Economic Weekly Wrap
26 May 2025 - 30 May 2025

On tariff front, US President agreed for an extension of deadline to EU before imposing 50% tariffs on imports, till 9 Jul from 1 Jun earlier. The discussion has been proposed to be swift on EU’s part. Elsewhere in Japan, reports have indicated of a possible hand holding of technical and financial contribution to the US. Thus, market indicators got some breather. Gold prices inched up, Brent steadied and DXY moderated, in today’s session. Among macro indicators, US new home sales gained momentum. In UK, core retail sales data picked up. In Germany, the Q1 final estimates reflected a better picture supported by private consumption demand. In India, RBI’s bountiful dividend transfer to the government will be supportive of liquidity conditions and yields. The Southwest monsoon has arrived earlier by over 8- days than its usual onset of June. This has been the earliest arrival in over 16-years.

Global indices ended mixed. Stocks in Japan firmed up while those in China and US ended lower. Investors closely monitored the ongoing developments on the trade front. The volatility index rose to 2-week high. However, Sensex rebounded with strong gains in banking and power stocks. It is trading higher today while other Asian indices were trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Dollar index weakened to a 2-week low amidst concerns of growing fiscal deficit. JPY strengthened as demand for safe-haven assets increased given the concerns on US fiscal trajectory. INR appreciated given the weakness in greenback. It is trading stronger today while Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Germany’s 10Y yield fell at the sharpest pace by 8bps as Eurozone wage growth softened calling for further monetary policy easing. UK’s 10Y yield also fell sharply albeit higher than expected government borrowing. BoE official’s comment on uncertainty of inflation may have impacted its direction. India’s 10Y yield fell by 2bps. The new benchmark security is trading at 6.21% 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

*Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 19 May and 20 May 2025

Crude oil prices rose amidst US -Iran talks on nuclear program.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global market sentiments lingered around start and stop policy approach of the US on tariff front. DXY continued to soften as fiscal concerns in the US have acted as a deterrent towards safe-haven demand. Elsewhere in Japan, BoJ Governor hinted at some monetary tightening in the wake of improving economy. This might comfort JPY in the coming days. In China, reports suggested that central bank have urged major lenders to increase the share of yuan for cross border trade. On macro front, in UK, BRC shop price index, a proxy for retail sales, showed moderation in May’25, in line with previous month. In Japan, PPI softened to 3.1% in Apr’25 against previous month’s revised data of 3.3%. In China, industrial profits edged up to 3% on YoY basis. On domestic front, IIP data release is scheduled (BoB estimate: 0.5-1%).

With markets in US and UK shut for a holiday, global indices saw muted trading. In Asia, indices ended mixed. Nikkei rose by 1% as trade tensions eased further. On the other hand, Hang Seng declined by 1.4%. In India, Sensex rose by 0.6% led by gains in auto and capital goods sector. However, it is trading weaker today in line with other Asian indices.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mixed. DXY declined by 0.2% to a 1-month low amidst concerns over US fiscal policy. EUR rose, supported by a delay in US tariffs. INR ended marginally stronger tracking weak oil prices. It is however trading weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Yields traded in a close range as major markets were closed. UK’s 10Y yield is likely to show the impact of firming up of the average advertised wage by 9%, blurring possibilities of rate cut by BoE. Fed official’s comment over uncertainty on Fed trajectory is also likely to cap its yield to a certain extent. India’s 10Y yield closed stable. The new benchmark security is at 6.2%.

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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research
Note: Mutual Fund data as of 19 May and 20 May 2025

Oil prices eased marginally ahead of OPEC+ meeting.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Among major market developments have been the concern over volatility in Japanese super long bonds. BoJ Governor has also raised concerns and hinted at likely repercussions on yields of short end papers. There has also been ongoing speculation that government will reduce the issuance of long dated securities. On macro front, US indicators showed upbeat performance (Conf. Board Consumer Confidence and durable goods orders). Fed officials have also pointed of growing uncertainty over trajectory of inflation in the current elevated tariff environment. In Germany as well, consumer confidence posted a better picture. On domestic front, IMD predicted above normal monsoon with 106% of LPA rainfall during Jun-Sep season. The spatial distribution is crucial for major perishable crops.

Except China and India, stocks elsewhere ended higher. Easing trade tensions between US and EU supported investors’ sentiments. S&P 500 climbed up by 2%. In Asia, stocks in Japan found comfort from a weaker currency. In India, Sensex fell by 0.8% amidst losses in auto and banking stocks. It is trading further weaker today, while other Asian stocks are trading mostly higher.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies weakened as the dollar rebounded. DXY rose by 0.6% tracking an improvement in US consumer confidence. JPY depreciated the most as Japan’s long-end bond yields eased. INR depreciated by 0.3% due to month-end dollar demand from importers. It is trading further weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

US 10Y yield fell at the sharpest pace amidst safe-haven demand for sovereign securities. Japan’s 10Y yield also softened over anticipation of some tweaking in long term issuances. In Germany, yields got support from commentary of ECB Chief Economist on disinflation. India’s 10Y yield closed stable. The new benchmark security is trading lower at 6.18% 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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research
Note: Mutual Fund data as of 19 May and 20 May 2025

Oil prices fell amidst expectations of increased supply by OPEC+.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Among major developments, has been the ruling of US Court against US President’s tariff policies which have been deemed to be illegal. This is likely to put a pause on the ongoing tariff rates unless further appeal. The ruling covers global flat tariff rates, higher rates on China and fentanyl related tariffs. The impact was immediately visible in market variables such as firming up of DXY, softening of gold prices and higher trading of Asian indices (all in today’s session). Elsewhere, Fed minutes hinted at cautious stand on policy rate. Bank of Korea reduced policy rate by 25bps and slashed down its GDP forecast to 0.8% from 1.5% earlier for CY25. On domestic front, there has been a slew of releases ranging from hike in MSP for all Kharif crops to revising upward food grain production estimate for 2024-25 crop year and release of usual IIP data which softened to 2.7% in Apr’25.

Investors weighed Fed minutes with members noting the need for considering “difficult trade-offs” in coming days, US stocks fell the most. Nikkei ended flat even as investors continued to monitor movements in long-end bond yields. Sensex also ended lower led by auto and metal stocks. It is however trading higher today, in line with other Asian stocks after US court’s ruling on tariffs.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies ended mostly weaker against the dollar. DXY rose by 0.4% as investors monitored Fed policy minutes. Amongst other major currencies, JPY depreciated the most by 0.4% tracking the movement in Japan’s long-end bond market. INR is trading further weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

UK’s 10Y yield showed major correction as concerns over elevated public sector borrowing remains. The signalling of Fed minutes to stay on pause has capped US yield. Japan’s 10Y yield also stiffened as BoJ’s bond buying remains in focus after a weak 40-year bond auction. India’s 10Y yield closed a tad lower. The new benchmark security is trading lower at 6.17% 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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research
Note: Mutual Fund data as of 19 May and 20 May 2025

Oil prices rose after the US barred Chevron from exporting Venezuelan oil.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global markets are likely to get rattled from a Federal appellate ruling which favoured continuation of tariff against the earlier issued order of US Court that has deemed it to be illegal. Adding to further woes, US Treasury secretary emphasized US-China talks “are a bit of stalled”. There is also fresh round of restriction from the US catering to sale of chip design software and some engine jet parts to China. On macro front, Q1 second estimate of GDP showed some softening led by private consumption demand. Core PCE also moderated on a QoQ basis and jobless claims firmed up. US President insisted on softer borrowing costs. However, a Fed official hinted at uncertainty driven pause. In Japan, CPI excl. fresh food firmed up, signalling some degree of policy tightness. On domestic front, market is awaiting GDP release (BoB estimate: 6.8-7% in Q4 and 6.2-6.4% for FY25).

Except FTSE, other global stocks ended higher. Investor sentiment was upbeat tracking a US court ruling on tariffs. Asian stocks jumped sharply, led by Nikkei and Hang Seng. Sensex too rose by 0.4% with real estate and metal stocks posting solid increases. It is however trading weaker today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR, other global currencies gained against a weaker dollar. DXY declined by 0.6% as higher than expected jobless claims and weak US GDP impacted sentiments. EUR rose the most by 0.7%. INR depreciated but is trading stronger today. Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

UK’s 10Y yield fell the most as one BoE official has downplayed inflationary risks hinting at softer policy. Even in the US, softer macro data guided yields. Japan’s 10Y yield inched a tad ahead of 2-year bond auction. India’s 10Y yield also went up marginally. The new benchmark security is trading lower at 6.18% 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, *Includes LTRO

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research

Note: Mutual Fund data as of 20 May and 21 May 2025

Oil prices declined by over 1% tracking weak US macro data.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research