US yields rose on the back of better than estimated data

WEEKLY WRAP

9 Aug 2021. US yields rose on the back of better than estimated data (payroll, factory orders, services PMI surprised positively). DXY too rose in sync. Global equity indices rebounded and ended in green. Consensus on higher rates in US is yet to emerge. RBI revised its inflation forecast to 5.7% in FY22. Indian yields edged up. Notably, resolution on accommodative stance was passed by 5:1 vote. Thus signs of an eventual turn in monetary policy are emerging. Another wave of Covid-19 remains a risk to this view. India’s industrial output and inflation data is to be released this week.

Bonds: US 10Y yield rose the most by 7bps (1.3%) supported by better than expected US jobs data and hawkish comments from one of the Fed officials. UK’s 10Y yield rose by 5bps (0.61%) as BoE also signalled “modest tightening” on the back of inflationary pressures. Crude prices fell by 7.4% (US$ 71/bbl) due to rising Covid-19 cases globally. India’s 10Y yield rose by 3bps (6.23%) as RBI raised inflation projections for FY22. System liquidity surplus rose to Rs 7tn as on 6 Aug 2021 from Rs 6.5tn last week.

Currency: Except AUD and INR (higher), other global currencies closed lower this week. DXY rose by 0.7% as US non-farm payrolls rose more than expected in Jul’21. EUR depreciated by 0.9% as Germany’s industrial production fell unexpectedly in Jun’21. INR appreciated by 0.4% supported by lower oil prices and FII inflows (US$ 495.8mn).

Equity: Global indices ended higher this week supported by unchanged policy stance of global central banks (BoE, RBA, BoT) and better than expected US data (ISM services, factory orders and non-farm payrolls). Dow was up by 0.8%, while FTSE rose by 1.3%. Sensex (3.2%) surged the most, led by banking, tech and auto stocks.

Covid-19 tracker: Global Covid-19 cases rose by 4.4mn versus 4.1mn last week. Fresh cases increased in US (0.75mn versus 0.54mn) and Japan (88K versus 52K). In India, cases rose at a faster pace of 0.284mn versus 0.279mn last week. Our weekly economic activity tracker index fell to 92 (100=Feb’20) from 93. Canada has fully vaccinated 61% of its population, UK at 57% and US at 50%. India is at 8%.

Upcoming key events: Major events include US CPI, UK industrial production and Q2CY21 GDP. In addition investors will track US Jackson Hole meeting for policy cues. India’s IIP and CPI data will be released.