Macro economic data is bond positive – Expect rate cuts in July
The IIP (Index of Industrial Production) growth for April 2013 disappointed markets with the general index showing a 2% year on year growth against market expectations of 2.7%. IIP for April was highlighted by an 8.3% fall in the consumer durable index, indicating weak domestic demand.
CPI (Consumer Price Inflation) came in at 9.31% for May 2013 against levels of 9.39% seen in April 2013 and 10.39% seen in March 2013. The WPI (Wholesale Price Inflation) for May 2013 is expected to come in at 4.87% against levels of 4.89% seen in April.
Passenger vehicle sales for the first two months of fiscal 2013-14 are down 8.5% while commercial vehicle sales are down 5.2%.
Bank deposits registered a growth of 14.59% year on year as of 31st May 2013 while bank credit grew by 15.41%. Deposits have grown by 0.44% in the first two months of this fiscal while bank credit has fallen by 0.3%.
Gross direct tax collection has grown by 21.1% in the April-May 2013 period while net direct tax collection is up by 6.4% on a year on year basis. Indirect tax collection grew by 3.3% in April 2013.
Macro economic data points to an economy that is seeing demand coming off leading to lack of pricing power amongst manufacturers. Inflation expectations are down on the back of the demand slowdown.
RBI is more likely to cut the repo rate in its 30th July policy review given weak growth outlook and falling inflation expectations. The central bank will keep rates status quo in its 17th June 2013 policy review given the weakness in the Indian Rupee that touched all time lows of Rs 58.96 against the USD on the 11th of June.
The US economy added 175,000 jobs in May against expectation of 165,000 job additions and against April additions of 149,000 jobs. Unemployment rate rose to 7.6% in May from 7.5% in April. CPI (Consumer Price Index) for April fell on a month on month basis and inflation stood at 1.1% for the month. US retail sales rose 4.8% in May against expectation of 3.7%. US manufacturing index fell to its lowest level since 2009 in May 2013 as government budget cuts lowered activity. The US economy is seeing more positive than negative data and the Fed is preparing the markets for easing of monetary stimulus.
China manufacturing index fell in May while exports rose by just 1%. Export growth was at 14.7% in April. Imports fell 0.3% in May. CPI for May came in at 2.1% against 2.4% levels seen in April 2013. China’s economy is seen weakening with growth forecasts down from 8% to 7.8% for 2013.
Eurozone manufacturing index rose in May 2013 to a fifteen month high. Eurozone manufacturing index is still below 50 that indicate contraction but the rise in May from April suggest that a long period of downturn could have ended. CPI for April was at 1.2%, unchanged from March levels. Unemployment rate was a record 12.2% in April. Eurozone economy is expected to shrink by 0.6% in 2013 as per the ECB forecast. Eurozone economy is looking down but could stabilize at lower levels.
Table 1: India Macroeconomic Data May 2013