Macro Pulse - September 13, 2023

KEY MACRO HIGHLIGHTS:

India's retail inflation eases in August but upside risks remain: ?

India's retail inflation?eased to 6.83% YoY in August as food prices moderated, but remained above the upper end of the central bank's target band for a second consecutive month, from 7.44% in July. Food inflation, which accounts for nearly half of the overall basket, was up 9.94% in August compared with a rise of 11.51% in July. However, inflation is expected to remain elevated in the coming months as a weak monsoon, lower reservoir levels and rising crude prices are likely to keep the pressure on food prices.

India's July industrial output rises to five-month high:?

India's industrial output rose by 5.7% YoY in July, its fastest pace in five months in July and faster than market estimates (Refinitiv: 4.8%) due to strong mining and electricity activity, from a revised 3.8% in the prior month.

Russian sellers discontinue fertiliser discounts to India:

Russian companies have ceased offering fertiliser such as di-ammonium phosphate to India at discounted prices due to tightening global supplies after becoming the biggest suppliers to the country last year. Global fertiliser prices have been surging over the past two months, making it challenging for Indian companies to accumulate stocks for the upcoming winter season when demand for DAP rises for the wheat crop.

German investor sentiment improves in September:?

Investor sentiment in Germany improved in September with the ZEW?investor expectations index rising to -11.4 from -12.3 in August, coming in comfortably above consensus expectations of -15.0.

Japan's wholesale inflation slows as cost pressures ease:

Japan's annual wholesale inflation slowed for the eighth straight month to 3.2% in August, matching a median market forecast, offering some relief for households and retailers hit by past sharp rises in raw material imports.

US holiday sales set for slowest year since 2018 as consumers turn frugal:?

Deloitte estimates that holiday sales across physical stores and online channels in the U.S. are estimated to grow by 3.5% to 4.6% between November and January, their slowest pace in five years, as dwindling household savings and worries over the economy prompt consumers to spend judiciously.

OPEC expects oil demand to hold steady:

OPEC estimates world oil demand to rise by 2.25 million barrels per day (bpd) in 2024, compared with growth of 2.44 million bpd in 2023, citing signs that major economies are faring better than expected despite headwinds such as high interest rates and elevated inflation.

UK economy contracts in July:

UK GDP contracted by 0.5% in July, marking the biggest drop this year larger than market estimates (Refinitiv: -0.2%), with all major sectors of the economy - services, manufacturing and construction – registering a decline.

UK jobless rate rises:

UK unemployment rate rose to 4.3% in the three months to July from 4.2% a month earlier, its highest since the three months to the end of September 2021 and higher than the 4.1% the BoE had pencilled in for the third quarter.? Employment dropped by a greater-than-expected 207,000 in the three months to July, including a drop of 182,000 in London - the biggest such fall since the three months to October 2020.

Key indicators/ Events to monitor:

The G7 data docket is focused on the US Aug headline CPI (Bloomberg estimate: headline at 0.6% m/m, 3.6% y/y, from 0.2% m/m, 3.2% y/y in Jul) and core inflation (est 0.2% m/m, 4.3% y/y, from 0.2% m/m, 4.7% y/y in Jul). Other US data of interest include real hourly and weekly earnings and the Aug monthly government budget statement. The key European releases include Jul industrial production data from Eurozone (est -0.9% m/m, -0.3% y/y from 0.5% m/m, -1.2% y/y in Jun) and UK (est -0.7% m/m, +0.4% y/y from 1.8% m/m, 0.7% y/y in Jun), UK’s Jul monthly GDP, construction output, and trade balance.

Equities

Domestic Equity

Indian equity indices?hit a lifetime high on Monday on the back of a record-setting rally powered by local investors that saw the benchmark briefly breach the 20,000-point milestone for the first time ever. The blue-chip Nifty 50 rose as much as 0.95% to 20,008.15, led by financials, auto and metals stocks, while the S&P BSE Sensex?settled 0.79% higher at 67,127.08. The more domestically focused small-caps?and mid-caps?extended their outperformance over the blue-chips, rising 1.14% and 1.33%, respectively, and hit fresh record highs. Twelve of the 13 major sectoral indexes ended higher. Heavyweight financial stocks?led the table with a 0.83% rise, extending gains from Friday after the Reserve Bank of India?said?it would discontinue the maintenance of the incremental cash reserve ratio.

Global Equity

Barring Nikkei, global indices started the week on a positive note as investors awaited the release of the key macroeconomic data. U.S. S&P500 climbed up by 0.7% supported by a strong rally in tech stocks as investors prepare for the CPI release. UK's FTSE 100 rose by 0.3% after a mixed labor report signalled that the Bank of England might be nearing the end of its interest rate hike cycle.

Currencies

Except INR, most global currencies ended higher with DXY falling by 0.5% as investors await US CPI data. Apart from this, ECB is also expected to announce its rate decision this week (40% chance of 25bps hike). JPY made significant gains as policymakers hint at moving away from ultra-loose monetary policy. INR was down by 0.1%.

Bonds

Most global yields closed mixed. 10Y yields in UK fell by 7 bps as UK Chancellor’s remarks regarding sticker than excepted inflation and limited fiscal space to combat it, spooked investors. Japan’s 10Y fell by 1 bps, following remarks of BoJ Governor. India’s 10Y yield inched up by 4bps ahead of India’s CPI data release.

Commodities

Brent crude price ended flat to settle at USD 90.6 pb, as investors await US crude oil inventory and CPI data. Gold and copper prices rose by 0.2% and 1.8%, respectively.

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