Economic Weekly Wrap
15 April 2024 - 19 April 2024

Geo-political tensions in the Middle East escalated amidst increased hostilities between Iran and Israel, which is likely to weigh on investors’ sentiments. While oil prices jumped up amidst supply concerns, gold and dollar also inched up due to safe-haven demand. In US, University of Michigan’s inflation expectation survey also noted an uptick for both 1Y and 5Y period. Separately, inflation in both Germany and France moderated, inching closer to ECB’s target of 2%. In China, exports and import growth contracted in Mar’24 by 7.7% and 1.9% respectively. In India, CPI remained in line with our estimate at 4.9%, stickiness in food inflation remained while core was benign. FY24 headline CPI averaged at 5.4%, in line with RBI’s estimate. IIP growth picked up to 5.7% in Feb’24 from 4.1% in Jan’24.

Global stocks ended mixed. Markets remained cautious monitoring geopolitical tension. In US, 1-year ahead inflation expectations firmed up raising doubts about the timing of rate cut by Fed. Hang Seng fell the most, followed by US stocks. FTSE inched up supported by better macro print in UK. Sensex fell by 1.1% dragged down by consumer durables and oil and gas stocks. It is trading further lower today, while Asian stocks are trading mixed.

Global currencies ended weaker against the dollar. DXY rose by 0.7% as expectations of Fed rate cut in Jun’24 diminished. EUR depreciated by 0.8% as ECB hinted at rate cuts. GBP too depreciated even as UK’s GDP expanded in Feb’24. Higher oil prices weighed on INR. It is trading further weaker today, in line with other Asian currencies.

Except India, global yields broadly closed lower. Germany’s 10Y yield fell at the sharpest pace following comments by ECB Governing Council member who hinted at a rate cut in Jun’24. Both US and UK’s 10Y yield fell by 6bps each. India’s 10Y yield rose by 7bps in the truncated week as some bit of delay in global and domestic rate cut is priced in. It is trading at 7.17% today.

Oil prices rose as tensions between Iran and Israel flared up.

Risk aversion was visible in global markets with increased demand for safe-haven assets such as gold and dollar amidst tensions in Middle East. On macro front, US retail sales inched up by 0.7% in Mar’24 (est. 0.3%) from an upwardly revised 0.9% in Feb’24 (MoM). Continued strength in US economy is likely to delay Fed’s easing cycle. In China, GDP growth was higher than expected at 5.3% (est. 4.6%), led by positive policy response. Separately, both industrial production and retail sales missed estimates to increase by 4.5% (est. 6%) and 3.1% (est. 4.1%), respectively in Mar’24. However, growth in fixed asset investment was robust at 4.5% in Q1CY24 (est. 4.1%). In India, IMD predicted an above normal monsoon for this year which bodes well for growth and inflation outlook. Domestic markets are expected to remain subdued as investors await more clarity on the conflict in Middle East.

Except Shanghai Comp (higher), global stocks closed lower. Risk appetite of investors has fallen amidst rising geopolitical tensions. Apart from this, higher than expected retail sales print in the US raised doubts about the future course of action by Fed. Sensex fell by 1.1% dragged down by banking stocks. It is trading further lower today, in line with other Asian stocks which got impacted tracking China’s patchy macro data points.

Global currencies depreciated. DXY hovered near a 6-month high after US retail sales rose more than expected. JPY depreciated by 0.7%, to its weakest since Jun’90. INR depreciated to a record low amidst concerns over Middle East crisis. It is trading further weaker today, in line with other Asian currencies.

Except China and India (stable), global yields broadly closed higher. UK’s 10Y yield rose at the sharpest pace ahead of BoE Governor’s speech. This was followed by US and UK’s 10Y yield. San Francisco Fed President spoke of no urgency to rate cut. Retail sales data of US also reflected the same. India’s 10Y yield is trading a tad higher at 7.19% today.

Oil prices were broadly steady as investors assessed the Middle East situation.

IMF raised its global growth forecast to 3.2% in 2024 from 3.1% estimated earlier, led by better-than-expected growth outcomes in advanced economies. Inflation was projected to decline to 5.9% in 2024 and 4.5% in 2025. For India, growth projection for FY24 was revised to 7.8% and FY25 at 6.8% (+30bps). Amongst macro release, inflation in Eurozone was confirmed at 2.4% in Mar’24 from 2.6% in Feb’24, increasing the likelihood of a rate cut in Jun’24. On the other hand, Fed officials including the Fed Chair suggested that the US rate cut cycle might be delayed. In UK, inflation eased to 3.2% in Mar’24 from 3.4% in Feb’24. In Japan, exports rose more than expected by 7.3% (est. 7%) in Mar’24, while imports declined by 4.9%. In Australia, unemployment rate edged up to 3.8% in Mar’24 from 3.7% in Feb’24.

Global stocks closed mixed. Stocks in the US inched down as Fed Chair’s recent comments have considerably pared down expectations of rate cuts. The commentary on inflation has also hinted at a hawkish approach. FTSE inched up as BoE Governor gave slight comfort on inflation-unemployment mix. Asian stocks rose ahead of key earnings report. Sensex fell by 0.6%, led by technology stocks. It is trading higher today, in line with other Asian stocks.

Global currencies rose as the dollar rally took a breather. After rising for 6- consecutive sessions, DXY fell by 0.3%. EUR gained the most by 0.5% even as falling inflation bolstered the case for an ECB rate cut in Jun’24. INR fell to a fresh record-low in the last trading session but opened stronger today, in line with other Asian currencies.

Except Japan and India (higher), global yields closed lower. US 10Y yield fell at the sharpest pace by 8bps despite hawkish comments from Fed Chair. A host of other Fed officials are also due to speak this week. The impact was also felt in 10Y yield of UK and Germany. Risk-off sentiment has led to some bit of portfolio rebalancing. India’s 10Y yield is trading lower at 7.16% today.

Oil prices fell as economic headwinds outweighed supply side concerns.

Reports of an escalation in tensions between Israel and Iran have roiled global markets. Asian markets and currencies are trading in red, and oil prices have inched up. Demand for safe haven has pushed gold, dollar and yen higher. A wider conflict in the Middle East is likely to lead to increased volatility in the global markets while also pushing global commodity prices higher. This can jeopardize the fight against inflation. Possibility of Fed rate cuts has been pushed back further with New York Fed President also endorsing the narrative of higher for longer rates. Labour market conditions in the US remained tight with jobless claims unchanged at 212,000 (est. 215,000). However, existing housing sales declined by 4.3%. Separately, BoJ Governor hinted at the possibility of more rate hikes to mitigate the inflationary impact of a rapidly depreciating JPY. Incidentally, core CPI in Japan eased to 2.6% in Mar’24 from 2.8% in Feb’24

Global stocks closed broadly higher. Investors eyed major developments such as geopolitical tensions in the Middle East, hawkish comments from Fed officials and US jobless claims which hinted at a tight labour market. Hang Seng rose the most followed by FTSE. Sensex fell by 0.6%, led by consumer durables and banking stocks. It is trading further lower today, in line with other Asian stocks.

Global currencies depreciated. DXY was up by 0.2% after hawkish comments by Fed officials. EUR depreciated the most by 0.3% as the ECB is likely to cut rates before the Fed. INR hovered near a record low amidst a global risk-off sentiment. It is trading further weaker today, in line with other Asian currencies.

Except Japan and China (lower), global yields closed higher. US 10Y yield rose the most by 5bps as Fed officials advocated a no rush approach towards rate cuts. Germany’s 10Y yield also rose by 3bps despite ECB policymaker hinting at rate cut in Jun’24. India’s 10Y yield closed flat and is trading higher at 7.21% today amidst news of increased tensions in Middle East.

Oil prices fell amidst demand concerns over delayed rate cuts by Fed