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Indian Economic Update
India’s trade deficit widens to a record high of USD 24.29 billion (from preliminary estimate of USD 23.3 billion) as against USD 6.53 billion in May 2021; ...exports were revised higher to USD 38.94 billion (+20.5% YoY) from preliminary estimate of USD 37.3 billion (+15.5% YoY) in May while imports revised to USD 63.2 (+62.8% YoY) from earlier estimate of USD 60.6 billion (+56.1% YoY)

GST Council to meet on June 17 to discuss rate rationalisation with the proposal to shift slabs from current 5% to 7% or 8%, and 18% to 20% likely to be discussed

India’s WPI inflation for May accelerates to 15.9% from 15.1% in April. Food inflation rose to 10.9% vs. 8.9% last month led by increase in vegetables (56.4% YoY) and cereals and edible oils moderated sequentially while fuel and power index increased by 40.6% (vs. 38.7% last month)

Amit Mitra, the principal chief advisor to West Bengal Chief Minister and the state’s finance department, urged Finance Minister Nirmala Sitharaman to extend GST compensation to states for the next 3-5 years and said the extension of the compensatory arrangement will provide a big relief to the states

India’s headline CPI moderates to 7.04% YoY in May compared with 7.79% YoY in April led by lower food (7.8% vs. 8.1% in April) and core inflation (6.1% vs. 7% in April)

India on Monday strongly suggested the WTO to permit exports of food grains from public stocks for international food aid and for humanitarian purposes, especially on government to-government basis

India’s Industrial Production (IIP) increased by 7.1% YoY in April compared with an increase of 2.2% YoY (revised upwards) in March. The acceleration in April is broad-based. Apart from infra and construction goods which decelerated to 3.8% in April from 6.7% in March, all other segments reported an acceleration

After a slow start, the southwest monsoon is expected to gather steam this week, leading to a quick decline of the seasonal deficit and spurring planting of kharif crops, as per IMD officials. The deficit as on Jun 11, 2022 stood at 43% less than normal as monsoon in all parts of the country was below average.

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Global Update
FOMC delivered a 75bps rate hike. The last time such a quantum seen was in 1994. The pace of QT was kept unchanged. Dot plot showed that the median of ...members now see Fed funds rate at 3.4% by December 2022 from 1.9% earlier implying additional 175bps rate hike over the remainder of the year. For 2023, FOMC members see Fed rate at 3.8% from 2.8% earlier implying an additional 50bps rate hike

President Joe Biden said a US recession isn’t inevitable and acknowledged that aides warned him about the inflationary risk of his flagship relief bill

The Swiss National Bank hiked its policy rate by 50bps to -0.25% in its June 2022 meeting, surprising markets that expected the interest rate to be held constant and did not rule out further rate increases in coming meetings. The SNB also emphasized it is willing to intervene on the foreign exchange market on both sides if needed

The Bank of England raised its policy rate by 25bps to 1.25%, a fifth consecutive rate hike in a 6-3 vote among the members of the MPC. Three policymakers voted for a bigger 50bps increase. It also changed its forward guidance to state that it remains committed to bring inflation back to the 2% target and 'act forcefully' if necessary

The European Central Bank promised fresh support to more indebted southern countries after its emergency meeting. The ECB said it would direct cash to more indebted nations from debt maturing in a recently ended EUR 1.7tn euro (USD 1.8tn) pandemic support scheme and it would work on a new instrument to prevent an excessive divergence in borrowing costs

Authorities in Beijing warned on Tuesday that a COVID-19 surge in cases is critical and the city of 22 million was in a "race against time" to grip with its most serious outbreak

The US yield curve has inverted with the spread between the UST 10 yrs. and UST 2 yrs. moving to -4bps reflecting expectations of a sharp front-loading of rate hikes by the FOMC and concerns about the medium-term growth outlook. Markets are positioned for 75bps rate hike in the policy meeting that is due to conclude on 15 June 2022 and another 75bps hike in July policy meeting as well

The BoJ raised the size of its OMO purchases of five year to ten-year sovereign bonds to JPY 800 billion from JPY 500 billionas the 10-year sovereign rose to 0.255% that is above the upper end of its 0.25% tolerance level. Japanese officials also expressed some concerns about the sharp depreciation in the JPY but there has been no physical intervention in the market

China's cabinet unveiled some steps on Monday to improve the allocation of resources among local governments to help ease their growing fiscal strains and debt risks, amid efforts to support the slowing economy

Libya’s oil production has almost fully halted as a political crisis leads to more shutdowns of ports and fields. Libya’s daily output - which averaged 1.2 million barrels last year - is down by about 1.1 million barrels further tightening global crude oil supply

US CPI inflation accelerated by 1% MoM much above expectations that pushed the inflation rate in YoY terms to 8.6% in May against 8.3% in April. While energy prices surged, there were strong indications of a broad-based firming as CPI core inflation accelerated as well much above expectations. In response to the CPI print, the US President stated that he would be making fighting inflation his top priority

Senior Japanese officials delivered a ramped-up warning on the yen. Officials from the Bank of Japan, the Ministry of Finance and the Financial Services Agency met after the yen came close to a 24-year low this week. In the statement, they expressed their concern about the recent sudden weakening of the Yen and said they will take action if necessary.

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Equity
Benchmark indices are likely to open higher. However, the gains may be short lived as Asian equity markets are trading in the red, tracking the losses in US equities as ... recession fears weigh on the market sentiment amidst aggressive policy tightening by the US Fed. Investors look towards BoJ policy decision and EU inflation data, which are to be released today.

During the week Sensex lost 5.41% to close at 51360.42 while Nifty declined 5.60% to close at 15293.50

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Debt
Government bond prices are likely to open steady ahead of the weekly debt sale worth INR 320 billion. However, a further uptrend in yields...is likely given the expectations of the MPC moving forward with its plans to raise policy rates.

10Y benchmark yield ended at 7.54% as compared to 7.52% of previous week

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Oil
Brent Crude oil prices edged slightly lower on Friday as worries about global economic growth and uncertainty weighed on markets. ... Meanwhile, investors also remained focused on tight supplies after the United States announced new sanctions on Iran. Oil is trading at USD 119.3/bbl.

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Gold
Gold prices hovering around USD 1850/oz underpinned by plummeting US Treasury yields and weaker dollar. Sentiment remains dismal, equities continue to fall supporting safe heaven demand. Gold is trading at USD 1847.9/oz.
Currency
The USD/INR pair is likely to open higher as concerns over global slowdown amidst monetary tightening by the central banks weigh on the riskier assets. ... Volatile Brent prices will be monitored closely as any negative surprise will be weighed on the INR. However, any sharp movement is unlikely in the pair due to expected RBI interventions. The Indian Rupee traded flat against the US dollar in the previous trading session moving to the 78.08 level.

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Sensex
51360.42
-5.41%
During the week Sensex lost 5.41% to close at 51360.42 while Nifty declined 5.60% to close at 15293.50
 
Bond Yields
7.54%
2 bps
10Y benchmark yield ended at 7.54% as compared to 7.52% of previous week
 
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.