Economic Weekly Wrap
30 October 2023 - 03 November 2023

US core PCE index, Fed’s preferred gauge of inflation, moderated to 3.7% in Sep’23, from 3.8% in Aug’23. Separately, University of Michigan’s consumer expectation index fell to 63 in Oct’23 from 67.9 in Sep’23. Inflation expectations for the next 1-year as well as 5-10 years, inched up. The data will be important when the Fed meets this week. Apart from Fed, policy decisions of BoJ and BoE are also due this week. While the BoJ grapples with a depreciating currency and soaring yields, the dilemma for BoE will be to tame inflation which is still running hot. Apart from this, focus will also remain on developments in the Middle-East and corporate earnings results. On the data front, China’s PMI, UK GDP, US consumer confidence index and global PMI’s will be keenly awaited.

• Barring US and UK, other major global indices ended higher. Disappointing earnings results weighed on markets in US, with Dow Jones falling by 1.1%. Stocks in Asia rebounded amidst a recovery in technology shares. Hang Seng rose the most by 2.1%, followed by Nikkei which surged 1%. Sensex rose by 1% led by gains in power and real estate stocks. However, it is trading lower today in line with other Asian

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• DXY edged a tad lower after data showed US core PCE index moderated in line with market expectations. Markets now await major central bank policy JPY appreciated by 0.5% ahead of BoJ meet. INR ended a tad weaker weighed down by higher oil prices. It opened flat today, while other Asian currencies are trading higher.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Except Japan and China, other global yields edged lower as investors brace for key central bank policy decisions. 10Y yield in UK fell the most by 5bps, followed by Germany. US 10Y yield fell by 1bps as US core PCE index moderated, suggesting that Fed is unlikely to hike rates again. India’s 10Y yield fell by 1bps despite higher oil 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 17 Oct 2023 and 18 Oct 2023

• Oil prices inched up by 9% amidst simmering tensions in the Middle-East.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

BoJ in its latest policy has made a slight tweak in its YCC program. It has scrapped its reference to daily bond purchasing at a fixed level of 1%, albeit shying of market expectations of a greater relaxation in the same. Post this decision, yen weakened slightly. Apart from this, policy rate is retained at the same level. Inflation forecasts have been revised higher for this and upcoming fiscal. Elsewhere, in Germany, 3rd quarter preliminary estimate of GDP showed contraction of 0.1%, slightly lower than estimated contraction of 0.2%. The provisional Oct’23 CPI print of the region has also showed some softening. In China, both manufacturing (49.5 vs est.: 50.2) and non-manufacturing print (50.6 vs est.: 52), raised calls for more stimulus to support the economy. On domestic front, all eyes will be on month end releases.

• Except Japan, stock markets elsewhere ended in green. Investors await policy decisions of BoE and Fed, amidst growing expectations that global rates may have peaked. Stocks in US advanced the most, amidst better than expected earnings results. Sensex rose by 0.5%, led by gains in real estate and oil and gas stocks. However, it is trading lower today in line with other Asian stocks, after weak PMI data from

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Except INR (flat), other global currencies appreciated against the dollar. DXY was weaker ahead of Fed policy decision. EUR rose the most by 0.5% as Germany’s GDP contracted less than expected. JPY too appreciated amidst hopes of a possible tweak in BoJ’s YCC. INR, along with other Asian currencies is trading weaker today.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Global yields closed mixed. US 10Y yield rose by 6bps ahead of Fed meeting and waiting commentary on future course of rate action, on the back of resilient Germany’s 10Y yield fell a tad by 1bps as provisional CPI estimate showed moderation. India’s 10Y yield rose by 2bps, amidst expectation of some OMO sales announcements. It is trading higher at 7.36% 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 17 Oct 2023 and 18 Oct 2023

• Oil prices fell tracking developments in the Middle-East.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Markets remained cautious monitoring slew of macro releases and ahead of major central banks’ policy decisions. In the US, consumer confidence dropped to its 5 month low in Oct’23 dampened by uncertainties over ongoing geopolitical tensions worldwide and surrounding tightening financial conditions. Apart from the Fed policy decision, market is also awaiting US government’s new borrowing plan. Elsewhere in the Eurozone, the Q3 advance estimate of GDP showed contraction by 0.1%, lower than expected. In UK, the BRC shop price index showed moderation, providing comfort on inflationary front. Manufacturing PMI of both Japan (48.7 in Oct’23) and China (49.5), disappointed, remaining below the 50-expansionary mark, signalling weaker underlying demand conditions. On domestic front, core sector output growth fell to its 4-month low, fiscal deficit is at 39.3% of FY24BE.

• Global markets ended Stocks in US ended higher as investors await

Fed’s policy decision. Barring Nikkei, stocks in Asia were lower amidst a decline in manufacturing and service PMI in China. Hang Seng fell the most by 1.7%. Sensex too declined by 0.4%. Auto and banking stocks fell the most. It is trading further lower today, while other Asian markets are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Except INR (flat), other global currencies ended weaker. DXY rose by 0.5% despite moderation in US conference board consumer confidence JPY fell by 1.7% as BoJ’s tweak to YCC was considered insufficient by markets. EUR fell by 0.4% as Eurozone’s Q3 GDP growth was weaker than expected. INR is trading stable today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• Global yields closed mixed. US 10Y yield rose by 4bps ahead of Fed meeting and borrowing plan for Oct-Dec quarter. UK’s 10Y yield fell by 5bps as BRC shop price data showed some respite on inflation. Notably, Japan’s 10Y yield rose by 5bps towards the 1% mark after the slight tweak by BoJ. India’s 10Y yield fell by It 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 17 Oct 2023 and 18 Oct 2023

• Oil prices fell a tad amidst higher production in

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Markets cheered US Fed decision on holding rates. US 10Y yield fell sharply by 20bps, while US stocks inched up. US money market is already pricing that Fed has neared its end of the rate hike cycle. However, Fed Chair’s repeated hinting of resilient domestic macros and labour market conditions keeps the door unhinged.

The recent employment data also showed a fuzzy picture with ADP employment change showed some softening and JOLTS data on the other hand, showed more than expected job openings in Oct’23. Elsewhere in Japan, government announced economic stimulus package to provide growth the desired impetus. On domestic front, CMIE data showed than India’s unemployment rate rose to its highest level in 2 years.

• Except Hong Kong and India, stock markets closed higher. Investors monitored the Fed statement to assess future trajectory of rates. Nikkei advanced the most, led by gains in gas & water and electrical stocks. US stocks too ended in green with S&P 500 advancing by 1.1%. However, Sensex declined by 0.4% as India’s manufacturing PMI dipped in Oct’23. Metal and power stocks fell the However, it is trading higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Except JPY, other global currencies traded in tight ranges after the FOMC DXY rose by 0.2% tracking comments from Fed Chair amidst weak macro data (ISM manufacturing PMI and private payrolls). JPY recovered and appreciated by 0.5%. INR continued to trade in a narrow range, but is trading stronger today. Other Asian currencies are also trading higher.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

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• US 10Y yield fell at the sharpest pace by 20bps taking cues from Fed policy. This was also supported by reports of US Treasury’s plans to slow the pace of increases in long term debt sales. Germany’s 10Y yield fell by 4bps tracking softening inflation print in the Eurozone. India’s 10Y yield closed stable. It is trading at 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 17 Oct 2023 and 18 Oct 2023

• Oil prices fell by 2% amidst an increase in US crude stocks and dollar.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

Global macro data posed concerns of a slower pace of growth. J.P. Morgan Global Manufacturing PMI fell to its lowest in three months. As per the report, Europe remained the primary drag on global factory output. China’s Caixin services PMI also came in below expectations at 50.4 (est.: 51). In the US, jobless claims print was more than expected at 217K (est.: 210k), indicating some softening and supporting the outlook of a prolonged pause by Fed. CME Fed watch tool is now pricing in a less than 20% probability of hike in Dec which was more than 39% a month earlier. All eyes will be on the payroll numbers due to be released later today. BoE in its latest policy held rates with a vote of 6-3 and hinted at a sufficiently restrictive policy in the near term. On domestic front, weekly auction will hold some cue on yield.

• Except Shanghai Comp, other global stocks edged Expectations that the Fed rate has peaked helped buoy investor sentiments even as global manufacturing PMI signalled a dim outlook. Stocks in US led the gains, with energy and real estate stocks advancing the most. Sensex too rose by 0.8%, with real estate and metal stocks gaining the most. It is trading further higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

• Global currencies broadly appreciated as the dollar strength DXY fell by 0.7% as investors pared back expectations of more rate hikes by Fed. GBP appreciated by 0.4% as BoE reiterated the need to keep rates elevated. INR recovered from its record-low amidst improvement in risk sentiment. It is trading flat today, while other Asian currencies are trading mostly higher.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

• UK, US and Germany’s yield fell at a sharp pace. UK’s 10Y yield got support from BoE’s forecast of a stagnant growth through 2025. US 10Y yield got comfort from a higher than expected jobless claims data. ECB Board member’s comments that inflation is on track also supported yield in Germany. India’s 10Y yield fell by 4bps. It is trading at 7.32%.

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 17 Oct 2023 and 18 Oct 2023

• Oil prices rose by 6% amidst optimism that global rates may have peaked.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research