case scenario in order to support growth as inflation remains benign.

Barring US indices, other global markets recovered despite uncertainty on tariff front. US government officials disregarded news report of any possible reprieve or any delay on tariff imposition. Nikkei surged by 6% supported by gains in banking stocks. Sensex too rebounded with major sectoral indices ending in green. However, it is trading lower today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR and CNY, other global currencies appreciated against the US$ and DXY fell 0.3%. Growth uncertainty in the US has increased further as tariffs on China are set to increase to 104%. JPY gained the most, supported by rise in bond yields and safe haven demand. INR fell by 0.5%, and is trading further weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Brackets indicate depreciation against the dollar

Global bond yields closed mixed. 10Y yields in Japan and US rose significantly. US treasury yield curve steepened the most since Feb’22 as 10Y yields rose due to weak demand in auction, and 2Y yield fell. In Japan, BoJ officials have indicated that policy might remain unchanged for a while. India’s 10Y yield fell by 1bps, awaiting RBI decision. However, it is trading higher today at 6.51%.

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 3 Apr and 4 Apr 2025

Oil prices continue to decline, amidst recession fears in the US.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Investor confidence has taken a beating this week as global markets whip saw amidst the ongoing tariff turmoil. US in a surprise move announced a 90-day pause on the reciprocal tariffs, except for China. Given the fears of global economic slowdown, demand for safe haven assets surged. Fed official Goolsbee noted that rate cut is still likely if economy gets back on track. Separately, US CPI cooled off to 2.4% (2.8% in Feb) in Mar’25 and core CPI eased to 4-year low to 2.8% (3.1% in Feb’25). The moderation was led by energy prices (6.3% fall in gasoline) along with lower airfare. However, analyst expect as the trade war escalates, inflation is expected to edge up. Separately, China’s CPI remained in the deflationary zone as it contracted 0.1% (-0.7% Feb’25) in Mar’25 and PPI declined to 2.5% (sharpest fall since Nov’24).

Except US indices, other global markets advanced in a relief rally. Nikkei rose by 9% registering broad based gains across all the sectors, especially in the non-ferrous sector, followed by banking sector. Sensex is trading in green today with jump noted in consumer durable and metal stocks. Other Asian indices also opened higher today.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India were closed on 10.4.2025

Barring INR, other global currencies appreciated against the US$ and DXY fell 2%. Sell-off in US asset classes has strained US$ strength. Safe haven demand and rise in bond yields helped Japanese Yen. INR fell by 0.5%, amidst global turmoil. However, it is trading stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Note: Brackets indicate depreciation against the dollar, Markets in India were closed on 10.4.2025

Global bond yields closed mixed. US 10Y yield rose by 9bps, amidst heavy treasury sell-off. This was despite easing CPI print, and rise in jobless claims. UK 10Y yield fell the most (14bps), as BoE decided to halt its sale of long-dated bonds and instead proposed selling short-dated bonds. India’s 10Y yield fell by 3bps, tracking RBI decision. However, it is trading a tad higher today at 6.45%.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India were closed on 10.4.2025

Fig 4 – Short term rates

Source: Bloomberg, Bank of Baroda Research

Note: Markets in India were closed on 10.4.2025

Fig 5 – Liquidity

Source: RBI, Bank of Baroda Research

*Includes LTRO| Note: Markets in India were closed on 10.4.2025

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual funds data as of 4 Apr and 7 Apr 2025

Oil prices have fallen to near Apr’21 low, following escalating global trade war.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research