Economic Weekly Wrap
16 October 2023 - 20 October 2023

US consumer sentiment index as measured by the University of Michigan moderated significantly to 63 in Oct’23 (est. 67.2) versus 68.1 in Sep’23. Consumers’ inflation for both 1-year and 5-year edged up to 3.8% (from 3.2%) and 3% (from 2.8%) respectively. Philadelphia Fed President batted for holding rates at current levels.

Separately, ECB Chief highlighted that the central bank remains ready to keep rates at a fairly restrictive levels for as long as necessary. Focus this week remains on escalating tensions between Israel and Hamas and its potential spill over to other markets. Apart from this focus also remains on Fed Chairman’s speech at an event later in the week as well as corporate earnings results.

• Global stocks broadly closed lower. Markets remained jittery tracking a multitude of events such as escalated tensions in the Middle East and reports of tightened curbs by US on China’s access to advanced chip technology. Hang Seng fell sharply by 2.3%, followed by Shanghai Comp and FTSE (0.6% drop each). Sensex fell by 0.2% amidst fall in banking stocks. It is trading further lower today, in line with other Asian

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Global currencies ended mixed. DXY edged up marginally amidst safe-haven demand and higher than expected inflation data. However, deterioration in consumer sentiment capped its upside. EUR and GBP depreciated. INR depreciated a tad, as oil prices surged. However it is trading stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Except Japan (stable) and India (higher), global yields closed lower. Market appetite for sovereign securities increased as a result of risk-off sentiment. US 10Y yield fell the most by 8bps tracking comments from Philadelphia Fed India’s 10Y yield rose by 2bps tracking higher than expected cut off prices at the auction. It is trading at 7.33% 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

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research │ Note: Mutual fund data as of 9 Oct 2023 and 11 Oct 2023

• Oil prices rose sharply led by tightening US sanctions on Russian

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets continued to monitor the evolving dynamics in the Middle East as the war continued for the 11th day. Elsewhere, global central banks continue to grapple with inflation and growth concerns. While Philadelphia Fed President reiterated his stance to keeps rates steady, BoE’s Chief Economist cautioned against declaring victory against inflation prematurely. Minutes of Reserve Bank of Australia’s Oct’23 meeting indicated that MPC members considered raising rates by another 25bps, but decided against it due to lack of new information. This leaves room open for another rate hike. In India, WPI inflation declined at a slower pace of 0.3% in Sep’23, after dipping by 0.5% in Aug’23. INR slipped to a fresh record-low as investor sentiment remained jittery due to possibility of higher oil prices amidst continued hostilities in the Middle East.

• Global stocks closed mixed tracking Middle East diplomacy Stocks in the US got support from reports of US President visiting Israel to signal solidarity. On the other hand, Asian stocks ended lower tracking stress in China’s property market. Sensex fell by 0.2%, amidst fall in real estate and technology stocks. It is trading higher today, in line with other Asian markets.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Global currencies ended mixed. DXY fell by 0.4% as Fed officials spoke in favour of keeping rates steady. Investors await Fed Chair’s speech. GBP gained 6% after comments from BoE’s Chief Economist. INR depreciated by 2paise to close at a historic low. However it is trading stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Except Japan and China (stable), global yields closed Risk appetite of

the market improved ahead of news of US President’s visit to Israel. 10Y yields in US and UK rose by 9bps each. BoE’s Chief Economist signalled that more work needs to be done on inflation. India’s 10Y yield rose by 2bps, taking global cues. It is trading at 7.32% 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

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research │ Note: Mutual fund data as of 9 Oct 2023 and 11 Oct 2023

• Oil prices fell amidst reports of easing sanctions on

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Investors monitored macro data even as tensions in Middle-East continued to simmer. Retail sales and industrial production in the US surprised to the upside, attesting to the economy’s strength. This also supports the narrative of higher for longer US rates. Providing a glimmer of hope to the battered European economy,

Zew’s economic sentiment index for Germany improved in Oct’23. Separately, while China’s growth slowed down to 4.9% in Q3CY23 versus 6.3% in Q2, it was still higher than estimates of a 4.4% increase. This suggests that government stimulus measures may have aided growth. Other indicators, such as industrial production (4.5% in Sep’23 vs. est. 4.3%) and retail sales (5.5% vs. est. 4.9%) also beat market expectations. On the other hand, fixed asset investment was a tad lower at 3.1% in Jan-Sep’23 versus an estimated 3.2% increase.

• Except US (stable), global stocks closed higher. Investor’s sentiments improved tracking better data prints in US and Nikkei rose the most, followed by Hang Seng. Gains in Shanghai Comp were pared following debt crisis in the property sector of the region. Sensex rose by 0.4%, led by power and banking stocks. It is trading lower today, in line with other Asian markets.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Global currencies ended mixed. DXY rose a tad after better than expected macro data. EUR appreciated by 0.2% as Germany’s Zew economic sentiment index showed improvement in Oct’23. INR recovered from its record low supported by central bank It is trading further stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Except India (stable), global yields closed higher. Risk appetite continued to improve amidst expectation of some diplomacy cues in the Middle East crisis. US 10Y yield firmed up by 13bps tracking better macro Even Germany’s 10Y yield rose by 10bps amidst comments from ECB’s official stating that inflation is still not out of the woods. India’s 10Y yield is trading at 7.35% 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

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research │ Note: Mutual fund data as of 12 Oct 2023 and 13 Oct 2023

• Oil prices rose following higher than expected drawdown in US

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Conflict in the Middle-East continued to garner investors’ attention, leading to higher demand of safe assets such as dollar and gold. In macro data, US housing starts increased at a brisk pace of 7% in Sep’23, despite rising mortgage rates. Two key Fed officials reiterated the need to keep policy rates on hold, which would enable the Fed to assess the impact of previous rate hikes. Inflation in the UK remained high at 6.7% in Sep’23 (unchanged from Aug’23) versus estimated 6.6%, suggesting that the BoE might need to hike its policy rates further. In contrast, inflation in the Eurozone edged down to 4.3% from 5.2% in Aug’23. In Japan, exports rose by 4.3% in Sep’23 after falling for 3-straight months. Imports however, continued to slide. Indian government announced MSP rates for Rabi crops for marketing season 2024-25 SPs for lentils and wheat had the maximum rise (7% each).

• Except Nikkei (flat), global stocks closed lower. Investor’s remained cautious amidst escalated tension in the Middle East despite US efforts. Apart from this, Fed Chair’s speech is expected to reflect some hawkish rhetoric. Stocks in US and UK fell the Sensex fell by 0.8%, led by power and banking stocks. It is trading further lower today, in line with other Asian markets.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Global currencies closed broadly weaker against the DXY rose by 0.3% ahead of Fed Chair’s speech. GBP depreciated even as UK’s inflation stayed elevated, raising the likelihood of more rate hikes. INR depreciated a tad as oil prices inched up. It is trading flat today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Global yields witnessed sell-off. UK’s 10Y yield rose by 15bps as CPI data remained US 10Y yield rose by 8bps as New York Fed President spoke of a restrictive policy rate. Japan’s 10Y yield also rose to its near decade high, prompting BoJ to announce emergency bond buying. India’s 10Y yield rose by 2bps, taking global cues. It is trading higher at 7.38% 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

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research │ Note: Mutual fund data as of 12 Oct 2023 and 13 Oct 2023

• Oil rose as EIA’s report showed sharper than expected drawdown in

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Echoing comments made by other Fed officials, Fed Chair signalled that the central bank is likely to pause its rate hike cycle as it assesses the inflation and growth dynamics. However, he left room open for further rate hike amidst tightness in labour market and above trend growth. This came on heels of data showing US jobless claims fell to a 9-month low at 198,000 (est. 212,000). Separately, tensions in Middle-East escalated, raising the possibility of more countries getting embroiled in the conflict. Core inflation in Japan eased to a near 12-month low of 2.8% from 3.1% in Aug’23, but stayed firmly above BoJ’2 target of 2%. GfK’s consumer confidence index for UK fell to a 3-month low in Oct’23 at -30, amidst elevated inflation in the region. RBI in the monthly bulletin has highlighted that growth is likely to benefit from festive spending and inflation is expected to moderate further in coming months.

• Global stocks ended in red tracking developments in the Middle-East and comments from Fed Chair. Apart from this, elevated global yields also dampened investor sentiments. Amongst major markets, stocks in Asia declined the most led by Hang Seng and Nikkei. In India, Sensex fell by 0.4%, led by fall in metal and oil and gas stocks. It is trading further lower today, in line with other Asian

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Most global currencies appreciated against the dollar. DXY fell by 0.3% as the probability of further rate hikes by Fed this year diminished after Fed Chair’s EUR edged up the most by 0.4%. INR too recovered even as oil prices inched up. It is trading further stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Sell-off in global bond market continued. US 10Y yield rose the most by 7bps after Fed Chair’s speech. While investors expect Fed to remain on hold in Nov’23, possibility of elevated rates for a longer period has increased Japan’s 10Y yield continued to rise despite BoJ’s bond purchase earlier in the week. India’s 10Y yield rose by 2bps. 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

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research │ Note: Mutual fund data as of 16 Oct 2023 and 17 Oct 2023

• Oil prices rose further as investors assessed the developments in Middle-East.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research