US CPI inflation ticks up in September

There was a modest upside surprise in US CPI inflation for September as it came in at 2.4% y/y, slightly higher than the predicted 2.3% but still lower than August’s 2.5% print. Prices were up 0.3% m/m, unchanged from August but again higher than the expected 0.2%. Core inflation also picked up modestly, to 3.3%, from 3.2% previously. Following on from the strong jobs report last week, the Fed is now almost certain to proceed at a more cautious pace in its rate-cutting than the initial 50bps cut suggested to some observers. Fed officials largely shrugged off the slight uptick in September price growth, and we maintain our expectation of two more 25bps cuts this year. Meanwhile, the weekly initial jobless claims figure for the week to October 5 saw the number of claims rise to 258,000, up from 225,000 and far higher than the predicted 230,000. The rise can be attributed in part to the recent storm Helene, with the effect of Milton likely to be visible in the coming weeks meaning more volatility to come.

Industrial production in Saudi Arabia expanded 1.0% y/y in August, positive for a second straight month but slowing from the 1.6% y/y rise recorded in July. Mining and quarrying production, encompassing the hydrocarbons sector, rose 0.8% y/y, turning positive once again as the introduction of additional oil production curbs last year start to pass through the base. Manufacturing expanded 1.1% y/y, down from 4.6% in July, while electricity and gas slowed to 4.1% y/y, compared to 8.2% on the previous reading. In Egypt, industrial production rose 7.5% m/m in August, following on from a 6.9% gain in July.

The UAE and Malaysia have concluded negotiations on their CEPA deal which will help ease trade and investment between the two economies. Non-oil trade has already been expanding quickly, with H1 2024 seeing growth of 7% to USD 2.5bn. The news follows on from announcements around CEPA deals with Serbia and Jordan last Sunday as the UAE presses ahead with forging stronger trade ties with diverse economies from around the world. Non-oil trade between the two countries is goods-based, with the UAE exporting gold to Malaysia for instance, and Malaysia exporting palm oil, electronics, and machinery to the UAE. The hope is that the CEPA could boost services trade as well, with the UAE seeing scope for building trade in financial services.

Today’s Economic Data and Events

10:00 UK industrial production, August, % m/m. Forecast: 0.2%

16:30 Canada unemployment rate, September, %. Forecast: 6.7%

18:00 US University of Michigan Sentiment Index, October preliminary. Forecast: 71.0

Fixed Income

• Yields on USTs came down yesterday, although the rally was somewhat volatile after Fed member Raphel Bostic said that he would be open to seeing a pause before the next rate cut, leading to some gains being pared.
• The 2yr ended the day down 6bps at 3.9573%, while the 10yr fell just 1bps to close at 4.0608%.

FX

• The dollar climbed for a ninth straight session yesterday, with the DXY index closing up 0.1% on the day.
• The NZD recouped some of its losses of the previous day, adding 0.5% against the greenback to close at 0.6093. AUD gained 0.3%, but CAD ended the day 0.2% lower at 1.3742.
• Both EUR and GBP closed down 0.1% against the dollar yesterday, at 1.0934, and 1.3059 respectively.

Equities

• There was some selling in equity markets yesterday, although the movement was fairly limited. In the US, the Dow Jones and the NASDAQ both closed 0.1% lower while the S&P 500 fell 0.2%.
• Locally, the DFM added 0.3% while the ADX fell 0.3%. Saudi Arabia’s Tadawul closed up 0.6% on Thursday, translating into a w/w gain of 0.3%.

Commodities

• There were strong gains in oil prices yesterday as uncertainty over Middle East unrest continued to play out, and Milton made landfall in Florida.
• Brent futures rose 3.7% to close at USD 79.4/b, while WTI closed up 3.6% at USD 75.9/b. Both benchmarks have edged down in early trading this morning but still look on course for a w/w gain at the close.