Except China (lower), global yields closed higher

On macro front, US ISM services PMI data rose to its 4 month high of 53.4 in Jan'24 from 50.4 in Dec'23

Dipanwita Mazumdar

Economist,

Bank of Baroda

Mumbai, February 6, 2024:On macro front, US ISM services PMI data rose to its 4 month high of 53.4 in Jan’24 from 50.4 in Dec’23. New orders and employment indices also showed improvement. Fed officials (Minneapolis Fed President and Chicago Fed President) also spoke of more time to gauge the incoming data before taking any call on rates. CME Fed watch tool is only attaching a 16.5% probability for a rate cut in Mar’24 from 46.2% a week earlier. Thus, US dollar firmed up to its highest since Nov’23. Elsewhere, Central Bank of Australia also went on a path of data dependent cautious pause. The quarterly forecast of RBA show that core inflation will reach the midpoint of its 2-3% target by 2026. Globally, everywhere the rhetoric is not letting the guards down unless the fight against inflation is over. On domestic front, even RBI is expected to walk on the lines of a cautious pause remaining vigil on inflation.

• Global stocks ended broadly lower. Prospects of a Fed rate cut were pushed back further following comments from Fed officials amidst strong US macro data. Stock market rout in China continued with the Shanghai Comp moderating due to losses in small cap stocks. Sensex fell by 0.5%, driven by consumer durables stocks. It is trading higher today, while Asian stocks trading mixed.
• Global currencies fell at the expense of a stronger dollar. DXY rose by 0.5% as US ISM services PMI rose sharply in Jan’24. GBP depreciated the most despite positive macro data. EUR fell as Germany’s exports growth was weaker than expected in Dec’23. INR fell following adverse global cues. However, it is trading a tad stronger today, in line with other Asian currencies.
• Except China (lower), global yields closed higher. US 10Y yield rose by 14bps supported by buoyant economic data. The paring down of rate cut expectations in Mar’24 has impacted yields of other economies (UK, Germany). In UK, yields were also supported by a better PMI reading. India’s 10Y yield rose by 4bps, taking global cues. It is trading lower at 7.08% today.

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