Global yields fell this week on the back of concerns over the delta variant. Fed signalled that change in QE will hinge upon economic recovery. China’s PBOC did cut the reserve ratio by 50bps to boost liquidity and growth. DXY closed lower as US jobless claims inched up and PMI disappointed. On the domestic front, RBI introduced new benchmark security. Indian 10Y went up by 12bps ahead of CPI data today. We expect CPI at 6.6%. Our weekly economic activity tracker (WET index) was stable at 93, signalling a revival in economic activity. A slew of data is awaited from the US and China this week.
Bonds: US 10Y yield fell by 5bps (1.42%) as Fed minutes pointed out that “substantial further progress” is needed before scaling back monetary stimulus. Germany’s 10Y yield also fell by 5bps (-0.29%) as ECB changed its inflation target from close to or below 2% to allowing temporary movement beyond this point, giving room for more stimulus. Crude prices fell by 0.8% (US$ 76/bbl) on demand concerns. India’s 10Y yield rose by 12bps (6.19%) due to a higher than expected cut off price set by RBI for the new benchmark security. System liquidity surplus was at Rs 5.6tn as on 9 Jul 2021 (Rs 5.7tn last week).
Currency: DXY fell by 0.1% this week as US jobless claims rose unexpectedly. AUD depreciated by 0.5% amidst rising Covid-19 cases and lockdown. EUR rose by 0.1% as Eurozone composite PMI surged to a 15-year high in Jun’21. INR appreciated by 0.1% led by FII inflows (US$ 199mn) and lower oil prices.
Equity: Global indices closed mixed, with Nikkei and Sensex closing lower and Dow, Dax and Shanghai Comp each rising by 0.2%. FTSE closed flat. The recent surge in Covid-19 cases globally is a risk to equity markets. Sensex closed 0.2% lower, dragged by auto, IT, energy and banking stocks.
Covid-19 tracker: Global Covid-19 cases rose by 3mn this week versus 2.7mn last week. Cases increased in Japan, South Korea and the UK. In India, cases rose at a slower pace. Our weekly economic activity tracker index was stable at 93 (100=Feb’20). Israel has fully vaccinated 60% of its population, UK at 51% and the US at 48%. India is at 5.3% now.
Upcoming key events: Major events this week include rate decisions of BoJ and BoK, US CPI, PPI and retail sales and China's industrial production, retail sales and trade data. In India, IIP and CPI data will be released later in the day followed by WPI. An area of concern is the delay in monsoon which is now 8% below LPA (13% above normal last year) because of which sowing is lower.
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