Macro Pulse - August 25, 2023

KEY MACRO HIGHLIGHTS:

U.S. jobless claims fall: U.S. initial jobless claims fell by 10,000 to to a seasonally adjusted?230,000 in the week ended 19th August 2023, the lowest level in three weeks and below market expectation (Refinitiv: 240,000), from 240,000 in the previous week. The improvement came despite a spike in jobless claims applications in Hawaii after devastating wildfires.

Fed official warns US interest rates may need to rise again:??Federal Reserve Bank of Boston President, Susan Collins, said that she was “surprised” by the?economy’s resilience — marked by a tight labour market and robust consumer spending — despite months of higher borrowing costs. “I am not yet seeing the slowing that I think is going to be part of what we need for that sustainable trajectory to get back to 2 per cent [inflation] in a reasonable amount of time,” Collins said, adding “that resilience really does suggest we may have more to do”.

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German economy stagnates in Q2: ?The German economy stagnated in Q2 with GDP registering a contraction of 0.2% YoY. On a quarterly basis, economic activity had fallen by 0.4% in the Q4 2022 and by 0.1% in the Q1 2023. Household consumption showed zero growth in and government spending rose by 0.1% QoQ. Capital investment also grew modestly while exports fell 1.1%.

Turkish central bank raises interest rate by 750bps to 25%: Turkey's central bank hiked its key interest rate by a larger-than-expected 750 basis points to 25%, its highest level since 2019, sending the Turkish currency to its strongest level since mid-July. The central bank has raised its one-week repo rate?by 1,650 basis points since June.. The policy committee maintained that they would tighten "as much as needed in a timely and gradual manner" to cool inflation, which soared to nearly 48% in July.

Inflation in Japan's capital slows in August, but remains elevated: ?Core inflation in Japan's capital slowed for the second consecutive month to 2.8% YoY in August, exceeding the Bank of Japan's 2% target for the 15th straight month, from 3.0% in July.

Bank Indonesia holds rates steady: ??Indonesia's central bank left interest rates unchanged at 5.75% for its seventh straight monthly policy review on Thursday, in line with market expectations, saying current levels are sufficient to keep inflation in check. Governor Perry Warjiyo said that the central bank plans to issue new rupiah-denominated securities, using its holdings of government bonds as the underlying asset, as a new monetary instrument aimed at attracting foreign portfolio capital flows.

India inflation to return to comfort band, according to MPC member: A member of India's Monetary Policy Committee, Ashima Goyal, said that retail inflation will return to the central bank's comfort band of 2%-6% as vegetable prices soften. She added that the spike in prices of items like tomatoes has been "unprecedented" but normally there is a seasonal softening in vegetables after a shock (price spike).

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Key indicators/events to monitor: All eyes will be on U.S. Fed Chair Jerome Powell’s speech at the annual Jackson Hole Economic Policy Symposium which may offer a glimpse of the Fed’s next moves in interest rates. Key economic data scheduled for release includes Germany’s 2Q23 GDP (final print), Germany’s IFO survey on business climate and University of Michigan’s sentiment index.

Equities

Domestic Equity

Indian equity indices closed lower on Thursday led by losses in Healthcare,?Metals?and?Consumer Durables?sectors. The Nifty 50?settled 0.29% lower at 19,386.70, while the S&P BSE Sensex?fell 0.28% to 65,252.34. The biggest gainers of the session on the?Nifty 50?were?Bharat Petroleum?Corp, Asian Paints and?IndusInd Bank, while the biggest laggards included?Reliance Industries, Power Grid Corporation of India and ONGC. The?India VIX, which measures the implied volatility of Nifty 50 options, was down 0.23% to 11.70.

Global Equity

Global stocks ended mixed. U.S. S&P 500 led losses to decline by 1.4% as investors remained cautious tracking Fed officials’ comments and tight labour market data, followed by Germany’s DAX 30 (-0.7%). Japan’s Nikkei led gains to rise by 0.9%, followed by UK’S FTSE (0.2%).?

Currencies

Barring INR and CNY, other global currencies ended weaker with the DXY rising by 0.5% to settle at 104, the highest level in 10 weeks, as traders await Jerome Powell’s speech at Jackson Hole. GBP depreciated the most by 1% even as GfK’s consumer confidence index for UK picked up. INR appreciated by 0.1% supported by FPI inflows.

Bonds

Global yields closed mixed. UK’s 10Y yield fell by 5bps as retail sales data softened considerably in August 2023, while China’s 10Y yield closed flat. US 10Y yield rose by 5bps ahead of Fed Chair’s speech. India’s 10Y yield inched up by 1 bp as RBI maintains a hawkish stance.?

Commodities

Brent crude price rose marginally by 0.2% on Thursday to settle at USD 83.4 pb, reversing losses from the previous session, 0.2% amidst reports of falling gas oil stocks in Europe. Gold prices remained steady as its recent rally was checked by a rebound in DXY. Copper prices fell by 1.2%, as macroeconomic data from Europe was uninspiring.

Source: PL Research, CEIC, CMIE Economic Outlook, Refinitiv, Bloomberg, Investing.com.