Economic Weekly Wrap
20 February 2024 - 23 February 2024

Producer prices in US rose at the fastest pace in 5-months at 0.3% in Jan’24 (est. 0.1%) compared with a decline of 0.1% in Dec’23. The increase was led by higher services inflation. The persistent increase in inflation has reaffirmed views of a delayed start to the Fed rate cuts. Separate data also showed a decline in housing starts which fell by 14.8% to 1.33mn units (est. 1.46mn units). In China, while PBOC kept the 1Y LPR unchanged at 3.45%, it cut the 5Y year LPR by 25bps to 3.95%. This was the first rate cut since Jun’23 and was higher than estimate of a 5-15bps decline. Separately, minutes of the Reserve Bank of Australia meeting indicated that members remained vigilant on inflation and did not rule out further rate hikes.

Global stocks ended mixed. Investors shifted their focus to Fed minutes which are scheduled to be released this week. Atlanta Fed President also spoke of more data related evidence before embarking on easing financial conditions. Shanghai Comp rose the most, while Hang Seng and US stocks moderated. Sensex inched up, led by consumer durables and auto stocks. However, it is trading lower today, in line with its Asian peers.

Except EUR and INR, other global currencies closed ended weaker against the dollar. DXY was marginally higher tracking macro data (US PPI and housing starts). Possibility of a rate cut by Fed has been pushed back to Jun’24. JPY depreciated further amidst continued policy divergence between BoJ and Fed. INR appreciated a tad. It is trading further stronger today, while other Asian currencies are trading mixed.

Global yields traded in a narrow range. Investors have already priced in a delayed start of rate cut cycle by Fed. The recent PPI data and inflation expectations data of the US also reaffirmed the same. PBOC’s decision to cut the benchmark 5 year loan prime rate might have some future impact on its yield. India’s 10Y yield inched a tad and is trading at 7.09% today.

Oil prices were broadly stable tracking developments in the Middle-East.

Global markets continued to assess the trajectory of policy rates. Minutes of the Fed policy meeting are due today. On the other hand, Bank of England Governor along with other BoE members, commented on the possibility of rate cuts. Markets now expect BoE to cut rates possibly in Jun’24 by 25bps. In the Euro Zone, wage growth slowed down for the first time since Q2CY22, suggesting some moderation in underlying inflationary pressures. In India, both the RBI and Government attested to the strength of the Indian economy. A pickup in private sector capex, improved capacity utilisation, coupled with moderation in inflation and government’s thrust on infrastructure bode well for the outlook of the economy.

Global stocks ended mixed. Stocks in Hong Kong rose the most led by healthcare, basic materials and technology stocks. Shanghai Comp also inched up supported by monetary easing of PBOC. Nikkei moderated as investors monitored downbeat business sentiment among large manufacturers, assessing the Tankan poll data. Sensex inched up, led by banking and real estate stocks. It is trading further higher today, while Asian stocks are trading mixed.

Global currencies appreciated as the dollar retreated. DXY fell by 0.2%, as investors await minutes of the Fed meeting. GBP rose by 0.2% even as BoE Governor hinted at the possibility of rate cuts. EUR too rose by 0.3%. INR appreciated by 0.1% as oil prices fell. It is trading further stronger today, in line with other Asian currencies.

 Except US and Japan (stable), global yields closed lower. UK’s 10Y yield fell the most by 7bps as investors monitored BoE Governor’s comments, who spoke of easing price pressures and possibility of rate cuts. Germany’s 10Y yield also fell by 4bps as Eurozone wage growth slowed down. India’s 10Y yield fell by 4bps, in line with global cues and is trading further lower at 7.04% today.

 Oil prices fell as worries over muted demand outweighed supply concerns.

Minutes of the Fed’s Jan’24 meeting revealed that MPC members remained concerned about cutting rates too soon, even though it was acknowledged that policy rate has possibly peaked. It was noted that while economic activity has been growing solidly, the outlook remained uncertain and upside risks to inflation remain. This reinforced views of a ‘higher for longer’ narrative. Market expectations of Fed rate cuts in 2024 have now been revised to less than 100bps versus 150bps expected at the start of the year. Japan’s flash PMI signalled weakening momentum as both services and manufacturing PMI slipped. On the other hand, composite PMI in Australia rose to a 10-month high, led by a sharp pickup in services activity, even as manufacturing activity shrank. Separately, Bank of Korea kept its policy rate steady at 3.5%, while also maintaining its growth and inflation forecasts.

Global stocks ended mixed tracking corporate earnings and minutes of Fed policy. Stocks in US inched up as investors have dialled back expectations of rate cut. Fed minutes also reaffirmed the same. Nikkei showed slight moderation, to close below its record closing of 1989. This was on account of a weaker yen. Sensex closed lower, led by losses in power and capital goods stocks. It is trading further lower today, while Asian stocks are trading higher.

Global currencies closed mixed. DXY fell by 0.1%, as investors assessed Fed minutes. EUR rose by 0.1% as Eurozone’s consumer sentiment index rose in Feb’24. On the other hand, JPY continued to depreciate. INR closed flat. However, it is trading stronger today, in line with other Asian currencies.

Global yields closed mixed. Yields in US, UK and Germany inched up as Fed minutes indicated a delayed start to the rate cut cycle. Even Fed officials (Thomas Barkin and Michelle Bowman) highlighted inflationary risks. Further, UK’s public sector borrowing data and ECB official’s comments also impacted yields. India’s 10Y yield fell by 1bps, and is trading at the same level today.

Oil prices rose tracking developments in the Middle-East.

Macro data painted a mixed picture of the US economy. Jobless claims fell unexpectedly to 201,000 (est. 218,000), attesting to the continued strength in the labour market. Existing home sales rose by 3.1% to a 5-month high. On the other hand, flash PMI indicated moderation in economic momentum, led by services activity. In contrast, flash composite PMIs of both UK and Eurozone edged up. Slowdown in China’s property sector continued, with new home prices falling by another 0.3% (MoM) in Jan’24. However, the pace of decline has moderated. In India, flash PMI signalled that economic activity remains on track, amidst an expansion in both manufacturing and services PMI. Minutes of the RBI’s policy meeting indicated that the MPC remained confident on the growth outlook. MPC members also agreed that much of the moderation in headline inflation is led by softening core and food inflation poses risks to the inflation trajectory.

 Global stocks rallied propelled by robust earnings of a major tech company. US stocks rose the most, followed by Japan. Signs of improvement in the property sector in Hong Kong, supported Hang Seng. Sensex inched up, led by auto and capital goods stocks. It is trading further higher today, while Asian stocks are trading mixed, tracking house price data in China.

Global currencies closed mixed. DXY fell marginally as investors assessed macro data from the US. GBP appreciated by 0.2% supported by improvement in flash PMI. JPY depreciated further leading to speculation of BoJ’s intervention. INR appreciated a tad, but is trading weaker today.

Global yields traded in a narrow range. Investors tracked mixed PMI readings, moderation in US jobless claims as well as commentaries of Fed officials. Philadelphia Fed President spoke of risks of early easing, while Fed Governor Lisa Cook said that if disinflation is sustained then it warrants a change in rate outlook. India’s 10Y yield rose a tad. It is trading at the same level today.

Oil prices rose as US crude inventories rose less than expected.