Economic Weekly Wrap
30 June 2025 - 04 Jul 2025

US PCE price index, Fed’s preferred gauge for inflation, rose by 0.1% in May’25 taking the annual inflation reading to 2.3%. Core PCE inched up by 0.2% (from 0.1%) and 2.7% (from 2.6%). Michigan consumer sentiment was revised higher at 60.7 in Jun signalling improvement. In India, current account surplus of US$ 13.5bn (1.3% of GDP) was recorded in Q4FY25 compared with US$ 4.6bn (0.5% of GDP) in Q4FY24 supported by higher service exports. For FY25, a current account deficit of US$ 23.3bn was registered (0.6% of GDP) against US$ 26bn (0.7% of GDP) in FY24. Both FDI (US$ 1bn from US$ 10.2bn) and FPI inflows (US$ 3.6bn from US$ 44.1bn) in FY25 were lower from last year. In Japan, industrial output inched up by 0.5% in Jun’25 but at a much slower pace on a MoM basis. Rise in machinery and auto sector was offset by contraction in non-auto transport equipment. In China, manufacturing PMI remained in contraction for the third time at 49.7 in Jun’25.

Except Hong Kong and China, other equity markets advanced. The relief rally was supported by hopes of new global trade deal. Nikkei was the biggest gainer. Sensex continued the upward momentum with gains in oil and gas stocks. However, it is trading lower today, while Asian stocks are trading higher.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies closed mixed. DXY rose by 0.3%, following gains in treasury yields. Possible revival in demand and upside pressure on inflation will impact Fed decision. GBP, JPY and CNY suffered. INR appreciated by 0.3% to its highest since early Jun’25. It is trading stronger today, in line with Asian peers.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except China (flat), global yields closed higher. US 10Y yield was up by 4bps, tracking surprise rise in core PCE index (2.7% in May’25 versus est.: 2.6%). University of Michigan consumer sentiment index also improved, signalling revival in demand side pressures. India’s 10Y yield rose by 4bps, due to muted demand. However, it is trading flat at 6.31% 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 24 Jun and 25 Jun 2025

Oil prices hold ground, following news of inventory decline (11Y low) in the US.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

RBI in the financial stability report stated that Indian economy remains the key driver of global growth supported by strong macroeconomic fundamentals and prudent policies. There are some risk emanating from growing public debt, global spillovers and escalation in geopolitical tension coupled with policy uncertainty. Furthermore, even as there are risks of higher gross NPAs by Mar’27, the banking sector remains strongly placed with parameters such as liquidity risk, capital risk, and credit risk. Additionally, there has been marginal deterioration in the NBFC’s indicators from Dec’24, with 2 out of 5 parameters signalling higher risk. However, overall sector remains resilient and well positioned. Separately, annual inflation in Germany softened to 2% in Jun’25 (from 2.1% in May’25). Core inflation also eased to 2.7% (from 2.8% in May’25). Japan PMI rose to 50.1 in Jun’25 from 49.4 in May’25 signalling some recovery in the manufacturing sector.

Global equity indices closed mixed. US indices advanced with best quarter performance in a year. The investor sentiments were buoyed by optimism of new global trade deal. Sensex closed lower with losses in real estate stocks. However, it is trading higher today, while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Except INR, other global currencies closed higher against a weaker US$. DXY fell by 0.5%, following decline in treasury yields. As a result, EUR and JPY gained the most. INR depreciated by 0.3%, tracking weakness in capital market. However, it is trading stronger today, in line with its Asian peers.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

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 25 Jun and 26 Jun 2025

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

JOLTs data in the US surprised positively as the job openings in May’25 increased to 7.76mn from a reading of 7.39mn in Apr’25. In contrast, hiring dropped to 5.5mn with major decline in healthcare and business services. Based on JOLTs report, it is expected that Fed might not resume the easing cycle before Sep’25. Fed Chair reiterated that they will remain in wait and watch mode, especially with respect to assessing the impact of tariffs. US ISM manufacturing PMI climbed to 49 (6-month high) in Jun’25 from 48.5 in May’25. Investors will turn their focus towards employment report for more clarity on labour market. Separately in the UK, average housing prices growth moderated to 2.1% in Jun’25 from 3.5% in May’25, signalling weaker demand post the recent increase in stamp duty.

Global indices closed mixed. Investors monitored the ongoing development in the US with respect to the spending bill which is expected to widen the national debt. Nikkei dropped the most amidst uncertainty around US-Japan trade deal. Sensex rebounded with gains in consumer durable stocks. It is trading higher today, while Asian indices are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research | Note: Hang Seng was closed on 01.07.2025

Except CNY (flat), other global currencies closed higher against a weaker US$. DXY fell by another 0.1%, as fiscal concerns continue to linger. JPY gained the most, supported by increased rate hike bets. INR appreciated by 0.3%, as oil prices ease. However, it is trading weaker today, in line with its Asian peers.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Barring US and China, global yields fell elsewhere. US 10Y yield rose marginally by 1bps, as US Senate passed Trump administration’s spending bill. Inflation risks also persist as reflected in price index in ISM manufacturing data. India’s 10Y yield fell by 3bps, tracking decline in oil prices. However, following global cues, it is trading slightly higher at 6.30% 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 26 Jun and 27 Jun 2025

Oil prices fell further, due to concerns of oversupply and weak Chinese demand.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

The trade agreement has been finalized between US and Vietnam, as per which a 20% flat tariffs will be levied on the Vietnamese exports, which is much lower than a levy of 46% announced in Apr’25. Additionally, any trans-shipment would face a 40% levy. However, there no tariffs on US goods. In 2024, US imported over US$ 136.6bn of goods from Vietnam against export of US$ 13.1bn. The announcement came a week prior to the July 9 timeline as the clarity on other trade deals with India and Japan is still awaited. In US, private payroll dropped for the first time since Mar’23 by 33,000 against 29,000 job gains noted in May’25. Investors will shift their focus towards non-farm payrolls wherein labour market is expected to cool off. Separately, inflation in Eurozone edged up to 2% in Jun’25 (1.9% in May’25) closer to the ECB target.

Global indices closed mixed. S&P 500 inched up with gains in technology stocks. FTSE dropped amidst uncertainty on the welfare reforms. Sensex slipped with losses in real estate and power stocks. However, it is trading higher today, while other Asian indices are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research | Note: Hang Seng was closed on 01.07.2025

Except CNY (flat), other global currencies closed lower. DXY ended flat, as investors’ reaction to improvement in mortgage applications was offset by decline in ADP employment. Bond market rout in the UK impacted its currency as well, which depreciated by 0.8%. INR too fell by 0.2%, tracking rise in oil prices. However, it is trading stronger today, in line with its Asian peers.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed. UK 10Y yield jumped sharply by 16bps as government announced reversal of scaling back of welfare measures. 10Y yield in Germany reacted to slight inching up of inflation in the Eurozone. Bond market in the US awaits to see if the spending bill will get passed in the House as well. India’s 10Y yield ended flat and trading at the same level even 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 27 Jun and 30 Jun 2025

 Oil prices rose, reacting to news of Iran suspending its cooperation with IAEA.

Oil prices rose, reacting to news of Iran suspending its corporation with IAEA.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

In a positive surprise, US jobs report defied expectations and added 147,000 jobs in Jun’25 and unemployment rate dropped to 4.1%. Greater number of hiring was noted in the government sector with over 73000 positions, followed by healthcare sector which added 39,000 jobs. A strong jobs reports has undercut the expectations of a rate cut in the upcoming policy meet. Separately, the US house of representatives passed the tax and spending bill backed by President Trump. In India, services PMI rose to a 10-month high to 60.4 in Jun’25 (58.8 in May’25) supported by strong growth in new business orders. RBI has announced another VRRR of Rs 1 lakh crore as system liquidity is above the 1% NDTL surplus level. More such announcements may be forthcoming.

Stocks in the US was supported by better-than-expected payroll numbers. FTSE got support from tracking Chancellor of the Exchequer’s comments on adherence to fiscal discipline in the UK. Hang Seng showed strains of uncertainty on tariff front. Sensex moderated led by metal and real estate stocks. It is trading higher today, while Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Barring EUR and JPY, other global currencies closed higher. DXY strengthened supported by better than expected jobs data. JPY remained under pressure amidst growing developments around US-Japan trade deal. INR appreciated as oil prices slipped. It is trading weaker today; Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

US 10Y yield firmed up as most of the macro reading remained upbeat delaying hopes of monetary easing by Fed. UK’s 10Y yield underwent correction after reaffirmation by officials on sticking to fiscal discipline. Japan’s 10Y yield inched up as a Board member hinted at temporary pause in policy rate. India’s 10Y yield closed stable. The benchmark security is trading at 6.29% 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 27 Jun and 30 Jun 2025

Crude softened ahead of OPEC+ meeting where production hike is expected.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research