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Uncertainty reigned over Fed’s rate cuts as comments from Fed officials and US macro data pushed back the possibility of a rate cut. University of Michigan’s consumer sentiment index dipped to a 6-month low at 67.4 in May’24 (est. 76) from 77.2 in Apr’24. Consumers’ 1Y and 5Y inflation expectations edged up to 3.5% (from 3.2%) and 3.1% (from 3%) respectively, suggesting some de-anchoring of inflation expectations. US CPI report due later in the week will be a key monitorable for the markets. In UK, GDP growth bounced back to 0.6% in Q1CY2024, beating estimates of 0.4% growth. CPI in China rose to 0.3% (est. 0.2%) from 0.1% in Mar’24, signalling some improvement in domestic demand. Deflation in PPI also moderated to 2.5% from 2.8% in Mar’24. On domestic front, IIP growth eased to 4.9% in Mar’24 from 5.6%. Focus now shifts to CPI data due today. We estimate CPI at 4.7%.
Global stocks ended higher. Hang Seng rose the most by 2.3%, ahead of key earnings report. Stocks elsewhere traded in a narrow range as cautiousness prevailed before the release of US CPI data. Investors also remained prudent amidst reports of longer tenor bond sales in China. Sensex rose by 0.4%, led by gains in power and oil & gas stocks. However, it is trading lower today, while Asian stocks are trading mixed.
Source: Bloomberg, Bank of Baroda Research
Global currencies traded in thin ranges ahead of US CPI report. DXY edged up by 0.1% amidst increased expectations of higher for longer rates. GBP ended flat despite favourable growth numbers. INR remained in a tight range. It is trading weaker today, in line with other Asian currencies.
Source: Bloomberg, Bank of Baroda
Global yields closed mixed. US 10Y yield firmed up as inflation expectation index remained sticky. Apart from this, comments of some Fed officials pushing the rate cut in CY25, also impacted investor sentiments. Japan’s 10Y yield fell a tad eyeing moderation in PPI print. India’s 10Y yield closed stable. It is trading at the same level today, but some upward bias exists ahead of CPI print.
Source: RBI, Bank of Baroda Research
Source: Bloomberg, Bank of Baroda Research| Note: Mutual Fund data as of 7 May and 8 May 2024
Oil prices fell as dollar strengthened on expectation of higher for longer rates.
Global markets remained range-bound ahead of US CPI data. Inflation in the US is expected to moderate to 3.4% from 3.5% in Mar’24, with core inflation at 3.6% (from 3.8% in Mar’24) on a YoY basis. Incidentally, New York Fed Survey showed an uptick in consumers’ 1-year inflation expectations. Moreover, consumers’ expectations of increase in home prices rose to its highest level since Jul’22. Separately, reports that the US may impose significant tariffs on certain Chinese imports kept markets on edge. China is expected to start the sale of its special long term treasury bonds worth 1tn yuan this week to support its ailing economy. In India, CPI inflation inched down to 4.8% in Apr’24, even as food inflation remained considerably elevated at 8.7%, thus pushing back RBI’s rate cut trajectory.
Global stocks ended mixed. Investors remained cautious ahead of earnings report of major tech companies. Apart from this, inflation readings of major economies (US, Germany) are also due along with comments from the Fed Chair. Hence, global stocks traded thinly. Sensex rose by 0.2%, led by capital goods stocks. It is trading further higher today, while other Asian stocks are trading mixed.
Global currencies ended mixed. DXY declined as investors’ focus remains on US CPI report due on Friday. JPY depreciated by 0.3% as higher interest rate differential with the US continued to weigh on the currency. INR too was marginally weaker amidst a slowdown in FPI inflows. However, it is trading stronger today, in line with other Asian currencies.
Global yields closed mixed. US 10Y yield fell a tad ahead of inflation data which would shed light on the trajectory of Fed rate. Japan’s 10Y yield firmed up by 3bps. Notably, its 20Y yield firmed up to its highest in a decade, as BoJ reduced the quantum of bond purchases. India’s 10Y yield fell by 1bps. It is trading marginally lower today at 7.11%.
Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 8 May and 9 May 2024
Oil prices inched up amidst bullish sentiment over China’s growth.
US announced fresh tariffs on a slew of Chinese imports such as semiconductors and EVs. The steep hike in tariffs is over and beyond the tariff increase announced earlier under US’ former President. This has led to calls of retaliatory action by China. Trade tensions between two of the world’s largest economy can have wide ranging impact on global trade which has just started showing signs of a recovery. Separately, US PPI inched up to 0.5% in Apr’24 (est. 0.3%) from a revised decline of 0.1% in Mar’24 (MoM), led by higher services inflation. The data suggests underlying price pressures in the economy, a view also echoed by the Fed Chair. In his remarks, the Fed Chair noted that progress on inflation has been slower than expected warranting the need for higher rates. In India, WPI inched up to 13-month high, led by higher food and fuel prices.
Global currencies ended mixed. DXY fell further even as Fed Chair reiterated the need for keeping rates elevated. EUR appreciated by 0.3% led by an improvement in Germany’s economic sentiment index. INR appreciated a tad as oil prices eased. It is trading further stronger today, in line with its Asian peers.
Global yields closed mixed. US 10Y yield moderated ahead of CPI data which is expected to show some moderation. However, the recent statement of Fed officials pointed to continuation of a restrictive approach. In UK, yield remained stable monitoring employment data. Germany’s 10Y yield firmed up despite a stable CPI reading. India’s 10Y yield fell a tad. It is trading at 7.09% today.
Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 9 May and 10 May 2024
CPI inflation in US moderated to 0.3% in Apr’24 (est. 0.4%) from 0.4% in Mar’24 (MoM). Core inflation also eased to 0.3% (from 0.4%). Separately, growth in retail sales was flat in Apr’24 (est. 0.4%), following a 0.6% increase in Mar’24 (MoM). The data has led to increased expectations of Fed’s rate cut cycle to commence from Sep’24. GDP growth in the Eurozone bounced back to 0.3% in Q1 CY24 after declining by 0.1% in Q4 CY23. Notably, the European Commission left the growth forecast for the region unchanged at 1% in 2024. However, inflation estimate was revised lower to 2.5% in 2024 versus 2.7% estimated earlier. In Japan, GDP growth declined sharply by 0.5% in Q1 CY24 versus an expected 0.3% decline (QoQ), led by a continued contraction in private consumption. In India, trade deficit inched up to a 4-month high in Apr’24 as imports increased at a faster pace than exports
Global stocks closed mixed. Stocks in US inched up as moderation in CPI and retail sales reignited hopes of a rate cut by Fed this year itself. Shanghai Comp moderated as US imposed steep tariffs on Chinese imports. Sensex fell by 0.2%, led by auto stocks. However, it is trading higher today, in line with Asian stocks.
Source: Bloomberg, Bank of Baroda Research | Note: Markets in Hong Kong were closed on 15 May 2024
Global currencies appreciated against the dollar. DXY dipped by 0.6% after a US macro data boosted bets of a rate cut in Sep’24. JPY gained the most by 1%. EUR also gained following a stronger than expected growth in Q1 CY24 GDP. INR remained rangebound. It is trading stronger today, in line with its Asian peers.
Barring Japan and China, global yields closed lower. US 10Y yield fell by 10bps supported by moderation in CPI data. The reverberation was also felt across yields in UK and Germany. In China, traders remained watchful of the impact of long tenor bond sales. India’s 10Y yield fell by 3bps led by global cues. It is trading further lower at 7.06% today.
Oil prices inched up led by expectation of demand revival aided by lower rates
While welcoming the dip in inflation in Apr’24, two key Fed officials reiterated the need for a cautious approach to rate cuts. Supporting this view, import prices in US rose sharply in Apr’24, while jobless claims dipped. On the other hand, industrial production was flat in Apr’24, as manufacturing activity declined by 0.3%. In China, macro data painted a mixed picture of the economy. Industrial production growth picked up to 6.7% in Apr’24 (est. 5.5%) from 4.5% in Mar’24. However, retail sales increased at a modest pace of 2.3% (est. 3.8%) compared with 3.1% in Mar’24, suggesting weak domestic demand. Growth in fixed asset investment also moderated to 4.2% in Jan-Apr’24 from 4.5% in Jan-Mar’24. Growth in housing prices also remained subdued amidst the ongoing property crisis in the country. It is to be noted that China is scheduled to start the sale of long-term bonds from today to support its economy.
Domestically, government officials have indicated that government has met its fiscal deficit target of 5.8% in FY24.
Stocks in US and UK traded lower tracking weak earnings report. Apart from this a drop in US jobless claims also impacted investor sentiments. Asian stocks broadly traded higher. Sensex rose by 0.9%, led by capital stocks. However, it is trading lower today, while Asian stocks are trading mixed tracking China’s mixed data points.
Barring Japan and India (lower), global yields closed higher. US 10Y yield inched up by 4bps as Fed officials hinted at a cautious approach despite the drop in recent CPI data. Germany’s 10Y yield firmed up as ECB Vice President hinted at macroeconomic risks due to geopolitical tensions. India’s 10Y yield fell a tad. It is trading at the same level today, ahead of the weekly auction.
Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 13 May and 14 May 2024
Oil prices inched up amidst a fall in inventories.
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