Economic Weekly Wrap
11 March 2024 - 15 March 2024

US non-farm payroll rose more than expected by 275,000 in Feb’24 (est. 200,000) from 167,000 in Jan’24. Even so, unemployment rate rose to a 2-year high of 3.9% from 3.7% in Jan’24. Average hourly earnings moderated to 0.1% (MoM) from 0.5% in Jan’24, suggesting some softness in the labour market. This has pushed forward the possibility of the first rate cut in Jun’24. Separately, Japan revised its Q4CY23 GDP upwards to 0.4% (YoY) versus a contraction of 0.4% estimated earlier. CPI inflation in China inched up for the first time since Aug’23 and rose by 0.7% in Feb’24 (est. 0.3%). However, PPI continued to fall and contracted by 2.7% versus a decline of 2.5% in Jan’24. In India, government announced a cut in cooking gas prices and also extended the subsidy under Ujjwala scheme till FY25. This should help in further easing domestic inflation. Fiscal impact is likely to be limited.

Global stocks closed mixed. US stocks moderated as jobs data gave mixed signals about trajectory of Fed fund rate. Hang Seng and Shanghai Comp inched up. The rise in Nikkei was pared to some extent following anticipation about a likely pivot by BoJ. Sensex was marginally higher, led by metal and capital goods stocks. It is trading lower today, in line with other Asian stocks.

Except EUR (lower), other global currencies ended stronger against the dollar. DXY was 0.1% lower after a mixed jobs report. JPY gained the most by 0.7% amidst increased expectations of a hawkish pivot by BoJ. GBP too gained 0.4%, amidst expectations of a delayed start to BoE’s rate cut cycle. INR is trading stronger today in line with other Asian currencies.

Except Japan and China (stable), global yields closed lower. Germany’s 10Y yield fell the most as ECB hinted at cautiously prepping up for an easing cycle. The fall in UK’s 10Y yield was clipped to certain extent as investors are pricing in a slower start to the rate cut cycle by BoE. India’s 10Y yield fell by 2bps tracking improvement in liquidity situation. It is trading at 7.01% today.

Global markets remained muted awaiting the crucial US inflation report, which is likely to determine the trajectory of Fed rates going forward. US CPI is expected to increase by 0.4% in Feb’24 on a MoM basis, up from 0.3% in Jan’24. Any negative surprises on the inflation front is likely to delay the start of the rate cut cycle which is widely expected to begin in Jun’24. Separately, PPI inflation in Japan rose more than expected by 0.2% (MoM) in Feb’24 (est. 0.1%), compared with a flat reading in Jan’24. This has further reinforced views that the BoJ may soon ease its ultra-dovish policy in the face of rising price pressures. In India, focus remains on CPI and IIP data due later in the day. We expect CPI to remain steady at 5.1% in Feb’24, while IIP is expected to decelerate further to 3.5% in Jan’24 from 3.8% in Dec’23.

Global stocks closed mixed. Investors remained cautious in the data heavy week. Some stickiness is expected to prevail in US CPI numbers. Elsewhere, investors are awaiting a likely pivot from BoJ tracking its Governor’s comments and ahead of spring wage negotiations. Nikkei moderated, while Hang Seng and Shanghai Comp inched up. Sensex edged down, led by losses in banking stocks. It is trading higher today, while Asian stocks are trading mixed.

Global currencies ended mixed. After falling for 6-straight sessions, DXY recouped some of its losses ahead of US CPI report due later today. GBP and EUR were lower. On the other hand, JPY strengthened further on expectations of a pivot by BoJ. INR traded near a 6-month high supported by buoyant FPI inflows. It is trading further stronger today, in line with other Asian currencies.

Except UK (stable) and India (lower), global yields closed higher. Germany’s 10Y yield rose the most ahead of ECB Council member’s speech. US 10Y yield also inched up by 2bps as New York Fed’s 1-year inflation expectations inched up. India’s 10Y yield fell by 2bps, supported by buoyant debt inflows. It is trading at the same level today.

Oil prices edged up marginally tracking developments in Middle-East.

US macro data again raised doubts about the timing of rate cut. ISM services index softened to 52.6 in Feb’24 from 53.4 in Jan’24. Even prices and employment index moderated. This led US 10Y yield close lower by another 6bps. The reverberation was felt in 10Y yield of other economies. Elsewhere, equity markets reacted negatively to China’s bullish growth target. Investors were anticipating more sector specific fiscal measures. In Japan, OIS traders are pricing in 53% probability of a pivot by BoJ. On domestic front, India was included in the Bloomberg EM Local Currency Government Bond Index. This holds positive for yields, already FII inflows into debt has been at US$ 5.1bn in CYTD24. From Jun’24 onwards (JP Morgan Index) with more flows, India’s 10Y yield may reach below the 7% mark as well.

Except China and UK, stocks elsewhere closed weaker. US stocks fell amidst weak macro data (ISM services PMI and factory orders). Tech stocks led the fall. Focus was also on China’s annual policy meeting which failed to buoy market sentiments. Amongst other indices, Hang Seng fell the most by 2.6%. Sensex declined by 0.3%, led by fall in tech stocks. However it is trading stronger today, while other Asian stocks are trading mostly lower.

Global currencies traded in thin ranges as investors’ focus remained on Fed Chair’s testimony. DXY was marginally lower as US ISM services activity moderated. JPY strengthened by 0.3% after a firm CPI reading. INR, EUR and CNY ended flat. INR is trading broadly flat today as well, while other Asian currencies are trading higher.

Global yields closed lower tracking weaker macro prints in the US (ISM index and durable goods orders). UK’s 10Y yield has fallen sharply as investor’s remained cautious ahead of Budget announcements. India’s 10Y yield closed stable but may see a downward bias going forward. It is trading at 7.05% today.

Oil prices fell as investors remained pessimistic on China’s growth prospects.

Global markets assessed the US inflation data to determine the trajectory of Fed rate cuts. For now, investors believe a rate cut in Jun’24 as most likely (probability of 64.3% as per CME FedWatch Tool). A key ECB policymaker also suggested that the central bank is likely to begin its rate cut cycle in “spring” as victory against inflation was in sight. Weakness in the economy continued with industrial production declining more than expected by 2.1% in Jan’24, from an increase of 1.6% in Dec’23. In UK, GDP growth rebounded and increased by 0.2% in Jan’24 after declining by 0.1% in Dec’23 on a MoM basis. In Japan, focus remains on the spring wage negotiations with expectations of a sizeable increase, which is fuelling expectations of a hawkish pivot by BoJ. Volatility is expected in oil markets after Ukraine’s attack on Russian oil refineries which will weigh on domestic markets.

Except Dow and FTSE (higher), global stock indices closed lower. Investors refrained from holding strong positions ahead of major data release in the US (retail sales and PPI data). Apart from this, focus also remained on Japan’s spring wage negotiations reflecting that wage hike might be on the cards. Sensex fell by 1.2%, led by power and real estate stocks. It is trading further lower today, while Asian stocks are trading mixed

Global currencies ended mixed. DXY retreated as investors awaited upcoming macro data (US retail sales, jobless claims and PPI report). JPY depreciated further. INR depreciated by 0.1% as oil prices increased. However, it is trading stronger today, while other Asian currencies are trading mixed.

Except Japan and China, global yields closed higher. UK’s 10Y yield rose sharply as investors monitored the GDP data, which was in line with estimates. Even 10Y yields in US and Germany firmed up, ahead of major macro releases, for cues on evolution of Fed fund rate. India’s 10Y yield rose a tad by 1bps. It is trading at 7.05% today.

Oil prices rose on supply concerns after an attack on Russian oil refineries.

PPI inflation in US rose by 0.6% in Feb’24 on a MoM basis, beating estimates of a of 0.3% increase, led by higher gasoline prices. Retail sales on the other hand, missed estimates and increased by 0.6% in Feb’24 (est. 0.8% increase). Sales in both and Jan’24 and Dec’23 were revised lower. Weekly jobless claims fell to 209,000 (est. 219,000), attesting to the strength of labour market. The Fed is likely to be in a wait and watch mode as it assesses the growth and inflation dynamics. In China, the PBOC kept interest rate on 1Y medium term lending facility (MLF) loans unchanged at 2.5%. Separate data showed that stress in the property sector continued with new home prices declining by 1.4% in Feb’24, after falling by 0.7% in Jan’24 on a YoY basis.

Most global stock indices closed lower. Higher than expected PPI inflation and increase in jobless claims in the US again raised doubts about the timing and quantum of rate cut by Fed. In other news, Japan’s FM pointed out that the economy is no longer in deflation. Thus, investors have already priced in a pivot by BoJ which pushed Nikkei higher. Sensex rose by 0.5%, led by oil and gas stocks. It is trading lower today, in line with other Asian stocks.

Except INR, other global currencies ended weaker against the dollar. DXY rose by 0.6%, following a jump in US treasury yields. Amongst major currencies, EUR depreciated the most by 0.6%, followed by JPY (down by 0.4%). INR was marginally stronger, supported by gains in local equity markets. However, in line with other Asian currencies, it is trading weaker today.

Except India (stable), global yields closed higher. US 10Y yield rose by 10bps as PPI and jobless claims reading reflected strength of the economy. The reverberation was felt in 10Y yields of UK and Germany. Thus, even after ECB Chief Economist hinting at a delayed start to the rate cut cycle, Germany’s 10Y yield increased. India’s 10Y is trading at 7.05% today

Oil prices rose as IEA projected tight supplies and higher oil demand in 2024.