Macro Pulse - October 11, 2023

KEY MACRO HIGHLIGHTS:

Fed officials nod to higher bond yields as cause for caution on rates:

Top ranking Federal Reserve officials indicated that rising yields on long-term U.S. Treasury bonds could steer the Fed from further increases in its short-term policy rate and substitute the work done by financial markets for formal monetary policy moves by the central bank. "We are in a sensitive period of risk management, where we have to balance the risk of not having tightened enough, against the risk of policy being too restrictive," Fed Vice Chair Philip Jefferson said, nodding to the rise in U.S. Treasury yields and the need for the central bank to “proceed carefully” with any further increases in the benchmark federal funds rate.

IMF raises India's FY24 GDP growth forecast to 6.3%:

The International Monetary Fund has raised India's economic growth forecast for the current fiscal year to 6.3% from 6.1% earlier, reflecting stronger-than-expected consumption during April-June. The IMF also expects retail inflation to rise to 5.5% in 2023/24 before easing to 4.6% in 2024/25, as the monetary policy projections are consistent with achieving the Indian central bank's inflation target over the medium term.

India's festive season bump unlikely to jumpstart rural auto demand:

A festive season bump would do little to spur a "complete demand turnaround" for tractors and two-wheelers in rural India, as high prices and the driest monsoon in five years have kept festival spending sentiment muted.

IMF says global economy 'limping along,' cuts growth forecast for China, euro area:

The IMF cut its growth forecasts for China and the euro area and said overall global growth remained low and uneven despite what it called the "remarkable strength" of the U.S. economy. The IMF left its forecast for global real GDP growth in 2023 unchanged at 3.0% in its latest World Economic Outlook (WEO), but cut its 2024 forecast by 0.1 percentage point to 2.9% from its?July forecast.

ECB official says inflation to still land at around 2% by 2025 despite violence in Middle East:

ECB policymaker Francois Villeroy de Galhau said that inflation should still land at the European Central Bank's target of around 2% by 2025 despite the violence in Israel weighing on commodity prices. He also said ECB's current interest rates, set last month at a record 4% after 10 successive hikes, were at a "good level", adding that now was not the right time for further increases.

German industrial output falls in August, spurring recession fears:

German industrial output shrank for the fourth consecutive month by 0.2% MoM in August, an indication that the sector remains under serious pressure, stoking recession fears.

Equities

Domestic Equity

Indian shares fell on Monday, dragged by a surge in oil prices due to a military conflict in the Middle East and higher U.S. interest rate concerns. The NSE Nifty 50 index?closed 0.72% lower at 19,512.35, while the S&P BSE Sensex?fell 0.73% to 65,512.39. All the 13 major sectoral indexes logged losses. The more domestically focussed small and mid-caps?underperformed the blue-chips, losing between 1.3% and 1.8%. Among individual stocks, Adani Ports And Economic Zone?fell 4.90% on worries of a possible escalation of the conflict in Israel, where the company owns a major port.

Global Equity

Global indices ended mixed as global investors turned risk averse with clashes between Israel and the Palestinian Islamist group Hamas deepening political uncertainty across the region and raising oil supply concerns. US stocks closed higher while energy stocks rallied as investors digested the latest news about the conflict between Israel and the Palestinian Islamist group Hamas. Dovish commentary by Fed officials further supported the market. ?European stocks came under pressure on Monday as Mideast military clashes sparked a rush to safe-haven assets such as bonds and gold. Uk’s commodity heavy FTSE 100 was subdued, but outpaced its peers in Europe and the U.S., as oil majors rallied on a rise in crude prices amid fears a widening of the conflict between Israel and the Palestinian Islamist group Hamas could affect Middle East oil supplies.

Currencies

Barring INR (lower), other global currencies ended higher. ?The safe-haven dollar rose on Monday against the euro as?military clashes?between Israel and the Palestinian Islamist group Hamas raised concerns that the conflict might widen beyond Gaza, but the DXY retreated 0.16% as softening US Fed rate hike expectations weighed down on DXY. JPY, another traditional safe-haven currency, edged higher 0.57% higher to 148.47 per dollar.

Bonds

Global yields closed mixed, with 10Y yield in Japan ending flat and UK and German yields seeing significant decline. Dovish comments from Fed official suggesting lesser need to hike rates, along with increased geo-political uncertainty (Israel conflict), impacted investor sentiments. India’s 10Y yield rose by 4bps, as oil prices jumped 4%.

Commodities

Brent crude prices rose 4% amidst ongoing geopolitical tensions. Gold price rose strongly on Mon due to safe haven demand-related support. The price of the precious metal gained by US$28.40 (1.5%) to US$1,861.41/ troy ounce.