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| Indian Economic Update
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Manufacturing PMI in India hits an 8-month high with a reading of 55.9 in October vs 53.7 in September...
India's GST collections in October came in at INR 1.3 trillion, up 24% YoY and the second-highest since the introduction of the indirect tax regime; CGST mop-up was INR 238.61 billion & SGST INR 304.21 billion
This Diwali, people thronged the markets and helped in generating huge business to the tune of INR 1.25 lakh crore, which is a record trade figure in the last 10 years, said traders' body Confederation of All India Traders (CAIT), on Friday
India’s jobless rate rose as unemployment surged in the nation’s rural areas, even as non-farm jobs notched up gains with the economy emerging from pandemic curbs. Unemployment in October rose to 7.75% from a three-month low of 6.86% in September, as per the Centre for Monitoring Indian Economy (CMIE). Rural unemployment jumped to 7.91% from 6.06% in the previous month, whereas urban joblessness dropped to 7.38% from 8.62%
India’s merchandise exports in Oct 2021 increased by 42.3% YoY and import increased by 62.49%YoY. The trade deficit in Oct 2021 was USD 19.9 billion
The Indian government has reduced excise duty on petrol and diesel by INR 5 and INR 10 per litre, followed by as many as 22 states and UTs reducing VAT. Direct impact on inflation is estimated at ~20 bps. Additionally, the second order impact of lower diesel prices is estimated at ~10-15 bps. The direct impact of reduction in excise duty on fiscal deficit is estimated to 0.24% of GDP in FY22. Next year, it will be 0.44% of GDP.
Output of the eight core industries in the Indian economy increased in September by 4.4% YoY vs. 11.5% in August. Base effect and lower electricity production explains the decline in momentum. During H1FY22, core industries output grew by 16.6% vis-à-vis -14.5% in H1FY21
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| Global Update
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The Federal Reserve Open Market Committee (FOMC) moved forward with its tapering plan of USD 15 billion per month from Nov-2021 onwards that was in line with expectations.... However, the FOMC continued to view inflation as ‘transitory’ and reiterated that the labour market still has considerable slack. Hence, guidance on policy rates remained unchanged. We maintain our constructive outlook on the US economy going in to 2022 with inflation likely to remain ‘persistent’ than ‘transitory’, as is being currently assumed by the FOMC. Hence, we expect QE to end by mid-2022 and policy rates to be hiked by at least 25 bps in Q42022. For the markets, the tone and guidance met expectations. Hence, price action post the tapering announcement was fairly modest
The JP Morgan Global PMI manufacturing survey moved slightly higher from 54.1 in September to 54.3 in October. The rise in the headline index reflected a record lengthening of vendor lead times, increased stock holdings and faster jobs growth. This offset the effect on the PMI level of slower increases in both output and new orders. Of the 31 nations for which October data were available, all except two (Mexico and Myanmar) registered PMI readings above the 50.0 no-change mark
The Bank of England surprised markets by not following through with the guidance provided over the last two months that it could move forward with its tightening plans. The UK MPC voted 7-2 to keep policy rates unchanged and 6-3 to keep QE program unchanged. Concerns were expressed about the outlook from: (a) supply-side disruptions and (b) expiry of the furlough scheme in September-2021. Inflation was expected to remain elevated in 2021 and in to H12022 but fall in the medium-term.
The Reserve Bank of Australia kept policy rates unchanged on expected lines at 0.1%. The key development was that the Central Bank ended its yield curve control programme by ending its target for the 3-year sovereign yield at 0.1%. Guidance on policy rates remained unchanged, although there was some acknowledgement that inflation could be more persistent that might result in an earlier rate hike in 2023 than 2024
The Chinese Premier Li Keqiang stated that the economy faces risks on the outlook and that additional tax cuts should be provided to support small and medium sized companies in particular
The headline ASEAN PMI manufacturing rose from 50.0 in September to 53.6 in October, signalling the first improvement in ASEAN manufacturing conditions since May and one that was the quickest since data collection began in Jul 2012, reflecting an easing in COVID restrictions. Improvement was fairly broad-based across countries - Indonesia, Philippines, Malaysia, Vietnam and Singapore - with the exception of Myanmar PMI that remains in the contractionary territory
China’s fiscal policy will provide the main support to economic growth next year, while significant monetary easing is unlikely, according to a former advisor to China’s Central Bank. The People's Bank of China (PBOC) will have to act if growth continues to slow, but the U.S. Federal Reserve’s plan to normalise policy will narrow the room for action, said Huang
The G-20 nations reached a deal on climate agreement. However, the document mirrors prior pledges made in the 2015 Paris Climate Accord, saying “nations remain committed to hold the global average temperature increase well below 2-degrees Celsius and to pursue efforts to limit it to 1.5 degrees Celsius above the pre-industrial levels”
The US-EU reached a two-year agreement to reduce tariffs on EU steel and aluminium exports. During the two-year period, the EU and U.S. will work towards a global accord that would permanently end the tariff regime
The ruling Japanese Liberal Democratic Party (LDP) Party is set to remain in power, contrary to most polls that showed that there would be a closer race. Hence, Fumio Kishida will remain as the PM and is expected to announce another fiscal stimulus programme
China’s official PMI manufacturing survey released by the National Bureau of Statistics fell further from 49.6 in September to 49.2 in October. The non-manufacturing gauge, which measures activity in the construction and services sectors, dropped to 52.4 in October from 53.2 in September. Overall, the survey confirms that growth prospects are weakening quite sharply.
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| Equity
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Benchmark indices are expected to open in the green on the back of better-than-expected US and China’s economic data. However, subdued Asian equity markets may weigh on the indices....
During the week Sensex gained 2.08% to close at 60545.61 while Nifty advanced 2.24% to close at 18068.55
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| Debt
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Government bond prices are expected to open steady as the US FOMC’s commentary towards the taper of its bond buying program came in line with the expectations. However, the pressure from
...the elevated crude oil prices remains in place.
The 10Y benchmark yield ended at 6.30% as compared to 6.38% of previous week
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| Oil
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Global crude oil prices are trading higher after Saudi Arabia’s state-owned oil producer Aramco raised the official selling price for its crude, suggesting demand remains strong... at a time of tighter supplies. The Organization of the Petroleum Exporting Countries and allies such as Russia, together known as OPEC+, agreed last week to stick to their plan to raise oil output by 400,000 barrels per day from December. Brent crude prices are trading at USD 83.83/barrel.
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| Gold
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Gold prices are trading higher to a near two-month high as major central banks’ dovish tone on interest rates this week lifted the demand for the safe-haven metal. The Federal... Reserve on Wednesday stuck to its view that inflation would prove “transitory” and would likely not require a fast rise in interest rates. Following that, the Bank of England surprised markets by keeping rates on hold. Gold is trading at USD 1821.30/oz.
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| Currency
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Indian Rupee may open weaker against the Dollar as the greenback rose against the major currencies in the early trade today. The FOMC’s confirmation of taper will weigh on the... the Rupee. Moreover, the continued inflationary pressures will force the global central banks to unwind the ultra-easy monetary policies sooner which will also weigh on the local unit. However, RBI’s intervention may curb any sharp movement in the pair. The Indian Rupee closed higher at the 74.46 level against the US dollar in the previous trading session.
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| Sensex |
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During the week Sensex gained 2.08% to close at 60545.61 while Nifty advanced 2.24% to close at 18068.55
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| Bond Yields |
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The 10Y benchmark yield ended at 6.30% as compared to 6.38% of previous week
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Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and CRISIL.
Disclaimer:
The information set out herein has been prepared by ICICI Bank in good
faith and from sources deemed reliable. ICICI Bank does not provide any
assurance as regards the accuracy of such information. ICICI Bank does
not accept any responsibility for any errors whether caused by
negligence or otherwise or for any direct or indirect loss / claim/
damage caused to any person, arising out of or in relation to the use of
information communicated herein.
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