India Rupee Down For 2nd Week As Growth Worries Hurt, CPI Spikes

India Rupee Down For 2nd Week As Growth Worries Hurt, CPI Spikes

16 Nov 2019 02:32 PM

Weekly Synopsis


Indian Rupee

The Indian rupee fell for the second straight week against the dollar on a bigger-than-expected decline in local industrial output and quicker-than-expected consumer inflation in October. The rupee, settled higher at 71.78 to a dollar, against 71.97 at the previous close. The unit depreciated 0.7% this week, logging its biggest weekly fall since the week ended Aug. 23, and after depreciating 0.7% in the previous session. The sharp fall in the IIP data has re-ignited worries on an economic slowdown, which has prompted bets that interest rates in India could head further lower, despite the surge in retail inflation. It trades in a weekly range between 71.3050 to 72.2450 against the US Dollar.

India's foreign exchange reserves rose for a seventh straight week to hit a fresh record high of $447.81 billion as of the week ended Nov. 8, from $446.10 billion at the end of the prior week, according to central bank data released today. The reserves gained $1.71 billion this week, after increasing $3.52 billion in the previous week. The rise was mainly due to increase in foreign currency assets that climbed to $415.83 billion from $413.65 billion in the previous week, the data showed. The Reserve Bank of India has been intervening in the foreign exchange market to curb the rupee’s volatility.

India’s retail inflation rate in October rose to 4.62% from a year earlier, breaching the central bank’s target of 4% for the first time in 15 months. However, core inflation eased in October, keeping rate cut hopes from the Monetary Policy Committee alive. The MPC has already cut rates by 135 basis points so far in 2019. India’s industrial production contracted 4.3% in September from a year ago, sharply lower than the 2% decline expected.

India's industrial output fell at the fastest pace in over six years in September, adding to a series of weak indicators that suggests the country's economic slowdown is deep-rooted and interest rate cuts alone may not be enough to revive growth. Annual industrial output contracted 4.3% in September, government data showed on Monday. It was the worst performance since a 4.4% contraction in February 2013. Forecast industrial output to fall 2% for the month.

Global Market

The U.S. dollar fell on Friday, after data showed that manufacturing woes in the country have deepened. Manufacturing output fell to 0.6% in October, the most since May 2018. Excluding autos, output was down 0.1% last month, the Federal Reserve data showed. Industrial production slipped 0.8%, while the Empire State Manufacturing Index tumbled to 2.9 from 5.0 expected. Diminishing concerns over U.S. trade did nothing to ease forex traders. The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, fell 0.2% to 97.863.

U.S. retail sales rebounded moderately in October although consumers did cut back on purchases of big-ticket household items like furniture and discretionary spending, which could temper expectations for a strong holiday shopping season. Signs from the Commerce Department report on Friday that consumer spending was slowing faster than economists had expected, and news that production at factories tumbled again in October.

U.S. industrial production fell faster than expected in October as output for the manufacturing, mining and utilities sectors all fell. The Federal Reserve said on Friday industrial production declined 0.8% last month after an upwardly revised 0.3% decline in September. Manufacturing output fell 0.6% last month, driven by an 11.1% drop in motor vehicle production. U.S. producers assembled cars and trucks in October at an annual rate of 9.14 million units.

U.S. import prices fell more than expected in October, pulled down by declines in the prices of petroleum products and food, suggesting imported inflation could remain subdued for a while. The Labor Department said on Friday import prices dropped 0.5% last month. Data for September was revised lower to show import prices gaining 0.1% instead of climbing 0.2% as previously reported. Import prices exclude tariffs. In October, prices for imported fuels and lubricants fell 2.9% after increasing 1.5% in the prior month.

U.S. retail sales rebounded in October, but consumers cut back on purchases of big-ticket household items and clothing, which could temper expectations for a strong holiday shopping season. The Commerce Department said on Friday retail sales increased 0.3% last month, lifted by motor vehicle purchases and higher gasoline prices, reversing September's unrevised 0.3% drop. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3% last month. Data for September was revised lower to show the so-called core retail sales slipping 0.1% instead of being unchanged as previously reported.

The number of Americans filing applications for unemployment benefits rose to a five-month high last week, but this likely does not signal a shift in labor market conditions as claims for several states were estimated because of Monday's holiday. Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 225,000 for the week ended Nov. 9, the highest reading since June 22. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose only 1,750 to 217,000 last week.

U.S. consumer prices jumped by the most in seven months in October, which together with abating fears of a recession, support the Federal Reserve's signal for no further interest rate cuts in the near term. The report from the Labor Department on Wednesday showed healthcare costs surging by the most in more than three years and recreation posting its biggest gain since early 1996. In the 12 months through October, the CPI increased 1.8% after climbing 1.7% in September.

U.S. consumer prices rebounded more than expected in October and underlying inflation picked up, which together with abating trade tensions and fears of a recession. The Labor Department said on Wednesday its consumer price index increased 0.4% last month as households paid more for energy products, healthcare, food and a range of other goods. The CPI advancing 0.3% in October and gaining 1.7% on a year-on-year basis. Excluding the volatile food and energy components, the CPI rose 0.2% after edging up 0.1% in September.

A key measure of U.S. consumer prices unexpectedly cooled in October despite fresh tariffs on Chinese goods, a sign price gains may be slow to reach the Federal Reserve’s target even after interest-rate cuts this year. The core consumer price index, which excludes volatile food and energy costs, rose 2.3% from a year earlier, a Labor Department report showed Wednesday. That missed economist estimates, while the broader CPI climbed 0.4% and 1.8% annually.

Britain's economy grew at its slowest annual pace in nearly a decade during the three months to September as the global slowdown and Brexit worries hit manufacturing and business investment. The fact that the government will be celebrating 0.1% growth in the last six months is a sign of how low their hopes and expectations for our economy are. Annual gross domestic product growth fell to 1.0% in the third quarter from 1.3% in the April-June period.

The mood among German investors improved more than expected in November. The German economy shrank by 0.1% in the second quarter, when household spending and state consumption were not enough to offset sluggish exports. A separate gauge measuring investor assessments of the economy's current conditions edged up to -24.7 from -25.3 in the previous month. The German economy shrank by 0.1% in the second quarter, when household spending and state consumption were not enough to offset sluggish exports.

Britain's employers cut more jobs from July to September than in any quarter for four years, according to official data, which highlighted how the labour market is slowing as an election nears although the fall was smaller than economists forecast. Strong jobs growth has been a silver lining of the Brexit crisis for British workers as companies hired staff rather than make longer-term commitments to investment. The unemployment rate fell back to 3.8%, its lowest level since early 1975. Total and basic pay both rose by 3.6%, although still comfortably above inflation.

The euro zone economy continued to grow at a modest pace in the July-September period as expected. The European Union's statistics office Eurostat said gross domestic product in the 19 countries sharing the euro increased 0.2% quarter-on-quarter in the third quarter for a 1.2% year-on-year gain. Germany, the euro zone's biggest economy, grew 0.1% in the third quarter after a -0.2% contraction in the previous three months.

China’s industrial production grew slower than expected in October, while retail sales and fixed asset investment growth also declined. Data from the statistic bureau showed that industrial output grew 4.7% in October, down from 5.8% in September and the expected 5.4%. Retail sales grew by 7.2% in October from a year ago, compared with expectations of 7.8%. Fixed asset investment grew by 5.2% in the first ten months of the year, compared to expectations of no change at 5.4%.

China's property investment rose 10.3% in the first 10 months of 2019 from a year earlier, down from the 10.5% growth seen in the nine-month period. Property sales by floor area increased 0.1% for January-October, compared with a 0.1% decline in the first nine months. But the housing sector's strength could be limited as policymakers have ruled out the possibility of further aggressive growth-boosting measures for the property market.

Local Market

Indian shares settled slightly higher on Friday, paring most of the gains made during the day as investors booked profits going into the weekend, with the broader Nifty 50 index posting its first weekly loss in three weeks The NSE Nifty 50 index closed up 0.2% at 11,895.45 after rising as much as 0.86%, while the S&P BSE Sensex finished 0.1 higher at 40,286.48.The Nifty 50 index was still down 0.1% for the week, while the Sensex closed 0.08% higher for the week. The Nifty public sector undertaking index was the top gainer, rising 3.28%. Shares of Bharti Infratel closed 8.9% higher and was the top gainer in the Nifty 50, while Indian Oil Corp was the top loser, closing down 3.8%.

India's trade deficit narrowed to $11.01 billion in October from $18.0 billion a year ago, the trade ministry said on Friday, helped by lower oil imports. Oil imports fell 31.74% to $9.63 billion in October from $14.11 billion in the year-ago period. Merchandise exports fell 1.11% to $26.38 billion in October compared with a year earlier, while imports were down 16.31% at $37.39 billion, the data showed.

However, in India, there is no single measure of inflation which captures economy-wide inflationary pressures in the economy. It is the year on year percentage change in wholesale price index (WPI), which is used as an indicator of headline inflation. India’s October core inflation seen in range of 3.44%-3.60% v/s 4.00%-4.02% in September.

India’s Oct. Inflation at 0.16 Percent Y/Y 0.00 Percent Sept WPI was at 0.33 %. India’s Oct food Inflation UP 7.65 % Y/Y in Oct. v/s 5.98 Percent Y/Y in Sept. India’s Oct Manufacturing Inflation at -0.84 % Y/Y v/s -0.42 Percent Y/Y in Sept. India’s Aug WPI Inflation revised to 1.17 % Y/Y from 1.08 %. India’s fuel inflation -8.27 % Y/Y in Oct V/S -7.05 % Y/Y in Sept.