Economic Weekly Wrap
11 Aug 2025 - 14 Aug 2025

Global markets remained cautious ahead of the Aug-12 deadline for US-China trade truce. Market is pricing in some bit of extension in the time frame. Apart from this, expectation also centred around talks between US and Russia on Ukraine issue. A host of macro releases are also scheduled this week, with US core CPI expected to show some momentum in Jul’25. This is in the wake of higher import duty expected to be passed on to consumers especially in recreational goods. A higher print may again raise doubts over likely rate cut by Fed in Sep’25. On the other hand, Fed Governor Michelle Bowman hinted at proactive rate cuts amidst weakness in labour market conditions. On domestic front, market will closely monitor for any trade related developments between US and India. The upcoming CPI data is expected to provide some breather.

Global indices ended mixed. Stocks in US edged up amidst increasing expectations of softer Fed policy. S&P 500 closed at a record high. Nikkei too rose led by gains in heavy industries and technology stocks. Sensex edged down, led by losses in real estate and metal stocks. However, it is trading higher today, tracking Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY declined 0.2% amidst building expectations of a Fed rate cut in Sep’25. JPY declined the most by 0.4%, even as BoJ minutes hinted at a hawkish stance. INR ended marginally stronger. It is trading further stronger today, in line with other major Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except Japan and China, global 10Y yields showed some upward momentum. 10Y yield in UK has risen the most as BoE Chief Economist has hinted at pause in future rate cuts. US 10Y yield also firmed up ahead of CPI data. India’s 10Y yield also rose by 3bps amidst fear of higher tariff rate. It is trading flat 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 Fund data as of 5 Aug and 6 Aug 2025

Oil prices rose marginally ahead of a key meeting between Russia and US.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets got breather from US President’s decision to extend trade truce with China for another 90-days. This has fuelled expectations of stabilised trade ties in the near term. Asian stocks got further support in today’s morning session with Nikkei hovering at its record high level. Safe-haven demand for gold has also softened. DXY is also trading lower in today’s session. On macro front it has been a data light day with all eyes on US CPI. On domestic front, India’s foreign exchange reserves fell by US$ 9.3bn, witnessing the sharpest weekly decline since 15 Nov 2024. This may be on account of likely intervention by RBI amidst a volatile global policy space. In another news, Lok Sabha has passed the revised Income Tax Bill, 2025 which focusses on simplification and rationalisation of the existing Bill.

Except US, stocks elsewhere closed in green. In the US, focus remains on CPI which will shape the path of monetary policy. Losses were reported in energy and tech sectors. Sensex ended higher led by gains in real estate and banking stocks. Asian stocks are trading higher today, with Nikkei scaling a record high after US-China extended the trade truce. Sensex is also trading higher.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Nikkei was closed on 11 Aug 2025

Except INR (flat), other global currencies ended broadly weaker against the dollar. DXY rose by 0.3% as investors await US inflation report due later this week. Amongst major currencies, JPY and EUR depreciated the most by 0.3% and 0.2% respectively. INR is trading marginally stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

UK’s 10Y yield fell the most by 4bps tracking the softening BRC sales data which hinted at some moderation in retail sales. 10Y yields in US and Germany were rangebound monitoring trade related developments. India’s 10Y yield rose by 3bps as tariff concerns linger and some normalisation in liquidity is seen. It is trading flat 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 Fund data as of 6 Aug and 7 Aug 2025

Oil prices were marginally higher awaiting talks between US and Russia.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets monitored host of macro releases. In the US, CPI rose at a stable pace albeit some momentum in core inflation. On YoY basis, CPI and core CPI reading came in at 2.7% and 3.1% respectively, in Jul’25. The moderate pace of increase in inflation has raised higher expectations (94% probability as per CMIE Fed watch) of rate cut in Sep’25. In another print, US tariff revenue rose to a monthly record high level in Jul’25 with custom duties climbing to US$ 28bn, a 273% jump on YoY basis. Elsewhere in UK, unemployment data remained steady with average weekly earnings showing some softening. In Japan, PPI picked up, thus signifying some stickiness in prices as highlighted by BoJ earlier. On domestic front, CPI got breather with food index in deflation territory for 2 nd month in a row.

Except India, stocks elsewhere closed higher. Probability of a Fed rate cut in Sep’25 rose to over 90% after CPI report, pushing US stocks higher. Extension of US-China trade truce also supported investor sentiments. Nikkei rose the most by 2.1% to a record high. Sensex ended weaker with losses in banking stocks. However, it is trading higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended broadly stronger against the dollar. DXY dipped by 0.4% as rate cuts hope solidified after a weak US CPI report. Despite a dip in Germany’s economic sentiment index (ZEW), EUR rose by 0.5%. INR dipped marginally tracking a weakness in FPI inflows. It is however trading stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except US (stable), global yields inched up. UK’s 10Y yield rose the most despite some softening in earnings data. In Germany as well yields firmed up over fiscal concerns and scope for additional borrowing. India’s 10Y yield also edged by 5bps as fears of higher tariff rates faded hopes of further rate cut by RBI. It is trading higher at 6.51% 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 Fund data as of 7 Aug and 8 Aug 2025

Oil prices ended weaker tracking higher US crude stockpiles.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets showed some momentum over rising expectations cantering around Fed rate cut. Equity indices firmed up over easing financial conditions. Fixed income got support with US 10Y yield falling at the sharpest pace. US Treasury secretary urged at least 150bps cut in Fed fund rate amidst weaker labour market conditions. On macro front, US mortgage applications went up signalling some revival in real estate demand conditions. Germany’s CPI print remained broadly steady. Elsewhere, reports stated that India and China are resuming border trade of local goods after 5 years. This holds crucial in the wake of contemporary protectionist policies in place. In another news, Finance Ministry is considering ways for export promotion through simplified access of MSME credit, facilitating overseas warehousing and global branding to integrate India with global supply chain.

Global stocks ended higher as risk-sentiments improved. In the US, investors have ramped up expectations of Fed rate cuts this year after a relatively muted CPI report. S&P 500, FTSE and Nikkei, all climbed to a record high. Sensex ended 0.4% higher as metal and auto stocks gained. It is trading further higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies gained at the expense of the dollar. DXY declined further as the US Treasury Secretary hinted at an outsized cut in Fed rates. EUR was 0.3% higher, tracking CPI print in Germany. INR too appreciated tracking global cues. It is trading further stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except Japan (tad higher), global yields closed lower. 10Y yield in major AEs got support from growing expectations of Fed rate cut. US and Germany’s 10Y yield fell the most followed by UK. In Japan, weaker demand for 5-year bond sales and US Treasury Secretary’s comments resulted in some upbeat momentum. India’s 10Y yield fell a tad. 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 Fund data as of 8 Aug and 11 Aug 2025

Oil prices dipped as IEA projected an increase in oil supply in 2025 and 2026.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research