Consumer Confidence Remains Weak on Rising Prices, Lower Income

The Reserve Bank of India’s consumer confidence remained weak in July at 48.6 from an all-time low of 48.5 in May, as households reported higher prices and lower income, compared with last year. Consumers, however, remained optimistic about the future with the index inching up to 104 (96.4 in May) in July. Overall sentiment on spending largely remained unchanged as the increase in essential spending was offset by a dip in non-essential spending. Additionally, consumers expect further contraction in discretionary expenditure in the year ahead.

China’s PPI rose by 9 per cent in July, up from 8.8 per cent in June, as prices of coal and oil inched up. However, prices of steel and non-ferrous metals moderated, owing to China’s policy measures of restrictions on export of steel and crackdown on commodity speculation.

Separately, CPI moderated to 1 per cent in July, from 1.1 per cent in June as food prices fell by 3.7 per cent in July following 1.7 per cent drop in June. Non-food prices increased, led by oil, hotels and travel. Prices of flights were up by 24.3 per cent and accommodation by 3.8 per cent.

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 per cent 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.

Labour market scenario in the US remained buoyant as non-farm payroll rose more than anticipated by 943,000 in July and against 938,000 addition in June. Sector-wise, leisure and hospitality, education, professional and business services contributed the most. Unemployment rate eased to 5.4 per cent from 5.9 per cent. Labour force participation rate rose to 61.7 from 61.6. Even average hourly earnings rose by 4 per cent versus 3.7 per cent, on a year-on-year basis.

Markets

Bonds: Except China (lower), global yields closed higher. The UK’s 10-year yield rose the most by 9bps (0.61 per cent) as BoE signalled “modest tightening”. US 10-year yield rose by 7bps (1.3 per cent) as employment data remained buoyant. Crude prices fell by 0.8 per cent ($71/bbl). India’s 10-year yield rose by 3bps (6.23 per cent) as RBI revised its inflation forecast for FY22 upward by 60bps and signalled normalisation.

Currency: Except the INR (flat), other global currencies closed lower against the dollar. The DXY rose by 0.6 per cent on the back of stronger-than-expected US non-farm payrolls. The EUR depreciated by 0.6 per cent as Germany’s industrial production growth faltered in June. The INR is trading lower today while other Asian currencies are trading mixed.

Equity: Global indices ended mixed as investors monitored corporate earnings and rising Covid-19 cases. Among other indices, Dow (0.4 per cet) gained the most on the back of better-than-expected US jobs report. On the other hand, Sensex (0.4 per cent) ended in the red led by losses in metals and cap goods stocks. However, it is trading higher today in line with other Asian stocks.

Covid-19 Tracker

Global Covid-19 cases rose by 4.4 million versus 4.1 million last week. Fresh cases increased in the US and Japan. In India, cases rose at a faster pace of 0.284 million versus 0.279 million last week. Our weekly economic activity tracker index fell to 92 (100=February 2020) from 93. Canada has fully vaccinated 61 per cent of its population, the UK at 57 per cent and the US at 50 per cent. India is at 8 per cent.

Upcoming Key Events

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

[Based on inputs from Bank of Baroda]