Services Activity Contracts Further in India, PMI Rises in Most Global Economies

India’s services PMI remained in contraction for the third month in a row, albeit at a softer pace. The print was at 45.4 in July as against 41.2 a month back. Business activity, new orders and employment all showed contraction, but the pace softened compared to June. Input prices rose sharply and remained above long-term average. Even pass through to consumers were visible as output charges also rose at a quicker pace in July – fastest in past five months. Sector-wise consumer services were the worst hit, showing the impact of pandemic on demand.

The RBI reported that currency in circulation declined by Rs 214 billion and stood at Rs 29.5 trillion for the week ending July 30. Reserve money rose by 16.8 per cent on a YoY basis, compared with 15.4 per cent last year. India’s reserve money increased 3.2 per cent as against 5 per cent a year ago.

JP Morgan global services PMI eased to 56.3 in July from 57.5 in June as activity slowed in the Asia-Pacific region, led by Japan (47.4 versus 48) and Australia (44.2 versus 56.8). In UK too activity slowed (59.6 versus 62.4 in June). Elsewhere in the Eurozone and the US, PMI improved. Eurozone PMI rose to 59.8 in July from 58.3 a month before, as activity in Germany bounced back (61.8 versus 57.5). The US ISM services index too jumped to 64.1 from 60.1 month-on-month. In both the US and the Eurozone, new orders remained strong while input prices were seen stabilising.

Markets

Bonds: Global yields closed mixed. US 10-year yield rose by 1 bps (1.18 per cent) supported by hawkish comment from one of the Fed officials. UK 10-year yield fell by 1 bps (0.51 per cent) as its services activity remained muted and also eyeing the BoE policy decision. Crude prices fell by 2.8 per cent ($70 a barrel) amid worries of muted demand. India’s benchmark 10-year yield closed flat at 6.2 per cent.

Currency: Except INR and CNY (higher), other global currencies closed lower. DXY rose by 0.2 per cent as US ISM services PMI jumped to a record high in July. It also got support from hawkish comments from the Fed Vice Chair. JPY fell the most by 0.4 per cent as Japan’s services PMI eased further. The INR rose by 0.1 per cent as oil prices inched down. However, it is trading lower today in line with other Asian currencies.

Equity: Barring Nikkei and Dow, other global indices ended higher as investors monitored corporate earnings and awaited BoE rate decision. Among other indices, Sensex (1 per cent) rose the most followed by Dax (0.9 per cent). The gains in the domestic market was led by banking stocks. It is trading further higher today; while other Asian stocks are trading mixed.

[Based on inputs from Bank of Baroda]