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China’s GDP growth slowed more than expected in Q2CY24 to 4.7% (est.: 5.1%) and 5.3% growth noted in Q1. Weakness in property sector and jobs scarcity, dented domestic demand. Even retail sales growth eased in Jun’24, to 2% (est.: 3.3%) from 3.7% in May’24. Industrial production (5.3% in Jun’24 versus 5.6% in May’24) and FAI growth (3.9% in H1 versus 4% between Jan-May’24) too noted moderation. Investors are now expecting announcement of government measures, to stimulate demand. Separately in the US, PPI inched in Jun’24 to 2.6% (est.: 2.3%) from 2.2% in May’24. Core PPI also rose, signalling underlying price pressures. However, with CPI under control, investors continue to expect Fed to cut rates in Sep’24. In India, CPI inflation rose to 5.1% in Jun’24 up from 4.75% in May’24, led by higher food prices. IIP growth improved to 5.9% in May’24 from 5% in Apr’24.
Except Nikkei (lower) and Shanghai Comp (flat), other global indices ended higher. US stocks closed in green amidst growing expectations of rate cut as given the moderation in CPI print. Hang Seng continued to climb higher. Sensex surged by 0.8% supported by strong gain in IT stocks. It is trading higher today, while Asian stocks are trading lower.
Source: Bloomberg, Bank of Baroda Research
Barring INR (flat), other global currencies ended higher. DXY retreated further by 0.3% as softer CPI data strengthened rate cut expectations. Investors are pricing in ~88% chance of a 25bps cut in Sep’24. JPY continued to appreciate amidst news of a possible intervention. INR is trading at similar levels today while other Asian currencies are trading mixed.
Source: Bloomberg, Bank of Baroda
Global yields closed mixed. 10Y yields in US and Japan fell, while they inched up in UK and Germany. Softer CPI print in the US has raised the probability of a Fed rate cut in Sep’24. In UK, sticky inflation and rebound in GDP growth, has raised uncertainty around the timing of rate cut by BoE. India’s 10Y yield ended flat, and is trading at broadly similar levels even today (7%).
Source: RBI, Bank of Baroda Research
Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 9 Jul and 10 Jul 2024
Oil prices fell, amidst disappointing China’s import data.
The recent dovish commentary by Fed Chair weighed in on investors' sentiments and reinforced the rate cut expectations, with the earliest cut likely in Sep'24. It is expected there will be 3 rate cuts during the year. Furthermore, underwhelming data from China, weaker than expected Q2CY24 GDP print added concerns around economic recovery. On the domestic front, WPI came in at 3.4% (16-month high) in Jun'24 compared with 2.6% in May'24 led by elevated food prices. Separately, on the back of good monsoon, Kharif sowing has been 10.3% higher than last year. India's trade deficit narrowed to US$ 21bn in Jun'24 (US$ 23.8bn in May’24). Export growth moderated to 2.6% in Jun'24 and import growth was at 4.9% in Jun'24.
Global equity indices ended mixed. Investors monitored dovish commentary by Fed chair as he stated Fed 'will not wait for inflation to hit the 2% mark' to cut rates. Investors also closely tracked subdued GDP print from China. On the other hand, Sensex ended in green, supported by gains in real estate and oil & gas stocks. It is trading higher today while other Asian indices are trading mixed.
Source: Bloomberg, Bank of Baroda Research | Note: Markets in Japan were closed on 15 July 2024
Major global currencies ended lower against the dollar. DXY rose by 0.1%, supported by gains in US treasury yields. GBP fell the most ahead of services inflation data, due tomorrow, which is expected to shed light on timing of BoE’s rate cut. Following global cues, INR also fell by 0.1%. However, it is trading higher today, while other Asian currencies are trading lower.
Source: Bloomberg, Bank of Baroda | Note: Markets in Japan were closed on 15 July 2024
Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 10 Jul and 11 Jul 2024
Oil prices fell again, as concerns around demand from China remain
Even with mixed macro data coming in from the US, rate cut bets by Fed in Sep’24 continue to hold ground. Retail sales growth in Jun’24 slowed (0% versus 0.3% in May’24), albeit less than estimated (-0.3%). Single-family housing starts fell by (-) 2.2% in Jun’24 to reach 980k—lowest since Oct’23. Industrial output slowed marginally in Jun’24 (0.6% from 0.9% in May’24), thus coming in higher than estimated 0.3%. Separately in the UK, the timing of BoE’s rate cut still remains uncertain. Chances of a cut in Aug’24 have dimmed as retail inflation (YoY) remained at 2% in Jun’24 (unchanged from last month and versus est.:1.9%). Both core (3.5%) and services CPI (5.7%) also remained unchanged from last month, thus adding pressure on BoE. On the domestic front, keeping in view India’s growth momentum, IMF has revised its GDP forecast for FY25 upward to 7% from 6.8%.
Global equity indices ended mixed. Investors monitored news of a possible export restrictions against China, which is expected to escalate US-China trade conflicts. Technology and specifically chip related stocks suffered the most. Shanghai Comp declined by 0.5% followed by losses in Nikkei. Sensex is trading lower in their morning session today in line with other Asian indices.
Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 17 July 2024
Except INR (flat), other global currencies ended higher against the dollar. DXY slipped (4-month low) amidst fears of US-China trade conflicts and the likelihood of Sep’24 cut. GBP breached the US$ 1.3 mark. Yen scaled up raising the possibility of government interventions. INR is trading stronger today, while other Asian currencies are trading mixed.
Source: Bloomberg, Bank of Baroda | Note: Markets in India were closed on 17 July 2024
Source: RBI, Bank of Baroda Research | Note: Markets in India were closed on 17 July 2024
Oil prices rose, owing to more than expected draw down from US stockpiles.
Initial jobless claims in the US rose by 20k to 243k (est.: 230k), and continuing claims also rose, to 1.87mn (est.: 1.86mn) reaching its highest level since Nov’21. This has solidified confidence of investors that Fed will cut rate in Sep’24. However, recent comments of Fed officials have reignited debate around the quantum of cumulative Fed rate cuts this year. ECB in its latest policy decision, held rates unchanged, but changed its outlook on growth. President Lagarde noted that risks to growth are now ‘tilted to the downside’ versus being ‘evenly balanced’ before. As a result, investors are pricing in 2 rate cuts by ECB this year. Separately in the UK, slowing wage growth (5.7% in May’24 versus 5.9% in Apr’24) has increased hopes of a rate cut by BoE in Aug/Sep’24. In contrast, Australia registered increase wage growth, despite increase in unemployment, as population pressures grow.
Global equity indices ended mixed. Investors continued to monitor simmering tensions around a possible US-China trade conflict. Markets witnessed profit booking amidst growing headwinds around global economic recovery. Sensex gained by 0.8% supported by movement in IT and banking stocks. It is trading higher today as other Asian indices are trading mixed today.
Global 10Y yields closed mixed. US 10Y yield rose the most (4bps), while UK 10Y yield ended lower. Recent comments from Fed officials has refuelled debate on number of rate cuts Fed will make this year. In UK, slowdown in wage growth helped cool down yields. India’s 10Y yield ended flat, and is trading unchanged even today, awaiting fresh global cues.
Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 12 and 15 July 2024
Oil prices ended flat, as strong US$ and weak demand, impacted sentiments.
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