India’s IIP growth eased to 13.6 per cent in June 2021 led by the base effect. Notably, over a 2-year horizon, the output is down by 5.2 per cent led by capital goods and durables. FMCG has expanded. CPI inflation has cooled off to 5.6 per cent in July 2021 (6.3 per cent in June 2021) led by food inflation at 4 per cent (110bps MoM decline). Within food, prices of vegetables fell, while that of fruits, pulses, oils and fats moderated. Core too softened to 6 per cent (6.2 per cent in June 2021), led by transport and communication and personal care and effects.

US PPI rose by 1 per cent (MoM) in July 2021 unchanged from June 2021 and higher than estimated 0.6 per cent. Spike was seen in airline passenger fares (9.1 per cent in July 2021 from 2.5 in June 2021) and auto parts and retailing (0.9 per cent in July 2021 from 0.5 per cent in June 2021). Core PPI accelerated to 0.9 per cent in July 2021 (0.5 per cent in June 2021), the sharpest increase since January 2021. On a YoY basis, the PPI was up by 7.8 per cent in July 2021 and Core PPI also rose by 0.9 per cent. Separately, US jobless claims dropped for the third week in a row, by 12k to 375k signalling recovery in the labour market.

GDP growth in the UK rose by 4.8 per cent in Q2CY21, following a decline of 1.6 per cent in Q1CY21 on a QoQ basis. Amongst sectors, services, (5.7 per cent), production (0.5 per cent) and construction (3.3 per cent) contributed the most to growth. Further, household consumption also rose sharply following the easing of Covid-19 restrictions. The level of GDP is now 4.4 per cent below where it was pre-pandemic (Q4CY19).

Markets

Bonds: Barring the US, UK (higher), and Germany (flat), other global yields closed lower. US and UK’s 10Y yield rose by 3bps each. Higher than expected US PPI print, recovery in US labour market, and comments from several Fed officials in favour of tapering in the coming months, impacted investor sentiments. Crude prices fell by 0.2 per cent (US$ 71/bbl) after IEA warned of a slowdown in demand. India’s 10Y yield fell by 1bps to 6.23 per cent.

Currency: Global currencies closed mixed. DXY rose by 0.1 per cent as US PPI rose more than expected in July 2021. GBP fell by 0.4 per cent on expectations that BoE will not make any changes to its monetary policy. CNY and JPY closed flat. INR appreciated by 0.3 per cent as oil prices eased. It is trading higher today while other Asian currencies are trading mixed.

Equity: Global indices ended mixed as concerns over the spread of delta variants resurfaced. Amongst other indices, both Nikkei and Shanghai Comp ended lower by 0.2 per cent, while DAX ended higher by 0.7 per cent. Sensex (0.6 per cent) too ended in green led by gains in power and cap good stocks. It is trading further higher today while other Asian stocks are trading lower.

[Inputs from Bank of Baroda]