BOB Economics Research | Morning Mocha

 

INDIA ECONOMICS
MORNING MOCHA 20 July 2022   Markets remained cautious awaiting ECB’s policy decision where even a 50bps rate hike cannot be ruled out considering the Jun’22 CPI inflation print is still elevated at 8.6%. Elsewhere, Bank of England (BoE) Governor also hinted at 50bps rate hike in the coming policy. Macro indicators in the US remained weak with muted home sales data. In China as well, Premier Li Keqiang also hinted that focus should be on price stability and employment generation on the back of a flexible growth target. On domestic front, movement of domestic currency is closely tracked and further depreciation cannot be ruled out. Except Hang Seng (lower) and Shanghai Comp (flat), other global stocks edged up. US stocks rose the most supported by better than expected earnings report. Investor sentiments were also lifted by reports that Russia is likely to restart gas supply to Europe. Sensex rose by 0.5%, led by gains in real estate and banking stocks. It is trading further higher today, in line with other Asian stocks. Fig 1 – Stock markets 18-07-2022 19-07-2022 % change Dow Jones 31,073  31,827  2.4 S & P 500 3,831  3,937  2.8 FTSE 7,223  7,296  1.0 Nikkei 26,788  26,962  0.6 Hang Seng 20,846  20,661  (0.9) Shanghai Comp 3,278  3,279  0 Sensex 54,521  54,768  0.5 Nifty 16,279  16,341  0.4 Source: Bloomberg, Bank of Baroda Research DXY fell further by 0.6% as investors pared back expectations of a 100bps rate hike by Fed. Disappointing home sales data also weighed. On the other hand, EUR rose by 0.8% amidst reports that ECB may hike policy rates by 50bps. However, sharp upside were capped by political uncertainty in Italy. INR closed flat. It is trading a tad higher today, in line with other Asian currencies. Fig 2 – Currencies 18-07-2022 19-07-2022 % change EUR/USD 1.0143  1.0227  0.8 GBP/USD 1.1953  1.1995  0.4 USD/JPY 138.14  138.19  0 USD/INR 79.98  79.95  0 USD/CNY 6.7432  6.7442  0 Source: Bloomberg, Bank of Baroda Research Except Japan China and India (stable), global yields closed higher. Market is eyeing ECB’s policy decision where 50bps hike cannot be ruled out as inflation is overheated. In that case global 10Y yields might inch up higher. Germany’s 10Y yield rose the most by 6bps followed by US and UK. Even Governor Bailey of BoE spoke of 50bps hike and scaling back its bond holdings, which might be forthcoming. India’s 10Y yield is trading at the same level today. Fig 3 – Bond 10Y yield 18-07-2022 19-07-2022 change in bps US 2.99 3.02 4 UK 2.16 2.18 2 Germany 1.22 1.28 6 Japan 0.24 0.24 0 China 2.79 2.79 0 India 7.44 7.44 0   Source: Bloomberg, Bank of Baroda Research Fig 4 – Short term rates 18-07-2022 19-07-2022 change in bps Tbill-91 days 5.2  5.2  6 Tbill-182 days 5.8  5.7  (11) Tbill-364 days 6.2  6.2  0   G-Sec 2Y 6.4  6.4  1 SONIA int rate benchmark 1.2  1.2  0 US SOFR 1.5  1.5  0   Source: Bloomberg, Bank of Baroda Research Fig 5 – Liquidity Rs tn 18-07-2022 19-07-2022 change (Rs tn) Net Liquidity (-Surplus/+deficit) (1.7) (1.7) 0 Reverse repo 2.1 2.1 0 Repo 0 0 0 Source: RBI, Bank of Baroda Research Fig 6 – Capital market flows 15-07-2022 18-07-2022 change (US$ mn/Rs cr) FII (US$ mn) (206.1) 97.7  303.9    Debt (1.5) 70.2  71.7    Equity (204.6) 27.5  232.2 Mutual funds (Rs cr) (1,437.2) (2,733.8) (1,296.7)    Debt (943.4) (1,011.9) (68.5)    Equity (493.7) (1,721.9) (1,228.2) Source: Bloomberg, Bank of Baroda Research, Mutual fund data as of 1st and 2nd  Jul 2022 Crude prices rose by 1% to US$ 107/bbl despite increase in US crude  inventories. Gold prices rose by 0.1% as DXY fell. Fig 7 – Commodities 18-07-2022 19-07-2022 % change Brent crude (US$/bbl) 106.3 107.4 1.0 Gold (US$/ Troy Ounce) 1,709.2  1,711.7  0.1 Copper (US$/ MT) 7,411.0  7,254.5  (2.1) Zinc (US$/MT) 3,091.5  3,033.0  (1.9) Aluminium (US$/MT) 2,426.5  2,389.0  (1.5) Source: Bloomberg, Bank of Baroda Research                         The views expressed in this research note are personal views of the author(s) and do not necessarily reflect the views of Bank of Baroda. Nothing contained in this publication shall constitute or be deemed to constitute an offer to sell/ purchase or as an invitation or solicitation to do so for any securities of any entity. Bank of Baroda and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability with regard to the same. Bank of Baroda Group or its officers, employees, personnel, directors may be associated in a commercial or personal capacity or may have a commercial interest including as proprietary traders in or with the securities and/ or companies or issues or matters as contained in this publication and such commercial capacity or interest whether or not differing with or conflicting with this publication, shall not make or render Bank of Baroda Group liable in any manner whatsoever & Bank of Baroda Group or any of its officers, employees, personnel, directors shall not be liable for any loss, damage, liability whatsoever for any direct or indirect loss arising from the use or access of any information that may be displayed in this publication from time to time.