15 February 2022
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Indian inflation in line with expectations

By Edward Bell

  • CPI inflation in India came in above the top of the RBI’s range in January, hitting 6.01% y/y and roughly in line with market expectations. Food and energy prices were the principal causes of the elevated inflation print with fuel prices up more than 9% y/y as India absorbs the impact of higher imported energy costs. The RBI held rates at its last meeting in line with policies to help support growth in India’s economy. However, should inflation pressures remain high for a prolonged period then there will be scope for the RBI to begin to hike rates moderately to dampen down inflation.
  • Japan’s economy expanded by 5.4% y/y in the final quarter of 2021 with consumer spending providing a substantial boost to growth. Private consumption rose more than 11% in the final three months of last year while investment and exports were also contributors to growth. While it was a positive end to the year for Japan, conditions have worsened as 2022 has begun as the country endures a rise in the number of Omicron cases and the government has imposed restrictions on activity once again.
  • The UAE and Turkey signed 13 agreements to expand trade relations on the occasion of the visit of Turkish president, Recep Tayyip Erdogan, to the UAE. The focus of the discussion has been across multiple sectors, including health, renewable energy, food as well as space industries. The scope for expanding trade relations between the UAE and Turkey is large with non-oil trade hitting around USD 14bn in 2021. The visit follows on from a USD 4.9bn currency swap signed between the central banks of both countries in January and a USD 10bn fund for investments in Turkey that was announced in November last year.
  • Dubai utilities company DEWA has announced it will expand the capacity of the Hassyan power plant to 2400 MW from 1200 MW previously, with the expansions to be added by the end of Q3 2023. The utility recently announced it was switching the fuel source for the plant from coal to natural gas which will help it align with the UAE’s broader net-zero strategies.

Today’s Economic Data and Events

  • 11:00 UK ILO Unemployment rate Dec: forecast 4.1%
  • 14:00 GE ZEW Survey February
  • 14:00 EC GDP Q4 y/y: forecast 4.6%
  • 17:30 US Empire manufacturing Feb: forecast 11

Fixed Income

  • US Treasury markets swung sharply overnight in response to changeable headlines from the situation in Eastern Europe. Anxiety that a conflict could be imminent pushed yields considerably lower mid-day before those gains for bonds were unwound over the course of trading. The 10yr UST yield for instance moved around 10bps from bottom to top before settling up by 5bps at jus under 2%. The 2yr yield also moved higher, adding around 7bps to 1.5744%.
  • European bond markets showed a much more cohesive move lower though with both bunds and gilts sliding throughout the day. Yields on the 10yr gilt closed up more than 4bps at 1.588% while bund yields managed to close lower over the day as they opened much richer.
  • Emerging market bonds closed generally offered overnight. Russian bonds again took the brunt of the sell off with yields up 31bps to over 10%. Turkish 10yr bonds dipped back with yields gaining 11bps to 20.88% while South African bonds were relatively stable. Indian yields pulled lower despite the stronger than expect inflation print.


  • Haven currencies took another step higher with the dollar gaining 0.3% on the broad DXY index. EURUSD fell almost 0.4% on the day to close at 1.1307, weakening steadily throughout trading as headlines fixated on the tense geopolitical scenario in Eastern Europe. USDJPY managed to hold up better, adding 0.1% to 115.54 despite the market’s push to avoid risk. USDCHF moved 0.16% in favour of the France at 0.9244.
  • GBPUSD fell 0.27% to 1.3528 as markets moved out of risk assets with losses also spread across AUDUSD, down 0.14% at 0.7127, and NZDUSD, falling by almost 0.5% to 0.6616. USDCAD was the standout though as the loonie benefits from stronger oil prices. The pair closed relatively unchanged at 1.2730.


  • Equity markets tumbled at the start of the week as geopolitical concerns took their toll. Having proven resilient at the end of last week, European equity indices were particularly hit yesterday, with travel stocks in particular heading lower. The composite STOXX 600 dropped -1.8%.
  • The weakness was somewhat less pronounced in the US later in the day, as the NASDAQ managed to close flat after its weak end to last week. The S&P 500 dropped -0.4% and the Dow Jones -0.5%.
  • Within the region, the DFM dropped -0.3% but the DFM added 1.2% and the Tadawul 1.5%. The EGX 30 lost -0.3% and the Borsa Istanbul -2.4%.


  • Oil markets propelled higher again amidst the risk of a conflict in Eastern Europe. Brent futures added 2.2% to close at USD 96.48/b while WTI gained 2.5% to USD 95.46/b. As tensions in Eastern Europe increase there appears to be more urgency in negotiation between Iran and the rest of the JCPOA parties, with a senior EU official saying a deal seemed “in sight.”
  • The UAE’s energy minister, Suhail al Mazrouei, said at an event that oil prices are being affected more by geopolitics than they are by fundamentals but that no other member could “substitute” Russia’s place in OPEC+ production.
  • The EIA estimated that oil output from the Permian basin, one of the largest shale patches in the US, rose to 5.06m b/d in January, moving above 5m b/d for the first time since 2007 and before the shale revolution took hold of oil markets. In its monthly Drilling Productivity Report the EIA estimated that other shale basins in the US are also seeing production move higher as oil firms take advantage of currently high prices.

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Written By

Edward Bell Head of Market Economics

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