News
In focus this week: RBI monetary policy, mutual funds data, US jobs
Summary
On top of the agenda this week is the Reserve Bank of India’s monetary policy review after signs of a cooling inflation in August. Mutual funds data and the services PMI are also due. Global markets will keenly watch for the US jobs numbers.Every Monday, Mint’s Plain Facts section features five key data releases to keep an eye on during the week. On top of the agenda this week is the Reserve Bank of India’s fourth monetary policy meeting of the fiscal year. Data on mutual fund (MF) inflows will also be out later this week. India's services purchasing managers' index (PMI) will tell us about the recovery in the services sector. Elsewhere, global markets will keenly await US employment data, amid signs of peaking recovery in the world’s largest economy. Here are the big numbers and events to track:
1. RBI policy meet
A moderation in retail inflation for the second straight month in August sets a comfortable backdrop for the monetary policy committee (MPC) when it meets this week. The Reserve Bank of India’s (RBI’s) rate-setting panel is expected to continue with its accommodative policy even as the economy shows signs of recovery. A decision is expected on Friday. Not only have the last two inflation prints been below the 6% upper target, they have also undershot RBI’s projection for the ongoing quarter. Analysts expect a cut in inflation projections in the meeting. All eyes will likely be on the policy statement to gauge the MPC’s voting pattern and signs of emerging dissent. External member Jayanth Varma has been the lone hawk in recent meetings, which could be in conflict with recent dovish remarks by RBI deputy governor Michael Patra. Analysts will look for communication on the beginning of policy normalization as demand-side inflationary pressures take hold in the coming months.
2. Services PMI
India's services activity finally bounced back to the expansion zone in August, after contracting for three months. Business confidence staged a rebound with rising vaccine coverage and increased consumer footfalls, taking the services PMI to an 18-month high of 56.7. A reading above 50 denotes a month-on-month expansion. Job shedding remained a challenge, but the overall growth marked a significant milestone for India’s economic recovery, as contact-intensive services had fallen behind the manufacturing sector in growth revival across the world. The notable turnaround reaffirmed the waning effect of the second covid-19 wave, lifting expectations of renewed growth activity. The PMI reading for September is due on Monday. High-frequency indicators available through the month have confirmed that recovery has continued healthily. The manufacturing sector, data for which was released on Friday, reported further expansion in September. A further pick-up in services could propel the composite PMI to a multi-month high.
3. Mutual funds
Equity MF schemes faced rising redemption pressures in August as capital markets hit record highs. Net redemptions of ₹23,145 crore cut inflows by 61.5% month-on-month to ₹8,057 crore. Yet, supported by a rise in share market, net assets under management of equity schemes grew sequentially by 5.3%. In September, too, Indian equities have hit multiple record highs, suggesting a continued profit-booking in these counters. Data on this from the Association of Mutual Funds in India (Amfi) will be released on Friday. The popularity of systematic investment plans (SIP) has been on the rise for four months, with a record 2.5 million new accounts being registered in August. With this, monthly SIP contributions look set to hit ₹10,000 crore in the upcoming data, after having climbed to a record high of ₹9,923 crore in August.
4. US trade
US trade deficit had hit a record high of $73.2 billion in June, but narrowed 4.3% in July due to lower imports. Early data released last week showed that the goods trade deficit expanded again in August. The final data, due on Friday, will also have numbers on services as well as the country-wise break-up.
The decline in imports in July was due to shortages and a shift in demand from consumer goods and industrial supplies towards services such as travel, intellectual property, and transport. However, the Delta variant outbreak since August has hurt the demand for services again, as both retail sales and advance goods trade data show. The near-term trade dynamics, of not just the US but worldwide, will depend on the pandemic trajectory and the easing of supply disruptions. A gradual return to normalcy could reduce US demand for foreign goods and push exports again.
5. US jobs
Jobs revival in the US slowed down sharply in August as covid-19 cases surged due to the Delta variant. Non-farm sectors added just 235,000 jobs, woefully short of market expectations and the weakest growth in seven months. This was a big setback to the US Federal Reserve’s determination to ensure sustained growth before withdrawing policy stimulus. The September numbers, due on Friday, will be key to understanding the latest trend.
The major job gains in August happened in professional and business services, transportation and warehousing, manufacturing, and other services. Retail trade saw a decline, while leisure and hospitality sectors had an unchanged job situation. Compared to February 2020, non-farm jobs are still down by 5 million. Softening of demand and labour shortage have led analysts to sharply slash their GDP growth estimates for the US for the just -ended quarter. With a turnaround not likely soon, the September figures may hardly be an improvement over that of August.
