Saudi Arabia revises up deficit forecast

Saudi Arabia has released a mid-year budget update and has revised its projections for its budget deficit to SAR 118bn, from SAR 79bn in the initial budget approved for 2024. The increase is a result of higher government spending, particularly on social benefits (92% higher than the original budget), grants and goods and services spending. Total expenditure is estimated to be 8% higher at SAR 1.36trn while revenue projections have also been revised up to SAR 1.24trn, an increase of 5.5%. The ministry of finance estimates the fiscal deficit at 2.9% of GDP, up from 1.9% previously. The ministry of finance also released a pre-budget statement for 2025, where expenditure is forecast to decline by about 5% y/y in 2025 to SAR 1.29trn. The ministry is expecting a fiscal deficit of SAR 101bn which in their forecast represents 2.3% of GDP. Deficits are projected out to 2027, widening to 3% of GDP according to the ministry.

Fuel prices in the UAE will decline this month following the drop in benchmark oil prices. Mid grade petrol will drop by almost 9% to AED 2.54/litre while high-grade gasoline will be down by 8%. Diesel prices for October will fall to AED 2.60/litre, down 6.5% m/m. Prices have now fallen to their lowest level since the start of 2022. Transport costs have been fairly volatile in the Dubai inflation basket this year and were up by 0.3% m/m in August. Lower costs for retail fuels will act as a drag on overall inflation this year which we estimate at 3.5% y/y on average for Dubai.

Dubai International Airport has raised its estimate for passengers this year to 93m, up from less than 92m previously. The new estimate would represent growth of almost 7% y/y, much cooler than the near 32% recorded in 2023 though that year still reflected catch-up travel demand from the pandemic period. The new target for DXB would exceed pre-pandemic levels of 86-89m passengers.

Fed chair Jerome Powell said overnight that rates would move “over time toward a more neutral stance” and that the Fed was not on “any preset course.” Powell also remarked that the Fed could move slower or faster depending on the incoming data.

Inflation in Germany decelerated in September according a preliminary estimate. On an annual basis, headline CPI inflation eased to 1.6% y/y from 1.9% a month earlier, cooler than markets had been expecting. On a monthly basis the pace of inflation was flat month/month. Eurozone-wide inflation will be released later this week with headline price growth expected at 1.8% y/y for September.

Today’s Economic Data and Events

• 13:00 EC CP y/y Sept: forecast 1.8%
• 18:00 US JOLTS job openings Aug: forecast 7.673m
• 18:00 US ISM Manufacturing Sep: forecast 53.5

Fixed Income

• US Treasuries lost some ground overnight with an 8bps rise in the 2yr yield to 3.6411% while the 10yr rose by 3bps to 3.7809%. Powell’s measured commentary on the pathway for rates helped to temper rate cut expectations for November to about 34bps of cuts from closer to 40bps at the end of last week.
• Bond markets were mixed to start the week with US markets following Treasuries lower. Emerging market bonds managed to tick marginally higher, however.
• S&P rated Energy Development Oman at ‘BBB-‘ with a stable outlook while Fitch affirmed their ‘BB+’ rating on Oman Telecom wit ha stable outlook.

FX

• The US dollar pulled higher against peers overnight, abetted by Fed chair Powell’s gradualist approach to cutting rates. EURUSD fell by 0.2% to 1.1135 while USDJPY rallied by 1% to 143.63. GBPUSD managed to hold essentially flat at 1.3375.
• In commodity currencies, USDCAD nudged higher to 1.3525 while AUDUSD added 0.1% to 0.6913 while NZDUSD gained about the same to 0.6349.

Equities

• US equity markets ended September on a rise with the S&P 500 up 0.4% while the NASDAQ gained the same amount. European markets were softer with a drop of 1.3% in the EuroStoxx 50 index while the FTSE 100 fell by 1%.
• Regional markets closed weaker the DFM down by 0.4% overnight and the ADX dropping by 0.9%. In Saudi Arabia the Tadawul was lower by 0.4%.

Commodities

• Oil prices had a quiet end to September with a drop of 0.3% in Brent futures and holding flat for WTI. The third quarter was the worse performance for oil markets this year with Brent down 17% and WTI falling by 16.4%.