Macro & Markets Review - July 14, 2023

Key economic developments

• U.S. Federal Reserve Governor, Christopher Waller, said that “the robust strength of the labor market and the solid overall performance of the U.S. economy gives us room to tighten policy further”.
• U.S. PPI moderated to 0.1% YoY, the smallest annualised gain since Aug-20 and below market expectation (Refinitiv: 0.2%), from 0.9% in May-23.
• U.S. initial jobless claims dropped to a seasonally adjusted 237k for the week ended 8th Jul-23, well below market expectation (Refinitiv: 250k), ?from 249k in the prior week.
• ECB policymakers unanimously agreed on the need to continue raising interest rates to bring inflation back to target, according to the minutes of the 15th Jun-23 monetary policy meeting.
• The Reserve Bank of Australia is likely to nominate Michele Bullock as its next governor, making her the bank’s first female leader after incumbent governor Philip Lowe’s term ends in Sep-23.
• China's exports fell by 12.4% YoY in Jun-23, following a drop of 7.5% in May-23. Imports declined 6.8%, compared to market expectation (Refinitiv: -4.0%) and a contraction of 4.5% in May-23.
• Bank of Korea held interest rates steady for a fourth consecutive meeting, broadly in line with market expectation.

Equity Market

Most global indices ended higher on Thursday as easing U.S. inflation cements expectation of a softening monetary policy stance. Japan’s Nikkei and China Shanghai Comp led gains to rise by 1.5% and 1.3% respectively. India’s Nifty 50 edged higher by 0.2% on account of gains in IT and Real estate sectors.

Currencies

Most global currencies ended higher against the U.S. dollar on Thursday, with the DXY declining by 0.8% to close at 99.8, its lowest level since Apr-22, as markets wagered the Fed was near the end of its rate hike cycle due to easing inflation. GBP led gains to rise by 1.1%, followed by EUR (0.9%).

Bond Yields

Barring Japan and China, sovereign 10Y yields ended lower on Thursday as a moderation in inflation cemented expectations of a softening monetary policy outlook. U.S. and UK 10-year yields declined by 10 bps and 7 bps respectively. Tracking global peers, India’s 10-year bond yield fell by 5 bps, while that of China remained flat.

Commodities

Brent crude price rose on Thursday by 1.6% to USD 81.4 pb, extending gains from the previous session and hitting a three-month high, due to output cuts announced by top exporters Saudi Arabia and Russia for Aug-23 and expectations of higher demand. Gold prices rose marginally by 0.1%.