Macro & Markets Review - May 05, 2023

Key economic developments

• European Central Bank raised its interest rates yesteday by 25bps at its May-23 monetary policy meeting, in line with market consensus. In its accompanying statement, the ECB said “the inflation outlook continues to be too high for too long”. It did not provide further guidance about upcoming rate decisions, but stated that it would likely stop reinvestments under its Asset Purchase Program (APP) in Jul-23.
• U.S. initial jobless claims for the week ending 29th Apr-23 rose to 242k, marginally higher than market expectation (Bloomberg: 240k), from 229k the prior week. The 4-week moving average of initial claims increased by 3,500.
• China’s Caixin manufacturing PMI Index fell to 49.5 in Apr-23, below market consensus pegged at an expansion of 50.3, from 50.0 in Mar-23 (Note: Level of 50 separates expansion from contraction)
• Euro zone unemployment rate fell to 6.5% in Mar-23,?dipping to a new record-low, from 6.6% in Feb-23.
• Markets in Japan will remain closed until 5th May-23 due to holidays. India's currency and debt markets will be closed today for a local holiday, while equity markets will continue to operate.

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Equity Market

Barring India’s Nifty 50 and China’s Shanghai Comp, most key global indices closed lower yesterday. UK FTSE led losses to decline by 1.1%, followed by U.S. S&P 500 (-0.7%) on account of a likely pause to rate hikes. Indian shares led gains to advance by 0.9%, reversing losses from the previous session, followed by China’s Shanghai Comp (+0.8%).

Currencies

Global currencies ended mixed on Thursday, with DXY edging higher by 0.1% to 101.4 due to a resilient labour market. GBP rose by 0.1%, while EUR declined by 0.5% as the ECB slowed the pace of rate hike. Following global cues, INR closing marginally higher by 0.1%, in line while other Asian currencies owing to strong PMI data.

Bond Yields

Barring India, major global 10Y yields closed lower yesterday. 10-year yield for UK and China declined by 2bps each, followed by U.S. 10-year yield (-1bps) over renewed concerns of a banking crisis. India’s 10-year yield remained unchanged.

Commodities

Brent crude oil prices rose marginally by 0.2% to USD 72.50 pb, after the ECB decided to slow the pace of interest rate hikes. Gold prices rose by 0.9% as demand for safe-haven assets increased after the Fed signalled a pause to rate hike.

Source: CEIC, Refinitiv, Bloomberg, Investing.com, QuantEco Research. Japan markets remained closed until 5th May-23 due to holiday.