Chief Economist at the National Stock Exchange of India
US consumer inflation is probably the world’s most observed economic indicator. Its relentless rise over the past three years has either been the driver, or signal for macro policy globally, with the policy response from central banks differing in degree not direction. While the sub-5% print might lead to hopes of a pause in the current cycle by the Fed, the US debt ceiling looms (again), with the pall of a default. That said, inflation across the world has shown welcome signs of easing over the past two months.
Beyond macro, the G20 meetings through the year have helped us understand the role and importance of diplomacy in what seems to be an increasingly fragmented world. The forthcoming G7 meetings face the same headwinds. Geopolitics remains front and center in the mid-term global macroeconomic outlook.
Global markets took comfort from macro tailwinds and on reduced contagion risks from US regional banks but eased after the strong gains of March. While we remember Silicon Valley Bank and lately First Republic, there are over 4000 commercial banks in the States, over 2100 of them with assets of US$300m, so no (further) news is good news for now, in this context.
Developed equities (MSCI World Index) rose by 1.6% in April (YTD: +8.4%; As on May 5th, 2023), while Emerging market equities (MSCI EM Index) ended the month 1.3% lower (YTD: +2.6%), with the latter weighed down by huge sell-off in Chinese equities. Indian equities outshined developed and emerging market counterparts in April. Resilient economic performance, an unexpected pause by the central bank for the first time since the commencement of rate hiking cycle last year, and a good start to the fourth quarter earnings season helped investor sentiments. Incrementally, attractive valuations brought back foreign investors. The Nifty50 Index ended the month 4.1% higher, with mid and small caps outperforming by a wide margin.
Global debt showed a mixed performance in the month gone by. The US sovereign yield curve inverted further as elevated core inflation and a resilient job market kept short-end under pressure, while the long-end eased off marginally amid strengthening recession worries. Indian debt rallied further in April, as an unexpected policy pause, easing inflation and an anticipated moderation in global monetary policy tightening aided investor sentiments. India’s benchmark 10-year G-sec yield fell by 20bps in April on top of a 14bps decline in the previous month. Rising growth concerns have continued to weigh on the greenback, with the dollar index falling by another 0.9% in April (6M: -8.9%), thereby providing support to EM currencies including the INR (+1.1% against USD in 2023 till date). Precious commodities continued to rise on global financial contagion fears, while prices of agriculture, industrial and energy commodities remained under pressure.