US inflation slows to 2.3% in March

The Fed’s preferred measure of inflation, the PCE price index, rose 2.3% y/y in March. The print was higher than consensus expectations but well below the upwardly revised 2.7% recorded in February. On a monthly basis prices were flat. Core PCE – which strips out volatile food and fuel prices – rose 2.6% y/y in March, down from 3.0% the month prior. The Fed is however likely to look through the slower pace of inflation, at least for now, with tariffs only having been imposed in April.

Advance estimates of US GDP contracted 0.3% on a quarter-on-quarter annualized basis, the first quarterly decline since 2022. The outturn was in stark contrast to the 2.4% q/q annualized growth seen in the final quarter of 2024. The contraction was largely due to a surge in imports, which rose 41.3% q/q annualized, with companies attempting to front-run President Trump’s tariffs. There was also a marked slowdown in household consumption growth, which rose 1.8% q/q annualized, significantly below the 4% seen in Q4. Separately, monthly data pointed to continued strong momentum in the US economy in March, ahead of the tariff announcements, with both real and nominal personal spending rising 0.7% m/m. Personal incomes grew by 0.5% m/m in March, lower than the 0.7% growth recorded in February.

The ADP employment report suggests that US private sector payrolls rose by 62k in April. The latest outturn was significantly below both consensus expectations for a gain of 115k, and the 147k increase seen the month prior.

First quarter advance Eurozone GDP rose 0.4% q/q, higher than both consensus expectations and the 0.2% pace of growth recorded at the end of 2024. Within the bloc, Ireland in particular saw a sharp rise in Q1 GDP, gaining 3.2%. However, even when Ireland is excluded GDP expanded 0.3% q/q, in part driven by a solid 0.6% q/q expansion in Spain. There was also better-than-expected growth in Italy (0.3%) and Germany (0.2%). Looking ahead, growth is expected to moderate as the impact of US tariffs and policy uncertainty take effect.

Over 23mn passengers moved through Dubai International over the course of the first quarter of 2025, representing growth of 1.5% y/y. The uptick in the quarterly figure was supported by the highest ever monthly number of passengers, recorded in January, totaling 8.5mn. India, Saudi Arabia, the UK and Pakistan accounted for the largest shares of passengers over the period.

Today’s Economic Data and Events

10:00 SA GDP (Q1)

16:30 US Initial jobless claims (w/e 26 April): forecast 224k

18:00 US ISM manufacturing survey (Apr): forecast 48.0

Fixed Income

Weaker US GDP data spurred a fall in US Treasury yields on Wednesday. The 2yr fell almost 5bps to reach 3.6027%, while the 10yr yield fell by 1bps to 4.1619%.

Major European bonds yields fell for a second consecutive day. The 10yr UK Gilt yield fell 4bps to 4.4396%, while the 10yr Bund yield declined by 5bps to 2.442%.

There were a number of regional bond and sukuk issuances yesterday. DP World priced a USD 1.5bn 10yr sukuk at T+145. Saudi Arabia’s Public Investment Fund (PIF) sold USD 1.25bn of 7yr dollar-denominated sukuk at T+110. Bahrain priced a USD 750mn 12yr conventional bond at a 7.5% yield, as well as a USD 1.75bn 8yr sukuk with a 6.25% yield, and Banque Saudi Fransi has started offering a dollar-denominated perpetual sukuk, providing a yield of 6.375%.

FX

The dollar strengthened again on Wednesday, with the spot index gaining 0.23%. EURUSD fell 0.5% to 1.1328, while GBPUSD declined by 0.6% to 1.3329. USDJPY gained 0.5% to 143.07.

Commodity currencies in contrast strengthened against the dollar on the day. AUDUSD gained 0.3% to 0.6402 and NZDUSD rose by 0.07% to 0.5935. USDCAD fell 0.25% to close at 1.3799.

Equities

US equity markets rallied at the end of yesterday’s session, despite weaker headline GDP figures. The Dow Jones rose 0.35% and the S&P 500 gained 0.15%. The NASDAQ was the outlier, declining just 0.09%.

European equity markets were mixed on the day. The Eurostoxx 50 fell 0.03%. The CAC 40 gained 0.5%, the DAX increased 0.3%, and the FTSE 100 rose 0.37%.

Local markets also saw gains on Wednesday. The DFM rose 1.26%, and the ADX gained 0.3%. The Tadawul in Saudi Arabia fell 0.64%.

Commodities

Oil futures fell for a third consecutive day on Wednesday. Brent fell 1.76% to reach USD 63.12/b, while WTI declined 3.66% to reach USD 58.21/b. A Reuters report, quoting Saudi officials, suggested that the country is willing and able to withstand lower oil prices for an extended period, spurring expectations for planned supply to be brought forward at the OPEC meeting next week.