Economic Weekly Wrap
08 April 2024 - 12 April 2024

US labour market is showing signs of resilience with non-farm payrolls for Mar’24 at 303k, much higher than est.: 214k and 270k in Feb’24. Unemployment rate also inched down, to 3.8% in Mar’24 from 3.9%. Average hourly earnings rose by 0.3% (MoM) from 0.2% in Feb’24. This has pushed the probability of a rate cut by Fed in Jun’24 to 54% from 59% before the data was released. Sustained increase in wage growth, along with higher prices of commodities (oil, copper) may add to pressure on inflation. Added labour expenses is impacting the services sector in the US, as the ISM PMI moderated to 51.4 in Mar’24 from 52.6 in Feb’24. This was dragged by dip in new orders and imports. Domestically, RBI maintained status quo in its policy. Quarterly projections of GDP and inflation were changed, with growth now estimated to be higher and inflation projected to be lower in Q1FY25

Global stocks ended mixed as investors assessed the US jobs report. Hopes of a rate cut in Jun’24 diminished as payroll additions were higher than expected. Even so, stocks in US edged up, led by a rally in tech stocks. Nikkei fell sharply, as BoJ hinted at more rate hikes. Sensex ended marginally weaker after the RBI policy announcement. It is trading higher today, in line with other Asian stocks.

Except INR, other global currencies ended weaker against the dollar. DXY rose by 0.2% as a stronger than expected jobs report in the US has once again jeopardized expectations of rate cuts. JPY depreciated the most by 0.2%, even as Japanese government cautioned against increased volatility in the exchange rate. INR is trading stronger today, while Asian peers are trading mixed.

Global yields broadly closed higher as US labour market remains strong. US 10Y yield jumped the most, by 9bps, followed by UK and Germany. Odds of rate cut by Fed in Jun’24 have reduced to 54% from 59% earlier. Tracking global cues, rise in oil prices, and RBI’s policy decision, India’s 10Y yield rose by 3bps. It is trading further higher today, at 7.14%.

Oil rose by 0.6%, owing to supply side risks due to geo political tensions.

In some positive news for Germany, industrial production in Feb’24 rose by 2.1% (MoM) versus est.: 0.3% increase and 1.3% increase in Jan’24. This was primarily supported by better than expected performance of the construction sector (up by 7.9%). Manufacturing sector noted 1.9% growth, driven by auto (5.7%) and chemical (4.6%) industries. However, compared with pre-pandemic period, production was still 8% lower in Feb’24. Separately in Asia, China is expected to report new Yuan loans at 3.56tn in Feb’24, up from 1.45tn Yuan in Jan’24. In Japan, producer price pressures remain subdued with CGPI up by only 0.2% (MoM) versus est.: 0.3%. Reserve Bank of New Zealand, in line with expectations has kept its policy rate unchanged at 5.5%, in order to bring inflation back to 1-3% range this year. Investors now await US CPI report, due later today, for guidance on rates.

Global stocks ended mixed as investors await key inflation report from the US. Markets in US were in wait and watch mode, while FTSE fell. Nikkei gained the most, driven by chip-related stocks. Sensex ended lower and was dragged down by losses in consumer durable and metal stocks. However, it is trading higher today, while other Asian stocks are trading lower.

Except GBP, other global currencies ended flat. DXY was largely unchanged ahead of the inflation data that will offer some guidance on interest rate outlook. JPY continue to hover to near multi-decade low raising possibility of government intervention. INR is trading stronger today, while Asian peers are trading mixed.

US, UK, and Germany’s 10Y yield broadly closed lower. Investors are awaiting US CPI print. Atlanta Fed President spoke of one rate cut but hinted at some additional easing if data warrants. This has supported yields. In Japan and China, yields closed stable in absence of fresh cues. India’s 10Y yield inched up by 3bps in the previous session. It is trading at lower at 7.12% today.

Oil prices fell, as data shows higher than expected build-up in US stockpiles

ECB in its latest policy meeting decided to leave the key rates unchanged, but for the 1st time incorporated the statement that it will loosen the policy once it gets clear indication of inflation nearing the 2% mark. This is the strongest rate cut signal given so far. In contrast, uncertainty around the timing of Fed’s rate cut has again increased, as hotter than expected CPI print gave support to FOMC views (in the minutes) that more evidence is needed to see if the inflation is coming down on durable basis. Geopolitical tensions in the Middle East and its impact on oil prices was also highlighted as a concern. Further, dip in initial jobless claims to 211k for the week ending 6 Apr versus est.: 215k and 222k in the previous week, also reflect strength in the economy. However, as breather, US PPI has come in at 0.2% (Mar’24) versus est.: 0.3% and 0.6% in Feb’24.

 Global stocks ended mixed as investors’ monitored key US inflation data with PPI rising at a slower pace than expected. The focus will now shift towards earnings report. Amongst other indices, FTSE dropped the most led by sharp losses in banking stocks. Sensex after trading to an all-time high, slipped and is trading lower today, while other Asian stocks are trading mixed

Global currencies ended mixed. DXY was largely unchanged and the recent PPI data has reinforced concerns of Fed delaying rate cut. According to the CME Fed watch tool, investors have priced in a 76% chance of no rate cut in Jun’24. JPY continues to depreciate, raising the possibility of government intervention. INR is trading weaker today, while Asian peers are trading mixed

Barring China (flat), India (closed), other major 10Y yields inched up. Higher than expected retail inflation in the US, FOMC minutes indicating more cautious approach of members against inflation, and lower than expected jobless claims, have reignited fears that Fed may not cut rates in Jun’24 also. Following global cues, India’s 10Y yield has opened much higher today at 7.18%.

Oil prices fell, as demand concerns resurfaced due stickiness in US CPI data