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Weekly round-up of macro-economic events

THIS WEEK'S HIGHLIGHTS

* CPI inflation (7.7%) in US was lower than market expectations of 7.9% in Oct’22, even sequential uptick remained subdued at 0.4% vs 0.6% est. Oct print being the lowest in last 10 months indicates that inflation is on a downward trajectory. It is clearly evident that inflationary pressures have moved from goods to services as reflected in slower consumer spending.

* Although easing inflation scenario opens doors for shallower rate hikes, we expect policy rates to be in restrictive territory until inflation eases decisively. We pencil in a 50bps hike in Dec FOMC meet.

* India’s IIP grew by 3.1% in Sep’22 led by a favorable base. Sequentially, the index grew 1.5%, mainly led by manufacturing (2.3%) while Electricity (-2%) and Mining (-0.1%) declined. Consumer goods category grew 3.5% while Cap goods grew 8.3%.

* NielsonIQ latest survey reveals that rural demand has been negatively impacted by persistent inflation and uneven rainfall during quarter ended Sep’22, this got reflected in lower volumes of consumer goods. Urban demand seems resilient though.

* Central government released Rs. 263bn to 20 states for Capex; so far Centre has released Rs. 582bn. The allocation is part of the interest free 50yr loan earmarked in Budget FY23.

* Moody’s yet again cuts India’s growth projections for 2022 to 7% from 7.7% earlier. The downward revision assumes higher inflation, high interest rates and slowing economic momentum.

* The Ministry of Commerce and Industry has amended the Foreign Trade Policy to allow international trade settlement in INR, this move will facilitate and bring ease in international trade transactions in INR.

Domestic Macroeconomic Indicators/Events

* India’s first Sovereign Green Bonds Framework: The Ministry of Finance has approved India's first sovereign green bonds framework to fund environmentally sustainable projects. The proceeds generated from issuance of such bonds will be used to finance public sector projects under nine categories which will help in reducing carbon intensity of the economy. These are renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water and waste management, pollution prevention and control, green buildings, sustainable management of living natural resources and land use, and terrestrial and aquatic biodiversity conservation.

* International trade in INR: The Ministry of Commerce & Industry has amended the foreign trade policy (FTP) and handbook of procedures to allow for international trade settlement in Indian rupees (INR). As per the ministry, changes have been notified for, imports for exports, export performance for recognition as Status Holders, realization of export proceeds under advance authorization and duty-free import authorization schemes and realization of export proceeds under export promotion capital goods scheme. The changes mean benefits, incentives and fulfillment of export obligation under the FTP can be extended to export payments made in Indian rupees, as outlined by the Reserve Bank of India (RBI) in Jul’22.

* Rural demand impacted by persistent inflation: As per NielsonIQ survey, the demand for packaged consumer goods continued to decline in the rural markets in the Sep’22 quarter due to persistent inflation. Rural demand for packaged consumer goods fell by 3.6% by volume in the Sep’22 quarter, compared to 2.4% in the Jun’22 quarter. Overall volume growth for packaged consumer goods declined by 0.9%, compared to 0.7% in the Jun’22 quarter. The dip in volume can be attributed to fears of slowdown, price increases and uneven rainfall across the country. Consumption in urban markets sustained at 1.2% compared to 0.6% in the quarter ended Jun’22. The overall FMCG sector in India saw its volumes decline by 0.9% compared to 0.7% in the preceding quarter. In value terms, the FMCG industry grew at 8.9% compared during Sep’22 to 10.9% in the previous quarter.

* Centre’s allocation for State Capex: The Centre has released Rs. 263bn to 20 states for capital expenditure under the first installment as special assistance in the current financial year. The Centre has so far, approved Rs. 582bn as special assistance for capital investment for these 20 states, namely AP, Arun.P, AS, BH, CH, GA, HR, HP, JH, KA, MP, MH, MN, MG, NA, PJ, SK, TN, TR and UP. The allocation is under Part-I of the proposed Rs. 1Tn interest free loan earmarked in Budget FY23 in the form of 50 yr interest free loan.

* Moody’s cuts GDP projection: Moody’s reduced India’s growth projections for 2022 to 7% from 7.7% earlier; this is the second time that India’s growth projection has been cut. The downward revision assumes higher inflation, high-interest rates and slowing global growth will dampen economic momentum by more than previously expected.

Global Market Movers

* US CPI: Signs of easing: Oct'22 Inflation print (7.7%) was lower than expectation of 7.9%, even sequential uptick remained subdued at 0.4% vs 0.6% est. Core inflation moderated marginally to 6.3% from 6.6% in Sep'22, with a sharp easing in sequential gain to 0.3% (0.6% prior). Energy, Food and Housing category were the main drivers of headline inflation, while categories like Used cars, car rentals, medical care and apparels saw sequential decline. Oct print being the lowest in last 10 months indicates that inflation is on a downward trajectory. We believe, inflationary pressures have moved from goods to services as is also reflected in slowing consumer spending. US markets rallied on the hopes of peak inflation (Dow Futures +2.1%, NASDAQ +4.5%). Benchmark yields fell below 4% (3.8%). Although easing inflation scenario opens doors for shallower rate hikes, we expect policy rates to be in restrictive territory until inflation eases decisively. We pencil in a 50 bps hike in Dec FOMC meet.

* Moderate inflation in China: China’s CPI inflation rose 2.1% in Oct’22, but was lower than market expectations of 2.1%. Prices of Pork rose by 51.8% while that of fruits rose by 12.6% however prices of fresh vegetables fell by 8.1%. Core inflation rose by 0.6% in Oct’22 which remained unchanged from the prior month. That had marked the slowest pace since Mar’21. China’s Producer price Index fell (1.3%) in Oct for the first time since Dec’20, dragged down by drops in iron and steel prices and slightly missing expectations of 1.5% decline.

* China Trade deteriorates as demand falls: China’s exports fell unexpectedly in Oct’22, with a drop in the value of goods to the US and EU. China’s exports fell by 0.3% in Oct’22 for the first time since May’20, missing expectations of 4.3% growth. The drop marked a sharp decline from 5.7% in Sep. Imports fell by 0.7%, missing expectations for slight growth of 0.1% and down from 0.3% increase in Sep’22. China’s exports to the US fell by 12.6% and that for EU fell by 9% in Oct’22 while exports to Southeast Asian Nations jumped by 20%. Exports of household appliances fell 20%, toys (18%) and shoes by 11% while exports of cars rose by 60%. Exports rose by 7% while imports rose 6.8% in Yuan terms.

* UK GDP still below pre-pandemic period: UK’s GDP fell 0.2% in Q32022. The real household expenditure fell 0.5% and output in consumer facing services fell 0.8%. There were also widespread declines across most mfg industries. Business investments fell 0.5% to 8% below pre-pandemic levels. Rising government spending and net trade, as imports fell, limited the quarterly fall. Output in services sector fell 0.8% while construction was up 0.4%. The economy is 0.2% lower than in Feb’20.

* US unemployment inch up: US unemployment claims totaled 225,000 (an increase of 7,000) for the week ended 5 th Nov, which are slightly higher than expectations of 220,000. Continuing claims increased to 1.493mn in the week ended 29 th Oct, higher than estimates of 1.475mn.

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