Macro Pulse - September 15, 2023

KEY MACRO HIGHLIGHTS:

ECB raises rates to record high, signals end to hikes:

The European Central Bank raised its key interest rate by 25-basis-points to a record high of 4% but signaled that the hike was likely to be its last. The central also raised its forecasts for inflation, with inflation seen at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025. On the other hand, It has trimmed growth forecasts for the next 3-years down to 0.7% in 2023 and 1% in 2024.

China’s industrial output, retail sales beat expectations:?

China's industrial output grew 4.5% in August, accelerating at the quickest rate since April and beating market expectations (Refinitiv: 3.9%), from 3.7% in July. Retail sales, a gauge of consumption, also grew at 4.6% in August, the quickest growth since May and well above market estimates (Refinitiv: 3.0%), from 2.5% in July.

US retail sales beat expectations:

U.S. retail sales rose 0.6% MoM in August, more than market expectations (Refinitiv: 0.2%), from 0.5% in July as a surge in gasoline prices boosted receipts at service stations.

U.S. business inventories unchanged in July:?

U.S. business inventories, a key component of gross domestic product, were unchanged in July, lower than market estimates (Refinitiv: +0.1%), as companies continued to carefully manage stocks in anticipation of weak demand because of higher interest rates.

India's August wholesale price index falls 0.52%:

India's wholesale price index?fell 0.52% YoY in August, better than market estimates (Refinitiv: -0.6%), from 1.36% in July. In August, fuel and power prices fell 6.03% YoY, compared with a fall of 12.79% in July, and prices of primary articles rose 6.34% versus a rise of 7.57%.

Over 95% chance of El Nino conditions from January to March 2024:??

There is an over 95% chance that the El Ni?o weather pattern will continue through the Northern Hemisphere winter from January - March 2024, according to a U.S. government forecaster. The naturally occurring phenomenon is already spurring calamities across the?globe, with the stakes seen higher for emerging markets more exposed to swings in food and energy prices.

India tightens wheat stocks limits:

India will reduce the limit on the amount of wheat stocks that traders and millers can hold but it has no immediate plans to abolish the import duty on the grain. Traders, wholesalers and big retailers will be allowed to hold only 2,000 tons of wheat against 3,000 tons allowed earlier.

India's corporate tax collections seen in line with budget estimates:

India's corporate tax collections must be looked at over a longer period of time and the full-year numbers are likely to be in line with budget estimates, according to the country's economic affairs secretary.

Key indicators/ Events to monitor:

Tonight will be another packed session for the US. Data includes import (est 0.3% MoM from 0.4% MoM in Aug) and export (est 0.4% MoM from 0.7% MoM in Jul) prices; the Empire manufacturing (est -10.0 from -19.0 in Jul); industrial production (est 0.1% MoM from 1.0% MoM in Jul) and manufacturing production (est 0.1% from 0.5% in Jul), all for Aug; as well as the slew of preliminary University of Michigan consumer sentiment readings for Sep. Before that, the Eurozone will receive Jul’s trade data.

Equities

Domestic Equity

Indian equity indices?closed at a fresh high on Thursday, led by gains in metals and real estate stocks, while inflows into small and mid-cap indexes continued. The likelihood of a U.S. Federal Reserve rate pause further supported the gain. The Nifty 50 ended up 0.16% at 20,103.10, while the S&P BSE Sensex rose 0.08% to 67,519. The more domestically focussed small-caps?and mid-caps, which posted their worst slide this year on Tuesday, gained 1.31% and 1.17%, respectively. Small- and mid-caps, which include more companies, have jumped nearly 31% and 29%, respectively this year, outperforming the more-than-10% gains in the benchmarks.

Global Equity

Global indices ended higher as hotter-than-expected economic data from U.S & China eased worries about a recession without raising fears of a Federal Reserve rate hike next week. UK’s FTSE rose the most in over 10 months, soaring 2.0%, after the European Central Bank signalled an end to its monetary tightening cycle, while industrial metal miners led the gains after a surge in iron ore prices. The S&P 500 climbed 0.84% to end the session at 4,505.17 points.

Currencies

Global currencies closed lower with the US Dollar index (DXY) ?jumping to a 6-month high of 105.4 in the wake of the stronger-than-expected U.S. economic data. The euro led losses to decline by 0.8% after the?ECB indicated that this was likely to be its final move. Sterling traded at $1.2418 , down 0.68% on the day after falling to $1.2400, a three-month low and was poised for its biggest one-day percentage decline since Aug. 24. China's offshore yuan weakened after the People's Bank of China said it would?cut banks' reserve requirement ratio?by 25 basis points. The Indian rupee declined by 0.1% as the impact of equity inflows and some softness in Brent crude oil futures was more than offset by importer hedging and oil companies' dollar demand.

Bonds

Global yields closed lower. U.S. 10-year yield inched higher by 4bps, as investors digested the PPI and retail sales reports. India’s 10-year yield was down, tracking U.S. Treasuries after inflation data reinforced bets of the U.S. Federal Reserve pausing rate hikes next week and on hopes of sovereign bond being included in EM bond index.

Commodities

Brent crude rose 1.98%, to settle at $93.70, its highest since November 2022, as expectations of tighter supply outweighed worries about weaker economic growth and rising U.S. crude inventories. Gold price remained unchanged, while copper prices fell by 0.3%.