Economics Weekly Wrap
29th - 02nd September 2022

Back to all Articles
  • 29 Aug 2022

    Fed Chair in a highly anticipated speech hinted at further rate hikes to curb inflation, while acknowledging that this may translate into slower growth and softer labour- market conditions. He further stated that rates are likely to remain at elevated levels for some time against market expectations of a loosening monetary policy next year. US 2Y yield shot up sharply to its highest since Nov’07, thus deepening the yield curve inversion. An ECB official also said that ECB will have to hike rates even if it leads to a recession. Reports suggest that ECB is mulling a 75bps rate hike in the upcoming policy meeting, to combat soaring inflation. In the current week, investors await China’s official PMIs, US jobs report and Euro Zone’s inflation report.


    Global stocks ended mixed. Investors remained concerned about tightening financial conditions following Fed Chair’s speech which remained thoroughly hawkish, on the back of higher inflation. US stocks fell the most. Sensex on the other hand rose marginally by 0.1% led by gain in metal and consumer durables stocks. However, it is trading lower today in line with other Asian stocks.

    Fig 1 – Stock markets

      25-08-2022 26-08-2022 % change
    Dow Jones 33,292 32,283 (3.0)
    S & P 500 4,199 4,058 (3.4)
    FTSE 7,480 7,427 (0.7)
    Nikkei 28,479 28,641 0.6
    Hang Seng 19,968 20,170 1.0
    Shanghai Comp 3,246 3,236 (0.3)
    Sensex 58,775 58,834 0.1
    Nifty 17,522 17,559 0.2

    Source: Bloomberg, Bank of Baroda Research


    Except INR (flat), other global currencies fell against the dollar. DXY rose by 0.3% as Fed Chair stated that rates are likely to remain elevated “for some time”. GBP depreciated by 0.8% to a more than 2-year low. EUR fell by 0.1% amidst a deepening energy crisis in the region. INR is trading weaker today in line with other Asian currencies.

    Fig 2 – Currencies

      25-08-2022 26-08-2022 % change
    EUR/USD 0.9975 0.9966 (0.1)
    GBP/USD 1.1832 1.1744 (0.7)
    USD/JPY 136.49 137.64 (0.8)
    USD/INR 79.88 79.87 0
    USD/CNY 6.8492 6.8717 (0.3)

    Source: Bloomberg, Bank of Baroda Research


    Global yields closed mixed. Germany’s 10Y yield rose the most by 7bps as ECB minutes flagged possibility of further normalisation in policy rate. US 10Y yield also rose by 2bps as faster pace of rate hike is expected. CME Fed watch tool is now factoring 75bps rate hike in Sep’22 policy, attaching a 76.5% probability up from 50% last week. India’s 10Y yield fell by 8bps (7.22%) amidst media reports of India’s inclusion in the global bond index. It is trading higher at 7.26% today as RBI rejected bids for GOI FRB 2028.

    Fig 3 – Bond 10Y yield

      25-08-2022 26-08-2022 change in bps
    US 3.03 3.04 2
    UK 2.62 2.60 (2)
    Germany 1.32 1.39 7
    Japan 0.23 0.22 (1)
    China 2.66 2.66 0
    India 7.29 7.22 (8)

    Source: Bloomberg, Bank of Baroda Research


    Fig 4 – Short term rates

      25-08-2022 26-08-2022 change in bps
    Tbill-91 days 5.58 5.57 (1)
    Tbill-182 days 5.95 6.00 5
    Tbill-364 days 6.23 6.21 (2)
    G-Sec 2Y 6.35 6.36 1
    SONIA int rate benchmark 1.69 1.69 0
    US SOFR 2.27 2.28 1

    Source: Bloomberg, Bank of Baroda Research


    Fig 5 – Liquidity

    Rs tn 25-08-2022 26-08-2022 change (Rs tn)
    Net Liquidity (-Surplus/+deficit) (0.8) (1.0) (0.2)
    Reverse repo 0.7 0.5 (0.2)
    Repo 0 0 0

    Source: RBI, Bank of Baroda Research


    Fig 6 – Capital market flows

      24-08-2022 25-08-2022 change (US$ mn/Rs cr)
    FII (US$ mn) (18.2) 260.1 278.3
    Debt (39.2) (35.5) 3.7
    Equity 21.1 295.6 274.6
    Mutual funds (Rs cr) 1,407.1 (1,641.0) (3,048.1)
    Debt 1,571.0 (2,206.9) (3,777.9)
    Equity (163.9) 565.9 729.8

    Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022


    Crude oil prices rose by 1.7% to US$ 101/bbl amidst expectations that OPEC might cut output. However, further gains were capped by concerns over muted demand. Gold prices edged down as dollar strengthened.

    Fig 7 – Commodities

      25-08-2022 26-08-2022 % change
    Brent crude (US$/bbl) 99.3 101.0 1.7
    Gold (US$/ Troy Ounce) 1,758.7 1,738.1 (1.2)
    Copper (US$/ MT) 8,167.0 8,188.3 0.3
    Zinc (US$/MT) 3,624.8 3,646.5 0.6
    Aluminium (US$/MT) 2,433.5 2,493.5 2.5

    Source: Bloomberg, Bank of Baroda Research

  • 30 Aug 2022

    Global markets remained volatile following Fed Chair’s speech which was more hawkish than market expectations. Reports also suggest that ECB is likely to hike rates by 75 bps in its next policy meeting. A synchronised global monetary policy tightening is likely to have an impact on growth. This coupled with the property crisis in China, cost of living crisis in UK and the energy crisis in Europe have exacerbated concerns of a global recession. A deepening inversion in the US yield curve also signals increased likelihood of an impending recession. As a result, global stocks declined sharply and currencies were also mostly lower. US jobs report, due later in the week will provide further clarity on the rate path.


    Except Shanghai Comp, global stocks broadly closed lower. Fed Chair’s hawkish comments signalling rising rates amidst higher inflation dented investor sentiments. Nikkei dropped the most (2-week slump) followed by US and European stocks. Even Minneapolis Fed President said that the stock markets’ response reflects central bank’s message to control inflation. Sensex too dropped by 1.5% led by technology stocks. However, it is trading higher today, while Asian stocks are trading mixed.

    Fig 1 – Stock markets

      26-08-2022 29-08-2022 % change
    Dow Jones 32,283 32,099 (0.6)
    S & P 500 4,058 4,031 (0.7)
    FTSE 7,480 7,427 (0.7)
    Nikkei 28,641 27,879 (2.7)
    Hang Seng 20,170 20,023 (0.7)
    Shanghai Comp 3,236 3,241 0.1
    Sensex 58,834 57,973 (1.5)
    Nifty 17,559 17,313 (1.4)

    Source: Bloomberg, Bank of Baroda Research


    Except EUR (higher), other global currencies fell against the dollar. EUR rose by 0.3% supported by expectations of a 75 bps rate hike by the ECB. DXY was flat. JPY fell by 0.8% to a 5-week low amidst widening policy divergence between Fed and BoJ. INR depreciated by 0.1% as oil prices rose. However it is trading stronger today, while other Asian currencies are trading mixed.

    Fig 2 – Currencies

      26-08-2022 29-08-2022 % change
    EUR/USD 0.9966 0.9997 0.3
    GBP/USD 1.1744 1.1709 (0.3)
    USD/JPY 137.64 138.72 (0.8)
    USD/INR 79.87 79.97 (0.1)
    USD/CNY 6.8717 6.9088 (0.5)

    Source: Bloomberg, Bank of Baroda Research


    Global yields closed mixed. Germany’s 10Y yield rose the most by 11bps as investors are pricing in a 75bps rate hike by ECB in Sep’22 policy. US 10Y yield also rose by 6bps. China’s 10Y yield fell by 2bps supported by stimulus measures. India’s 10Y yield rose by 3bps (7.25%) amidst rising oil prices. It is trading a tad lower at 7.24% today.

    Fig 3 – Bond 10Y yield

      26-08-2022 29-08-2022 change in bps
    US 3.04 3.10 6
    UK 2.60 2.60 0
    Germany 1.39 1.50 11
    Japan 0.22 0.25 3
    China 2.66 2.64 (2)
    India 7.22 7.25 3

    Source: Bloomberg, Bank of Baroda Research


    Fig 4 – Short term rates

      26-08-2022 29-08-2022 change in bps
    Tbill-91 days 5.57 5.64 7
    Tbill-182 days 6.00 6.06 6
    Tbill-364 days 6.21 6.28 7
    G-Sec 2Y 6.35 6.36 1
    SONIA int rate benchmark 1.69 1.69 0
    US SOFR 2.28 2.28 0

    Source: Bloomberg, Bank of Baroda Research


    Fig 5 – Liquidity

    Rs tn 26-08-2022 29-08-2022 change (Rs tn)
    Net Liquidity (-Surplus/+deficit) (1.0) (1.0) 0
    Reverse repo 0.5 1.2 0.7
    Repo 0 0 0

    Source: RBI, Bank of Baroda Research


    Fig 6 – Capital market flows

      25-08-2022 26-08-2022 change (US$ mn/Rs cr)
    FII (US$ mn) 260.1 5.7 (254.4)
    Debt (35.5) 19.9 55.4
    Equity 295.6 (14.2) (309.8)
    Mutual funds (Rs cr) 1,407.1 (1,641.0) (3,048.1)
    Debt 1,571.0 (2,206.9) (3,777.9)
    Equity (163.9) 565.9 729.8

    Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022


    Crude oil prices rose sharply by 4.1% to US$ 105/bbl supported by prospects of an output cut by OPEC+ and turmoil in Libya. Gold prices fell by 0.1%.

    Fig 7 – Commodities

      26-08-2022 29-08-2022 % change
    Brent crude (US$/bbl) 101.0 105.1 4.1
    Gold (US$/ Troy Ounce) 1,738.1 1,737.1 (0.1)
    Copper (US$/ MT) 8,167.0 8,188.3 0.3
    Zinc (US$/MT) 3,624.8 3,646.5 0.6
    Aluminium (US$/MT) 2,433.5 2,493.5 2.5

    Source: Bloomberg, Bank of Baroda Research

  • 01 Sep 2022

    Global markets remained volatile amidst increased fears of a global recession. Inflation in the Eurozone climbed up to a fresh record high at 9.1% in Aug’22 from 8.9% in Jul’22, thus increasing bets of a 75bps rate hike by ECB. Several Fed officials also spoke in favour of more rate hikes to curb inflation. Notably, manufacturing PMI’s of major Asian economies such as China, Japan and South Korea suggested a weakening economic momentum


    Except Hang Seng (stable), global stocks broadly closed lower. Growing concerns of global growth slowdown amidst tightening financial conditions, dented investor sentiments. Even Cleveland Fed President hinted at raising Fed rate to 4% by early next year. European stocks fell the most, followed by US. Sensex rose by 2.7% led by real estate and banking stocks. However, it is trading lower today, in line with other Asian stocks.

    Fig 1 – Stock markets

      30-08-2022 31-08-2022 % change
    Dow Jones 31,791 31,510 (0.9)
    S & P 500 3,986 3,955 (0.8)
    FTSE 7,362 7,284 (1.1)
    Nikkei 28,196 28,092 (0.4)
    Hang Seng 19,949 19,954 0
    Shanghai Comp 3,227 3,202 (0.8)
    Sensex 57,973 59,537 2.7
    Nifty 17,313 17,759 2.6

    Source: Bloomberg, Bank of Baroda Research


    Global currencies closed mixed. DXY edged down by 0.1% ahead of US jobs report. EUR gained 0.4%-rising above the dollar parity mark, led by increasing bets of a 75 bps rate hike by ECB. GBP fell by 0.3% to its lowest since Mar’20 amidst worsening economic outlook. Lower oil prices supported INR. It is trading further stronger today, while other Asian currencies are trading mostly weaker.

    Fig 2 – Currencies

      30-08-2022 31-08-2022 % change
    EUR/USD 1.0015 1.0054 0.4
    GBP/USD 1.1656 1.1622 (0.3)
    USD/JPY 138.79 138.96 (0.1)
    USD/INR 79.97 79.46 0.6
    USD/CNY 6.9114 6.8904 0.3

    Source: Bloomberg, Bank of Baroda Research


    Except Japan (stable) and India (lower), global yields closed higher. Record high inflation in the Eurozone (9.1% in Aug’22 from 8.9% in Jul’22) and expectation of aggressive rate hike by Fed, impacted investor sentiments. UK’s 10Y yield rose to its highest (2.8%) since Sep’86. Even US 10Y yield rose by 9bps as private payroll data reported annual pay up 7.6%, which added to inflation woes. India’s 10Y yield fell by 6bps (7.19%) on account of fall in 5Y OIS rate. It is trading lower at 7.18%, supported by favourable fiscal print.

    Fig 3 – Bond 10Y yield

      30-08-2022 31-08-2022 change in bps
    US 3.10 3.19 9
    UK 2.70 2.80 10
    Germany 1.51 1.54 3
    Japan 0.23 0.23 0
    China 2.64 2.64 1
    India 7.25 7.19 (6)

    Source: Bloomberg, Bank of Baroda Research


    In the current TBill auction of Rs 210bn, cut off yield rose across the board (91- days: 3bps, 182-days: 10bps and 364-days: 5bps).

    Fig 4 – Short term rates

      30-08-2022 31-08-2022 change in bps
    Tbill-91 days 5.64 5.63 (1)
    Tbill-182 days 6.06 6.06 0
    Tbill-364 days 6.28 6.31 3
    G-Sec 2Y 6.35 6.36 1
    SONIA int rate benchmark 1.69 1.69 0
    US SOFR 2.28 2.29 1

    Source: Bloomberg, Bank of Baroda Research


    Fig 5 – Liquidity

    Rs tn 29-08-2022 30-08-2022 change (Rs tn)
    Net Liquidity (-Surplus/+deficit) (1.0) (0.6) 0.4
    Reverse repo 1.2 1.2 0
    Repo 0 0 0

    Source: RBI, Bank of Baroda Research


    Fig 6 – Capital market flows

      26-08-2022 29-08-2022 change (US$ mn/Rs cr)
    FII (US$ mn) 5.7 172.3 166.6
    Debt 19.9 (85.4) (105.3)
    Equity (14.2) 257.7 271.9
    Mutual funds (Rs cr) (1,641.0) (403.1) 1,237.9
    Debt (2,206.9) 924.6 3,131.5
    Equity 565.9 (1,327.7) (1,893.7)

    Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022


    Global commodity prices fell led by fears of a recession and muted global demand. Crude oil prices fell the most by 2.8% to US$ 96.5/bbl.

    Fig 7 – Commodities

      30-08-2022 31-08-2022 % change
    Brent crude (US$/bbl) 99.3 96.5 (2.8)
    Gold (US$/ Troy Ounce) 1,724.0 1,711.0 (0.8)
    Copper (US$/ MT) 7,893.0 7,845.5 (0.6)
    Zinc (US$/MT) 3,564.5 3,531.5 (0.9)
    Aluminium (US$/MT) 2,391.0 2,359.0 (1.3)

    Source: Bloomberg, Bank of Baroda Research

  • 02 Sep 2022

    US jobless claims fell by 5,000 to a 2-month low of 232,000 suggesting continued labour market strength. While US ISM manufacturing PMI was stable at 52.8 in Aug’22, manufacturing activity in Asia, Eurozone and UK weakened. On the positive side, firms globally reported easing price pressures. India’s manufacturing PMI was broadly stable at 56.2 in Aug’22 (from 56.4) signalling strong expansion in activity. New orders and output rose solidly and input cost inflation eased. GST collections too remained buoyant and rose by 28% (YoY) in Aug’22 to Rs. 1.44 lakh crore.


    Except US (higher), global stocks closed lower. FTSE dropped the most as manufacturing PMI fell to its 26-month low in Aug’22, reflecting aggravating concerns of growth slowdown. Even Asian stocks continued to slide amidst worries over spill over impact of China’s Covid-zero policy. On the other hand, stable ISM manufacturing print in the US supported its stock market indices. Sensex fell by 1.3% led by oil and gas and technology stocks. It is also trading lower today, while Asian stocks are trading mixed ahead of US jobs report.

    Fig 1 – Stock markets

      31-08-2022 1-09-2022 % change
    Dow Jones 31,510 31,656 0.5
    S & P 500 3,955 3,967 0.3
    FTSE 7,284 7,149 (1.9)
    Nikkei 28,092 27,661 (1.5)
    Hang Seng 19,954 19,597 (1.8)
    Shanghai Comp 3,202 3,185 (0.5)
    Sensex 59,537 58,767 (1.3)
    Nifty 17,759 17,543 (1.2)

    Source: Bloomberg, Bank of Baroda Research


    Global currencies depreciated against the dollar. DXY rose by 0.9% to a 20-year high supported by strong macro data and expectation of further rate hikes. EUR fell below the dollar parity mark once again, amidst dismal manufacturing PMI (26-month low). JPY depreciated by 0.9% to a 24-year low. INR depreciated by 0.1% despite a drop in oil prices. It is trading further weaker today, while other Asian currencies are trading mixed.

    Fig 2 – Currencies

      31-08-2022 1-09-2022 % change
    EUR/USD 1.0054 0.9946 (1.1)
    GBP/USD 1.1622 1.1545 (0.7)
    USD/JPY 138.96 140.21 (0.9)
    USD/INR 79.46 79.56 (0.1)
    USD/CNY 6.8904 6.9070 (0.2)

    Source: Bloomberg, Bank of Baroda Research


    Except China (lower), global yields closed higher. Expectations of aggressive rate hikes by major central banks and tightening financial market conditions, impacted yield movement. UK’s 10Y yield rose the most by 8bps, followed by US (+6bps). India’s 10Y yield rose by 2bps (7.22%), ahead of the weekly Rs 330bn gilt auction. It is trading higher at 7.24% today.

    Fig 3 – Bond 10Y yield

      31-08-2022 1-09-2022 change in bps
    US 3.19 3.25 6
    UK 2.80 2.88 8
    Germany 1.54 1.56 2
    Japan 0.23 0.24 2
    China 2.64 2.63 (1)
    India 7.19 7.22 2

    Source: Bloomberg, Bank of Baroda Research


    Fig 4 – Short term rates

      31-08-2022 1-09-2022 change in bps
    Tbill-91 days 5.63 5.63 0
    Tbill-182 days 6.06 6.04 (2)
    Tbill-364 days 6.31 6.29 (2)
    G-Sec 2Y 6.36 6.45 9
    SONIA int rate benchmark 1.69 1.69 0
    US SOFR 2.28 2.29 1

    Source: Bloomberg, Bank of Baroda Research


    Fig 5 – Liquidity

    Rs tn 30-08-2022 1-09-2022 change (Rs tn)
    Net Liquidity (-Surplus/+deficit) (0.6) (1.4) (0.8)
    Reverse repo 1.2 1.2 0
    Repo 0 0 0

    Source: RBI, Bank of Baroda Research


    Fig 6 – Capital market flows

    Mutual funds (Rs cr) (1,641.0) (403.1) 1,237.9
    Debt (2,206.9) 924.6 3,131.5
    Equity 565.9 (1,327.7) (1,893.7)

    Source: Bloomberg, Bank of Baroda Research; Note-mutual fund data pertains to 16 and 17 May 2022


    Crude oil prices fell by 4.3% to US$ 92.4/bbl amidst fears of muted demand due to renewed Covid-19 curbs in China also impacted sentiments.

    Fig 7 – Commodities

      31-08-2022 1-09-2022 % change
    Brent crude (US$/bbl) 96.5 92.4 (4.3)
    Gold (US$/ Troy Ounce) 1,711.0 1,697.5 (0.8)
    Copper (US$/ MT) 7,845.5 7,652.0 (2.5)
    Zinc (US$/MT) 3,531.5 3,320.5 (6.0)
    Aluminium (US$/MT) 2,359.0 2,295.0 (2.7)

    Source: Bloomberg, Bank of Baroda Research

@2022 Bank of Baroda. All rights reserved

Important disclosures are provided at the end of this report.

Disclaimer

The views expressed in this research note are personal views of the author(s) and do not necessarily reflect the views of Bank of Baroda. Nothing contained in this publication shall constitute or be deemed to constitute an offer to sell/ purchase or as an invitation or solicitation to do so for any securities of any entity. Bank of Baroda and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability with regard to the same. Bank of Baroda Group or its officers, employees, personnel, directors may be associated in a commercial or personal capacity or may have a commercial interest including as proprietary traders in or with the securities and/ or companies or issues or matters as contained in this publication and such commercial capacity or interest whether or not differing with or conflicting with this publication, shall not make or render Bank of Baroda Group liable in any manner whatsoever & Bank of Baroda Group or any of its officers, employees, personnel, directors shall not be liable for any loss, damage, liability whatsoever for any direct or indirect loss arising from the use or access of any information that may be displayed in this publication from time to time

Connect with Us

For further details about this publication, please contact:
Economics Research Department
Bank of Baroda
+91 22 6698 5794
chief.economist@bankofbaroda.com

Popular Articles

Related Articles

Leave a Comment

Thanks for submitting your details.

Economics Weekly Wrap
05th - 09th September 2022

Economics Weekly Wrap
23rd - 26th August 2022

Add this website to home screen

Are you Bank of Baroda Customer?

This is to inform you that by clicking on continue, you will be leaving our website and entering the website/Microsite operated by Insurance tie up partner. This link is provided on our Bank’s website for customer convenience and Bank of Baroda does not own or control of this website, and is not responsible for its contents. The Website/Microsite is fully owned & Maintained by Insurance tie up partner.


The use of any of the Insurance’s tie up partners website is subject to the terms of use and other terms and guidelines, if any, contained within tie up partners website.


Proceed to the website


Thank you for visiting www.bankofbaroda.in

X
We use cookies (and similar tools) to enhance your experience on our website. To learn more on our cookie policy, Privacy Policy and Terms & Conditions please click here. By continuing to browse this website, you consent to our use of cookies and agree to the Privacy Policy and Terms & Conditions.