Economic Weekly Wrap
26 December 2022 - 30 December 2022

Asian markets were rattled over news reports that majority of China’s cities are predicting a Covid-19 peak in Jan’23. In a relief, the University of Michigan’s inflation expectation data showed some cooling off. Even PCE data, which is closely watched by Fed showed some softening. On the other hand, macro indicators in the US remained buoyant with new home sales data coming in better than expected. Even the core capital goods data, a close proxy of business fixed investment rose more than expected. In Japan, 40-year high core inflation data implied that finally pass through of price pressure to consumers is happening and in the coming days BoJ’s move will be closely watched. Domestic market in the current week will eye month end data releases (fiscal, eight core, credit data).

Except US and UK, other global indices gained. Easing PCE inflation in the US, raised expectations that the Fed may soften its stance. Asian stocks however extended their decline, amidst concerns over the Covid-19 situation in China. Sensex declined sharply by 1.6%. Power and metal stocks shed the most. It is trading higher today, while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies were mixed. DXY fell by 0.1% amidst a deceleration in US core PCE index, suggesting a less aggressive stance from the Fed. EUR and GBP gained by 0.2% and 0.1% respectively. On the other hand, JPY fell by 0.4% as Japan’s inflation rose to a 40-year high. INR depreciated by 0.1% as oil prices increased. However, it is trading stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields closed mixed. US 10Y yield rose the most by 7bps on account of buoyant macro data. Even 10Y yields in UK and Germany firmed up by 5 and 4bps each, as inflation fears persist. In China, 10Y yield fell by 1bps on expectation of stimulus. India’s 10Y yield rose a tad by 1bps (7.32%). It is trading at 7.33% 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

Crude oil prices rose by 3.6% to US$ 84/bbl amidst reports that Russia could cut output in response to the G7 price cap.

Fig 7 – Commodities

Global markets got breather from China’s removal of Covid-19 restrictions for inbound travellers. Further, China's management of Covid-19 will also be downgraded to less strict Category B from the current top Category A. On macro data front, China’s industrial profit declined by 3.6% during Jan-Nov’22 compared to 3% decline seen during Jan-Oct’22. This was primarily on account of the laggard economic activity due to Covid-19 related restrictions. Elsewhere, in Japan, retail sales remained disappointing declining by 1.1% on MoM basis in Nov’22 (est.: 0.2% increase). On the domestic front, reports showed that Centre will bear the entire burden of providing free food grains to 813.5mn poor under NFSA. Total outgo for schemes under NFSA is estimated at Rs 2lakh crore.

Asian indices closed higher as investor sentiment was buoyed by hopes that the Fed may relent from its aggressive rate path. Nikkei and Shanghai Comp rose by 0.7% and 0.6% respectively. Stock indices in major advanced economies such as the US and UK remained closed. After falling for 4-straight sessions, Sensex rose by 1.2%. Power and real estate stocks gained 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 edged up against the dollar. Easing core PCE inflation in the US raised expectations that the Fed may soften its aggressive stance. CNY gained the most by 0.4%, and is trading further higher today as China eased Covid-19 curbs further. INR too appreciated by 0.3%. It is trading further stronger today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except China, global yields closed higher. Sharp jump in oil prices and elevated concerns of inflation, made investors cautious about the future policy direction of major economies, which might indeed impact the trajectory of yields. In China, expectation of more stimulus amidst lifting of Covid related restrictions led 10Y yield inch lower. India’s 10Y yield closed flat at 7.32%. It is trading at 7.31% 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

Fig 6 – Capital market flows

Source: Bloomberg, Bank of Baroda Research, Note: Mutual fund data as of 21 and 22 Dec 2022

Fig 7 – Commodities

Global markets continued to remain cautious over China’s reopening and its spill over impact. Economies around the world increased restrictions in terms of testing to contain the spread of the virus. There have not been much macro data releases except in the US where retail inventory rose more than expected in Nov’22. The Dallas Fed manufacturing activity on the other hand remained weaker than anticipated. Elsewhere, ECB Vice President spoke of the dual dilemma of high inflation and slowdown in growth. In Japan, more monetary stimulus is expected as one of the board members hinted at the fact that expansion in the range of 10Y JGB yield is not intended to change the direction of monetary easing. This needs to be closely watched in the coming days.

Global indices were mixed as markets gauged the impact of easing Covid-19 restrictions in China. Trading remained thin amidst year-end holidays. Shanghai Comp rose the most by 1%. In the US, while Dow Jones edged up by 0.1%, S&P 500 declined by 0.4%. Sensex rose by 0.6%, supported by sharp gains in metal stocks. It is trading further higher today, while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Barring EUR and CNY (flat), other global currencies fell against the dollar. DXY fell by 0.1%, as investors assessed the future course of Fed policy. JPY fell the most by 0.5% as BoJ Governor dismissed the possibility of exiting from the ultra-loose monetary policy. INR fell by 0.2% as oil prices firmed up. It is trading marginally weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields broadly closed higher. Higher oil prices, reopening of China’s economy, persisting worries over inflation and hawkish comments from major central bank officials directed the trajectory of yields. Germany’s 10Y yield rose the most (+12bps) followed by US (+9bps). India’s 10Y yield fell a tad by 1bps (7.31%) led by strong demand in the SDL auction. It is trading at 7.32% 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 21 and 22 Dec 2022

Global commodity prices rose as China eased Covid-19 restrictions. Gold and oil prices edged up by 0.9% and 0.5% respectively. Even Arctic Blast in the US impacted oil prices.

Fig 7 – Commodities

Global markets continued to remain cautious over China’s reopening and its spill over impact. Economies around the world increased restrictions in terms of testing to contain the spread of the virus. There have not been much macro data releases except in the US where retail inventory rose more than expected in Nov’22. The Dallas Fed manufacturing activity on the other hand remained weaker than anticipated. Elsewhere, ECB Vice President spoke of the dual dilemma of high inflation and slowdown in growth. In Japan, more monetary stimulus is expected as one of the board members hinted at the fact that expansion in the range of 10Y JGB yield is not intended to change the direction of monetary easing. This needs to be closely watched in the coming days.

Global indices were mixed as markets gauged the impact of easing Covid-19 restrictions in China. Trading remained thin amidst year-end holidays. Shanghai Comp rose the most by 1%. In the US, while Dow Jones edged up by 0.1%, S&P 500 declined by 0.4%. Sensex rose by 0.6%, supported by sharp gains in metal stocks. It is trading further higher today, while other Asian stocks are trading mixed.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Barring EUR and CNY (flat), other global currencies fell against the dollar. DXY fell by 0.1%, as investors assessed the future course of Fed policy. JPY fell the most by 0.5% as BoJ Governor dismissed the possibility of exiting from the ultra-loose monetary policy. INR fell by 0.2% as oil prices firmed up. It is trading marginally weaker today, in line with other Asian currencies.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global yields broadly closed higher. Higher oil prices, reopening of China’s economy, persisting worries over inflation and hawkish comments from major central bank officials directed the trajectory of yields. Germany’s 10Y yield rose the most (+12bps) followed by US (+9bps). India’s 10Y yield fell a tad by 1bps (7.31%) led by strong demand in the SDL auction. It is trading at 7.32% 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 21 and 22 Dec 2022

Global commodity prices rose as China eased Covid-19 restrictions. Gold and oil prices edged up by 0.9% and 0.5% respectively. Even Arctic Blast in the US impacted oil prices.

Fig 7 – Commodities

Jobless claims data in the US remained in line with expectation, despite remaining higher than previous week. Elsewhere, US President signed a US$ 1.7tn funding bill. In Australia, data showed that pre- Christmas spending has remained buoyant. In Japan, BoJ announced another unscheduled bond purchase, to defend the yield curve. Under which, it offered to buy unlimited amount of 2Y paper at 0.04% yield, 5Y at 0.24% yield and also offered to purchase ¥ 700bn of 1-10Y paper and ¥ 300bn of 10-25Y paper, over and above the daily operation. On domestic front, India’s CAD expanded to 4.4% of GDP in Q2FY23 from 2.2% in Q2FY22, on account of weaker rupee and higher imports. In another release RBI’s FSR indicated that even under stress, SCBs are well capitalised. Under the baseline scenario, GNPA ratio of SCBs are likely to improve to 4.9% in Sep’23 from 5% in Sep’22.

Global indices ended mixed. While stocks in US and UK rose, Asian stocks were broadly lower. Asian shares were subdued as investors assessed the impact of easing Covid-19 restrictions in China. Gains in technology and consumer services stocks drove US indices higher. Sensex rose by 0.4%, supported by gains in oil & gas and metal stocks. It is trading further higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies rose against the dollar. DXY fell by 0.6% as US jobless claims increased further last week. JPY gained the most by 1.1%, followed by EUR (up by 0.5%). INR appreciated by 0.1% as oil prices eased. It is trading stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Except UK, Japan and India (stable), global yields closed lower. US 10Y yield fell by 7bps as jobless claims data remained in line with expectation. Markets will be looking for fresh cues on inflation, high frequency data for growth and also borrowing data, for cues on future trajectory of yields. India’s 10Y yield is trading at the same level at 7.31% today, ahead of Rs 300bn auction.

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 21 and 22 Dec 2022

International oil prices eased further by 1.2% amidst Covid-19 concerns in China and an increase in crude stock piles.

Fig 7 – Commodities