Economic Weekly Wrap
26 March 2024 - 28 March 2024

Investors closely monitored the rate decision by global central banks. Fed maintained status quo and the ‘dot plot’ reflected the possibility of 3-rate cut this year. BoE also hinted at the likelihood of rate cuts. Swiss National Bank sprang into action as it announced a 25bps rate cut. On the other hand, BoJ ended the negative interest rate cycle after 17-years. The focus in the ongoing holiday-shortened week will shift towards PCE data. In Jan’24, headline PCE and core PCE inflation was at 2.4% and 2.8% respectively. It is expected to inch up to 2.5%. Thus, remaining far off from the Fed’s target of 2%. Separately in Japan, services PPI edged up to 2.1% in Feb’24 (same rate as Jan’24).

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 25.03.2024

Except JPY (flat) and INR (lower), other global currencies closed higher against the dollar. DXY fell by another 0.2%, as investors assess Fed’s rate cut trajectory. Dip in new home sales has increased the probability of rate cut in Jun’24. INR depreciated further. However it is trading much stronger today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 25.03.2024

Barring Japan, other global 10Y yields inched up. Remarks of Fed Chair Powell are keenly awaited to gauge the timing of Fed’s first rate cut. There is 65% chance of a rate cut in Jun’24. India’s 10Y yield rose by 5bps, as oil price increase picks up pace. It is trading at similar level (7.09%) today.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 25.03.2024

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 funds data as of 18 Mar 2024 and 19 Mar 2024

Oil prices gather momentum over fears of tight supply (Russia’s production cuts and refinery attacks).

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

In the US, durable goods orders made a recovery after rising by 1.4% in Feb’24 (-6.9% in Jan’24). Transportation and motor vehicles orders jumped up to 3.3% and 1.8% in Feb’24 respectively, signaling that the manufacturing sector could steadily be regaining its footing. However, there were mixed reports for the market, including a dip in home sales data, cooling off housing prices, and unchanged consumer confidence at 104.7 in Mar’24. In China, industrial profits for Jan-Feb’24 surged to 10.2%, with increases in manufacturing and electricity production industries. Profits for state-owned enterprises also rose by 0.5% for the same period. On the domestic front, India’s current account deficit dropped down to US$ 10.5bn (1.2% of GDP) in Q3 from US$ 11.4bn in Q2.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 25.03.2024

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 25.03.2024

Barring China and India (flat), other global 10Y yields eased. Mixed macro data from the US (pickup in durable goods orders and flat consumer confidence) impacted investor sentiments. Inflation data is awaited for more guidance. India’s 10Y yield closed steady at 7.09%, as oil prices retreated. It is trading flat today as well.

Fig 3 – Bond 10Y yield

Source: Bloomberg, Bank of Baroda Research | Note: Markets in India were closed on 25.03.2024

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 funds data as of 18 Mar 2024 and 19 Mar 2024

Oil prices fell as investors weighed the impact of supply pressures and a stronger US$.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research

In India, Centre’s borrowing calendar was released for H1FY25. Out of the total gross borrowing of Rs 14.1 lakh crore, the centre is expected to borrow Rs 7.5 lakh crore (53% of the target) in H1. The proportion is lower than H1FY24 and is expected to be positive for the G-sec, with yield expected to fall down. Additionally, a new dated security of 15-year tenor has also been introduced and Centre also plans to issue green bonds in two tranches of Rs 6,000 crore (maturity of 10-year) each in FY25. Separately, in Europe, the economic sentiment indicator (ESI) jumped up to 96.2 (+0.7 points) and 96.3 (+0.8 points) levels in EU and Euro area respectively in Mar’24. The employment expectations indicator remained stable for both the regions.

Fig 1 – Stock markets

Source: Bloomberg, Bank of Baroda Research

Global currencies closed mixed against US$, with JPY and GBP appreciating. DXY ended flat. JPY, despite slight improvement, continues to hover at near 34-year low. Investors await US and UK macro data to gauge Fed and BoE’s rate trajectory. INR fell by 0.1%, despite easing oil prices. However, it is trading higher today, while other Asian currencies are trading mixed.

Fig 2 – Currencies

Source: Bloomberg, Bank of Baroda Research

Global 10Y yields fell, with those in Germany, UK and US declining the most. Investors are expecting Central Banks outside the US to be able to cut rates early, with inflation correcting itself. In the US, investors await labour market and inflation data for more cues. India’s 10Y yield fell by 2bps. It is trading further lower today, as the centre announced a smaller than expected H1 borrowing plan.

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 funds data as of 18 Mar 2024 and 19 Mar 2024

Oil prices fell by 0.2%, as the latest data shows a jump in US stockpiles.

Fig 7 – Commodities

Source: Bloomberg, Bank of Baroda Research