Quick Summary
Indian Economic Update
The Centre's fiscal deficit stood at 12.3% of the full year Budget estimate (BE) in April-May of the current financial year compared with 8.2% ...in the year ago period

The Reserve Bank of India in its Financial Stability Report for June, said that the Indian economy is well on the path of recovery even though inflationary pressures and geopolitical risks warrant careful handling and close monitoring of the situation

The Indian economy has barely recovered from the impact of the Covid-19 pandemic and it should be ensured that there is no "intolerable growth sacrifice" in attempts to tame inflation "too abruptly", according to MPC member Jayanth R Varma. He also said that growth prospects for FY23 and FY24 are "reasonable" even after taking into consideration the possibility of a long-drawn-out period of geopolitical tensions and elevated commodity prices

India's external debt rose by 8.2% to USD 620.7 billion at the end of March 2022 from a year ago, the Reserve Bank of India said on Thursday. However, the external debt to GDP ratio declined to 19.9% at end of March 2022 from 21.2% at end of March 2021

Growth in the output of the eight core infrastructure sectors scaled a 13-month peak of 18.1% in May from a year earlier, compared with 9.3% in the previous month

The 47th GST Council Meeting ended with no decision on the extension of GST compensation for states. The Council announced various tax rationalisation measures

RBI's Deputy Governor Michael D. Patra said there are indications of inflation peaking and because of this, the required monetary policy tightening will be "more moderate" than that in other economies. Patra also said that the ongoing geopolitical developments in Ukraine have challenged India's economic prospects, thereby darkening the country's outlook and making it highly uncertain. The depreciation in the rupee is among the slowest in the world and the RBI will defend it against volatility in the currency markets, he added

RBI Governor Mr. Das emphasised on the need to verify the accuracy of newer and sophisticated statistical techniques before relying on them to make conclusions. He said major shifts in the economic conditions such as pandemic cause a structural break in the statistical models

India's gig workforce is expected to expand to 23.5 million by FY30 from 7.7 million in FY21, a NITI Aayog report titled said and recommended extending social security measures for such workers and their families in a partnership mode, as envisaged in Code on Social Security.

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Global Update
US real personal spending contracted by 0.4% MoM in May 2022 that was the first contraction of the year, raising investor concerns about a possible global... recession At the time of writing, the fed funds futures market is pricing in a terminal rate of 3.5% by March 2023 with it expected to move lower to 3% by December 2023

The OPEC+ coalition ratified an oil-production increase that completes the return of supplies halted during the pandemic. However, concerns remain about whether the supply will increase with several members facing capacity constraints

Russia defaulted on its foreign-currency sovereign debt as it missed a bond payment of USD 100 million. However, the move is considered to be largely symbolic

The Federal Reserve Bank of San Francisco, President Mary Daly said on Friday that she favours another 75bps increase in July. Meanwhile, the Fed Bank of St. Louis President James Bullard said that fears of a US recession are overblown

In the G-7 meeting that was held over the weekend, the following measures were discussed: (a) US, UK, Canada and Japan have said that they plan to ban gold imports from Russia, (b) discussions of a possible cap on Russian oil are being worked upon and (c) all member nations committed to providing indefinite support to Ukraine

Fed's Powell said that the Fed will not let the economy slip into a "higher inflation regime" even if it means raising interest rates to levels that put growth at risk

Fed Bank of Cleveland President Loretta Mester said that officials must not be complacent about increases in the long-term inflation expectations and should act forcefully to curb price pressures. Mester further added that the Fed is "just at the beginning" of raising rates and she wants to see the benchmark lending rate reach 3% to 3.5% this year and "a little bit above 4% next year

FOMC members continued to indicate that aggressive front-loading in tightening will remain in place but played down the risk of a recession. Both New York Fed President John Williams and San Francisco's Mary Daly acknowledged that they had to cool the hottest inflation in 40 years, but insisted that a soft landing was still possible

In the ongoing annual conference, ECB policymakers emphasised that aggressive monetary tightening cannot be ruled out. The ECB President Lagarde stated that 25bps rate hike could on the cards in July and that the Central Bank is ready to take further aggressive action to tame inflation. ECB governing council member Kazaks stated that the central bank should consider a more aggressive than 25bps rate hike in the July policy meeting itself

ECB also indicated that it is ready to activate its tool to reinvest maturing securities under the Pandemic Emergency Purchases Program back into peripheral sovereign debt, to address sovereign risk.

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Benchmark indices are likely to open lower amidst subdued Asian equity markets. However, better-than-expected Chinese manufacturing data for June will support the sentiment ...as investors await results of the countries' manufacturing activity surveys today. The equity markets will continue to be guided by the recession fears, inflation concerns and rate hikes going ahead.

During the week Sensex gained 0.34% to close at 52907.93 while Nifty advanced 0.33% to close at 15752.05

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Government bond prices are likely to open steady ahead of the weekly debt sale worth INR 320 billion. The retracement seen in the UST yields and Brent prices may support... the prices in today's session.

10Y benchmark yield ended at 7.42% as compared to 7.44% of previous week

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Brent oil prices declined nearly 4% in the last session and trading lower amid concern of economic slowdown. Additionally, uncertainty over future OPEC+ output ... and signs of weakening US gasoline demand also weighed negatively. The OPEC+ approved to raise output in August at a previously approved pace of 648k bpd. Brent crude oil prices are trading USD 109.50/barrel.

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Gold prices trading lower and were on track for a third straight weekly decline, as rising US Treasury yields weighed on demand for zero yield bullion. Gold is ...trading at USD 1806/ounce

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The USD/INR pair is likely to open flat as the Dollar index strengthened in the early Asian trade. Brent crude oil prices saw some moderation on the back ...of uncertainty over future OPEC+ output and recession fears. However, any sharp movement is unlikely in the pair due to expected RBI interventions. The Indian Rupee closed flat against the US dollar in the previous trading session closing at the 78.97 level.

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During the week Sensex gained 0.34% to close at 52907.93 while Nifty advanced 0.33% to close at 15752.05
Bond Yields
-2 bps
10Y benchmark yield ended at 7.42% as compared to 7.44% of previous week
Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and CRISIL.
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