Could China cut interest rates or take other easing measures next week?

Key highlights

Eurozone retail sales jumped slightly more than expected y-o-y in February with automotive fuel and non-food products driving the growth. The European Union's statistics office Eurostat said retail sales in the 19 countries sharing the euro rose 0.3% m-o-m in February for a 5.0% y-o-y increase.

China has promised once again to step up monetary support, raising expectations that an interest rate cut or other easing measures could happen as early as next week.

The proportion of Japanese households expecting prices to rise a year from now has hit a 14-year high, a central bank survey showed, as inflationary pressures from rising raw material costs grew.

USD/INR movement

The USDINR pair remained higher amid a strong dollar and outflows from domestic stocks. The dollar hovered near two-year highs against a basket of major currencies after meeting minutes showed the Federal Reserve preparing to move aggressively to fight inflation, while commodity currencies fell from recent peaks. Investors would closely monitor the RBI MPC statement which is due for tomorrow.

Global currency updates

The pound traded slightly higher against the US dollar after the US Treasury yields fell from their highs. The UK administration has imposed an outright ban on all new outward investment into the country, reported Reuters. However, due to the lack of major market-moving economic data due for release from the UK, the USD price dynamics will play a key role in guiding the GBPUSD pair.

Euro traded slightly weak amid a strong dollar, pessimistic global market sentiments. Moreover, investors are worried that new sanctions on Russia for its war crime will hurt the economy and it will lead to a further rise in energy prices. Additionally, market participants will remain careful ahead of ECB minutes and the outcome of the upcoming French presidential election.

Bond market

U.S. Treasury bond yields slipped from multi-year highs, offering some respite to equities after Federal Reserve minutes released the previous day reinforced the rate-hike momentum already priced into markets. The gap between the two- and 10-year segments was at the widest in a week, reversing a recent inversion that is often seen as a recession signal. The Indian bond market traded sideways ahead of the RBI MPC meet which is due tomorrow. India 10 year benchmark closed the day flat at 6.916%. Overall movement registered in the yields of sovereign securities remained within 5 basis points.

Equity market

Indian equity benchmarks Sensex and Nifty 50 extended losses tracking weakness across global markets. Losses across financial, auto, IT and metal shares pulled the headline indices lower though gains in pharma stocks lent some support. Broader markets slipped into the red in the second half of the session, with the Nifty midcap 100 finishing the day 1% lower and the Nifty smallcap 100 declining 0.31%.

Evening sunshine

“Focus to be on the US Initial Jobless Claims data.”

European markets were choppy as volatility continued following details of the U.S. Federal Reserve’s monetary tightening plans and the ongoing war in Ukraine. U.S. stock index futures edged up as Treasury yields slipped from multi-year highs, offering some relief to growth and technology stocks battered this week by concerns around a more hawkish Federal Reserve. Investors worldwide are also keeping an eye on the fallout from China’s tight Covid-19 controls as it battles another surge in cases, potentially further disrupting global supply chains.