Economic Weekly Wrap
23 January 2023 - 27 January 2023
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23 Jan 2023
Global macro indicators again provided discomfort with US existing home sales falling by 1.5% to 4.02mn in Dec’22 against 4.08mn in Nov’22. Adding to the woes was S.Korea’s trade data, which showed that exports declined by 2.7% in the first 20days of Jan’23 (YoY) and the main concerns of exporters have been global economic slowdown. In UK as well, consumer confidence fell more than expected to 45 (est.: -40). Retail sales in the region also disappointed (-1% decline against est.: 0.5% increase). In Germany, PPI rose more than expected (-0.4% decline against est.: -1.2%). On rate front, Fed futures is pricing in two more rate hikes and officials remained wary of inflation. However markets remain confident on China’s rebound. Even China’s Vice Premier Liu He also struck an optimistic tone in Davos.
Except India, stocks elsewhere rallied. Investors continued to monitor earnings reports. US indices jumped sharply led by gains in technology stocks. S&P 500 rose the most by 1.9%. Hang Seng too jumped by 1.8%. However, domestic markets ended in red with Sensex falling by 0.4%. Consumer durables and metal stocks fell the most. However, it is trading higher today in line with other Asian indices.
Fig 1 – Stock markets
19-01-2023 20-01-2023 % change Dow Jones 33,045 33,375 1.0 S & P 500 3,899 3,973 1.9 FTSE 7,747 7,771 0.3 Nikkei 26,405 26,554 0.6 Hang Seng 21,651 22,045 1.8 Shanghai Comp 3,240 3,265 0.8 Sensex 60,858 60,622 (0.4) Nifty 18,108 18,028 (0.4) Source: Bloomberg, Bank of Baroda Research
Global currencies closed mixed against the dollar. DXY was muted as US existing home sales slumped to a 12-year low in Dec’22. JPY fell by 0.9% as BoJ Governor reiterated that the central bank will remain “extremely accommodative”. INR appreciated by 0.3% even as oil prices climbed upwards. It is trading stronger today, in line with other Asian currencies.
Fig 2 – Currencies
19-01-2023 20-01-2023 % change EUR/USD (1 EUR / USD) 1.0833 1.0856 0.2 GBP/USD (1 GBP / USD) 1.2391 1.2397 0 USD/JPY (JPY / 1 USD) 128.43 129.60 (0.9) USD/INR (INR / 1 USD) 81.36 81.13 0.3 USD/CNY (CNY / 1 USD) 6.7755 6.7845 (0.1) Source: Bloomberg, Bank of Baroda Research
Except Japan (lower), global 10Y yields closed higher. ECB President hinted at second round effect of higher inflation. Even Fed officials (Christopher Waller and Lael Brainard) also signalled monetary tightening though the quantum might be lower than previous policies. Japan’s 10Y yield fell by 6bps with 10Y yield inching below the upper band, due to policy support. India’s 10Y yield rose by 4bps (7.35%) on account of lower than expected cut off for the benchmark security in the current auction. It is trading higher at 7.36% today.
Fig 3 – Bond 10Y yield
19-01-2023 20-01-2023 change in bps US 3.39 3.48 9 UK 3.28 3.38 10 Germany 2.07 2.18 11 Japan 0.44 0.39 (6) China 2.91 2.93 1 India 7.31 7.35 4 Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
19-01-2023 20-01-2023 change in bps Tbill-91 days 6.39 6.42 3 Tbill-182 days 6.79 6.75 (4) Tbill-364 days 6.89 6.88 (1) G-Sec 2Y 6.82 6.85 3 SONIA int rate benchmark 3.43 3.43 (0) US SOFR 4.30 4.31 1 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 19-01-2023 20-01-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) (0.7) 0.1 0.8 Reverse repo 0.5 0.5 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
18-01-2023 19-01-2023 change (US$ mn/Rs cr) FII (US$ mn) 22.1 117.8 95.7 Debt 15.4 45.6 30.1 Equity 6.7 72.3 65.6 Mutual funds (Rs cr) 840.5 855.5 15.0 Debt 640.0 326.5 (313.5) Equity 200.5 529.0 328.5 Source: Bloomberg, Bank of Baroda Research│Note: Mutual funds data is of 4 Jan 2023 and 5 Jan 2023
Global oil prices rose by 1.7% supported by better demand outlook of China.
Fig 7 – Commodities
19-01-2023 20-01-2023 % change Brent crude (US$/bbl) 86.2 87.6 1.7 Gold (US$/ Troy Ounce) 1,932.2 1,926.1 (0.3) Copper (US$/ MT) 9,301.0 9,307.8 0.1 Zinc (US$/MT) 3,474.0 3,435.5 (1.1) Aluminium (US$/MT) 2,587.5 2,610.5 0.9 Source: Bloomberg, Bank of Baroda Research
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24 Jan 2023
Equity market edged up while there was broad sell off in the bond and currency market. Investors are still looking for direction with regard to quantum of Fed rate hike amidst weaker macros in the US and tighter labour market conditions. We expect 25bps rate hike in the next two meetings and a terminal rate of 5% or above 5% may be feasible. Flash manufacturing PMI print in Japan and Australia still remained in contraction (below the 50 mark at 48.9 and 49.8 respectively in Jan’23). Australia’s NAB data also showed deteriorating business conditions amidst worsening trading conditions, profitability and unfavourable macro environment. On domestic front some pressure on 10Y yield cannot be ruled out as majority of the market participants are expecting a gross borrowing of above Rs 16 lakh crore.
Global indices ended higher. Dow Jones gained by 0.8% led by surging technology stocks as investor monitored earnings heavy week. Investors have also priced slower pace of rate hike with the likelihood of 25bps rate hike in the upcoming policy meet. Nikkei gained the most. Sensex (0.5%) too ended in green led by gains in banking and IT stocks. It is trading higher today in line with other Asian indices.
Fig 1 – Stock markets
20-01-2023 23-01-2023 % change Dow Jones 33,375 33,630 0.8 S & P 500 3,973 4,020 1.2 FTSE 7,771 7,785 0.2 Nikkei 26,554 26,906 1.3 Hang Seng 21,651 22,045 1.8 Shanghai Comp 3,240 3,265 0.8 Sensex 60,622 60,942 0.5 Nifty 18,028 18,119 0.5 Source: Bloomberg, Bank of Baroda Research
Barring EUR (higher), other global currencies ended lower against the dollar. Risks of global growth slowdown still remain with US economic indicators posting weaker than anticipated data last week. Flash manufacturing PMIs of Japan and Australia are also showing weakness in activity. INR depreciated by 0.1%. It opened further lower today, in line with other Asian currencies.
Fig 2 – Currencies
20-01-2023 23-01-2023 % change EUR/USD (1 EUR / USD) 1.0856 1.0872 0.1 GBP/USD (1 GBP / USD) 1.2397 1.2379 (0.1) USD/JPY (JPY / 1 USD) 129.60 130.67 (0.8) USD/INR (INR / 1 USD) 81.13 81.39 (0.3) USD/CNY (CNY / 1 USD) 6.7755 6.7845 (0.1) Source: Bloomberg, Bank of Baroda Research
Except UK (lower), global 10Y yields broadly closed higher. Market is looking for direction in global yields amidst weak macros in the US and tighter labour market conditions. Expectation is of two rate hike of 25bps each before reaching a terminal rate of 5% or above 5%. India’s 10Y yield closed flat at 7.35%. It is trading at 7.36% today.
Fig 3 – Bond 10Y yield
20-01-2023 23-01-2023 change in bps US 3.48 3.51 3 UK 3.38 3.36 (2) Germany 2.18 2.21 3 Japan 0.39 0.39 1 China 2.91 2.93 1 India 7.35 7.35 0 Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
20-01-2023 23-01-2023 change in bps Tbill-91 days 6.42 6.42 0 Tbill-182 days 6.75 6.80 5 Tbill-364 days 6.88 6.88 0 G-Sec 2Y 6.85 6.84 (1) SONIA int rate benchmark 3.43 3.43 0 US SOFR 4.31 4.30 (1) Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 20-01-2023 23-01-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) 0.1 0 (0.1) Reverse repo 0.5 0.5 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
19-01-2023 20-01-2023 change (US$ mn/Rs cr) FII (US$ mn) 117.8 (159.5) (277.3) Debt 45.6 42.5 (3.0) Equity 72.3 (202.0) (274.3) Mutual funds (Rs cr) 840.5 855.5 15.0 Debt 640.0 326.5 (313.5) Equity 200.5 529.0 328.5 Source: Bloomberg, Bank of Baroda Research│Note: Mutual funds data is of 4 Jan 2023 and 5 Jan 2023
Global oil prices rose by 0.6% (US$ 88/bbl) despite rise in US inventory.
Fig 7 – Commodities
20-01-2023 23-01-2023 % change Brent crude (US$/bbl) 87.6 88.2 0.6 Gold (US$/ Troy Ounce) 1,926.1 1,931.0 0.3 Copper (US$/ MT) 9,307.8 9,330.8 0.2 Zinc (US$/MT) 3,435.5 3,439.8 0.1 Aluminium (US$/MT) 2,610.5 2,636.5 1.0 Source: Bloomberg, Bank of Baroda Research
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25 Jan 2023
Flash PMI readings for Jan’23 of major economies remained in contraction territory. In the US, the composite reading was at 46.6, for UK at 47.8 and for Australia at 48.2. Only respite came from the Eurozone where the reading improved to 50.2, led by services sector. Another concern emanated from faster increase in input prices, as pointed in both US and Eurozone survey results. Labour market conditions also remained tighter. Inflation print in Australia rose to its highest since CY90 at 7.8% for Q4CY22. Even in New Zealand CPI rose more than expected by 7.2% in Q4CY22 (est.: 7.1%). ECB Governing Council member also remained hawkish and hinted that controlling inflation is the main priority.
Barring S&P, FTSE (lower), and Nifty (flat), other global indices ended higher. Dow Jones gained by 0.3% led by surge in technology stocks as investors bet on revival in demand following China’s re-opening, and ‘soft-landing’ in the US. FTSE ended in red as UK flash composite PMI fell sharply. Sensex was up by 0.1%, led by gains in auto, consumer durables and tech stocks. However, it is trading lower today, while other Asian indices are trading mixed.
Fig 1 – Stock markets
23-01-2023 24-01-2023 % change Dow Jones 33,630 33,734 0.3 S & P 500 4,020 4,017 (0.1) FTSE 7,785 7,757 (0.4) Nikkei 26,906 27,299 1.5 Hang Seng 21,651 22,045 1.8 Shanghai Comp 3,240 3,265 0.8 Sensex 60,942 60,979 0.1 Nifty 18,119 18,118 0 Source: Bloomberg, Bank of Baroda Research
Except EUR and JPY (higher), other global currencies ended lower. While JPY (+0.4%) gained the most, INR and GBP (-0.4% each) fell. DXY was down by 0.2%. Investors await US GDP data (due tomorrow) to predict Fed’s rate decision next week. Weakness in economic activity in the UK and fears of recession dragged GBP down. INR too fell, even as oil prices dipped. However, it is trading higher today, while other Asian currencies are trading mixed.
Fig 2 – Currencies
23-01-2023 24-01-2023 % change EUR/USD (1 EUR / USD) 1.0872 1.0887 0.1 GBP/USD (1 GBP / USD) 1.2379 1.2334 (0.4) USD/JPY (JPY / 1 USD) 130.67 130.17 0.4 USD/INR (INR / 1 USD) 81.39 81.72 (0.4) USD/CNY (CNY / 1 USD) 6.7755 6.7845 (0.1) Source: Bloomberg, Bank of Baroda Research
Global 10Y yields broadly closed mixed. Disappointing flash PMI reading led to higher demand for sovereign securities. UK’s 10Y yield fell the most by 8bps despite sharp rise in public sector net borrowing. In Japan, 10Y yield rose by 3bps, albeit remaining below the 0.5% band. India’s 10Y yield closed flat at 7.35%. It is trading a tad lower at 7.34% today.
Fig 3 – Bond 10Y yield
23-01-2023 24-01-2023 change in bps US 3.51 3.45 (6) UK 3.36 3.28 (8) Germany 2.21 2.16 (5) Japan 0.39 0.42 3 China 2.91 2.93 1 India 7.35 7.35 0 Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
23-01-2023 24-01-2023 change in bps Tbill-91 days 6.42 6.43 1 Tbill-182 days 6.80 6.81 1 Tbill-364 days 6.88 6.89 1 G-Sec 2Y 6.84 6.89 5 SONIA int rate benchmark 3.43 3.43 - US SOFR 4.30 4.30 - Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 23-01-2023 24-01-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) 0 0 0 Reverse repo 0.5 0.5 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
20-01-2023 23-01-2023 change (US$ mn/Rs cr) FII (US$ mn) (159.5) 31.4 190.9 Debt 42.5 3.8 (38.7) Equity (202.0) 27.6 229.6 Mutual funds (Rs cr) 840.5 855.5 15.0 Debt 640.0 326.5 (313.5) Equity 200.5 529.0 328.5 Source: Bloomberg, Bank of Baroda Research│Note: Mutual funds data is of 4 Jan 2023 and 5 Jan 2023
Global oil prices fell by 2.3% due to build up in US inventory.
Fig 7 – Commodities
23-01-2023 24-01-2023 % change Brent crude (US$/bbl) 88.2 86.1 (2.3) Gold (US$/ Troy Ounce) 1,931.0 1,937.4 0.3 Copper (US$/ MT) 9,330.8 9,291.0 (0.4) Zinc (US$/MT) 3,439.8 3,447.3 0.2 Aluminium (US$/MT) 2,636.5 2,650.5 0.5 Source: Bloomberg, Bank of Baroda Research
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27 Jan 2023
Markets monitored slew of economic data releases. In the US, advance estimate of Q4CY22GDP data showed that the economy grew more than expected by 2.9% (est.: 2.6%). This again reignited concerns about the trajectory of future Fed rate hikes. Labour market still remained tighter with initial jobless claims rising less than expected by 186k (est.: 205k). Durable goods orders in the region also grew more than anticipated by 5.6% (est.: 2.5%). Elsewhere, the Tokyo inflation report raised concerns about BoJ’s future rate decision. The CPI print rose more than expected by 4.4% on YoY basis (est.: 4%). This is the highest reading since CY81. Earlier, IMF has also pointed out that BoJ should be more flexible in terms of its YCC.
Barring Nikkei and Sensex (lower), other global indices ended higher. Investors monitored robust data from the US (higher than expected GDP for Q4CY22 and stronger durable goods order). Amongst other indices Hang Seng (2.4%) gained the most; edging up to 11-month high boosted by tourism data and revival in demand as people started returning back from the lunar holiday. Sensex is trading lower today while other Asian stocks are trading higher today.
Fig 1 – Stock markets
25-01-2023 26-01-2023 % change Dow Jones 33,744 33,949 0.6 S & P 500 4,016 4,060 1.1 FTSE 7,745 7,761 0.2 Nikkei 27,395 27,363 (0.1) Hang Seng 22,045 22,567 2.4 Shanghai Comp 3,240 3,265 0.8 Sensex 60,979 60,205 (1.3) Nifty 18,118 17,892 (1.2) Source: Bloomberg, Bank of Baroda Research
Except INR (higher) and GBP (flat), other global currencies ended lower. Dollar index climbed by 0.2% backed by better than expected macro data in the US. Markets have already priced in 25bps rate hike by Fed in the upcoming meet scheduled next week. INR is trading weaker today while other Asian currencies are trading mixed.
Fig 2 – Currencies
25-01-2023 26-01-2023 % change EUR/USD (1 EUR / USD) 1.0916 1.0892 (0.2) GBP/USD (1 GBP / USD) 1.2403 1.2408 0 USD/JPY (JPY / 1 USD) 129.59 130.22 (0.5) USD/INR (INR / 1 USD) 81.72 81.59 0.2 USD/CNY (CNY / 1 USD) 6.7755 6.7845 (0.1) Source: Bloomberg, Bank of Baroda Research
Global 10Y yields broadly closed higher. This was led by better than expected GDP and other high frequency macro data in the US. Thus, US 10Y yield rose by 5bps. Despite drop in CBT retailing reported sales data in the UK, its 10Y yield rose by 7bps, mainly tracking US yield. In Japan, inflation worries led 10Y yield firm up by 5bps. India’s 10Y yield closed stable at 7.35%. It is trading higher at 7.38% today.
Fig 3 – Bond 10Y yield
25-01-2023 26-01-2023 change in bps US 3.44 3.49 5 UK 3.24 3.32 7 Germany 2.16 2.22 6 Japan 0.45 0.49 5 China 2.91 2.93 1 India 7.35 7.35 0 Source: Bloomberg, Bank of Baroda Research
Fig 4 – Short term rates
24-01-2023 25-01-2023 change in bps Tbill-91 days 6.43 6.46 3 Tbill-182 days 6.81 6.84 3 Tbill-364 days 6.89 6.90 1 G-Sec 2Y 6.89 6.90 1 SONIA int rate benchmark 3.43 3.43 0 US SOFR 4.30 4.31 1 Source: Bloomberg, Bank of Baroda Research
Fig 5 – Liquidity
Rs tn 24-01-2023 25-01-2023 change (Rs tn) Net Liquidity (-Surplus/+deficit) 0 (0.3) (0.3) Reverse repo 0.5 0.5 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research
Fig 6 – Capital market flows
23-01-2023 24-01-2023 change (US$ mn/Rs cr) FII (US$ mn) 31.4 120.1 88.7 Debt 3.8 134.1 130.3 Equity 27.6 (14.0) (41.6) Mutual funds (Rs cr) 840.5 855.5 15.0 Debt 640.0 326.5 (313.5) Equity 200.5 529.0 328.5 Source: Bloomberg, Bank of Baroda Research│Note: Mutual funds data is of 4 Jan 2023 and 5 Jan 2023
Global oil prices rose by 1.6% tracking robust US macro data and ahead of the OPEC+ JMMC (Joint Ministerial Monitoring Committee) meeting.
Fig 7 – Commodities
25-01-2023 26-01-2023 % change Brent crude (US$/bbl) 86.1 87.5 1.6 Gold (US$/ Troy Ounce) 1,946.1 1,929.2 (0.9) Copper (US$/ MT) 9,289.5 9,306.5 0.2 Zinc (US$/MT) 3,467.0 3,508.3 1.2 Aluminium (US$/MT) 2,658.5 2,639.0 (0.7) Source: Bloomberg, Bank of Baroda Research
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