US PPI lower than expected in August

US PPI fell unexpectedly in August, declining 0.1% m/m, the first fall in the headline measure in four months. Consensus expectations were for a 0.3% m/m rise in producer prices. Much of the decline in the monthly PPI figure was due to a narrowing of margins, which had risen sharply in July. While there is some evidence of tariffs feeding through to producer prices, they remain fairly marginal, with prices excluding foods, energy and trade services rising by 0.3% m/m. On an annual basis producer prices rose 2.6%.

Saudi Arabia’s industrial production rose 6.5% y/y in July, down from 7.9% the previous month. The uptick was due to oil activities which were up 7.8% y/y with the extraction of crude petroleum and natural gas 6.5% higher than a year earlier. Oil production rose to 9.53mn b/d in July, compared with 8.94mn b/d in July 2024 and given the continued return of barrels to the market through the subsequent months, oil will likely underpin industrial production growth through the remainder of the year. Manufacturing production was up 3.5% y/y and there was a 0.9% increase in electricity, gas, steam and air conditioning supply.

Egypt’s headline CPI inflation slowed to 12.0% y/y in August, down from 13.9% the previous month. This was the third month in a row that inflation cooled, and it marked the slowest pace of annual price growth since March 2022, coming in below both our expectations and the consensus projection. On a monthly basis, prices were up 0.4% m/m, compared with a 0.5% fall in July. Food and non-alcoholic beverages, the largest component of the CPI basket, saw inflation of just 2.1% y/y, down from 3.4% in July and as high as 73.6% in 2023. The ongoing slowdown in inflation reaffirms our view that the CBE will cut rates further through the close of the year, and we forecast that the overnight deposit rate will end 2025 at 19.00%.

Today’s Economic Data and Events

15:00 TU one-week repo rate. Forecast: 41.0%

16:15 EC deposit facility rate. Forecast: 2%

16:30 US CPI (Aug). Forecast: 2.9% y/y

16:30 US initial jobless claims (w/e Sept 6). Forecast: 235k

Fixed Income

• US Treasury yields fell on Wednesday after PPI data surprised on the downside. The 2yr yield declined by 1.5bps to reach 3.5438%, while the 10yr yield dropped 4bps to 4.0454%.
• Moves in major European bond yields were mixed. The 10yr Bund yield fell by just under 1bps to 2.649%, while the 10yr Gilt rose 1bps to 4.631%
• Saudi ARAMCO issued USD 1.5bn worth of 5yr Sukuk at T+70, and another USD 1.5bn of 10yr Sukuk at T+80.

FX

• EURUSD fell 0.1% to 1.1695, GBPUSD remained broadly flat at 1.3529 and USDJPY rose 0.03% to 147.46.
• In emerging markets, USDEGP rose 0.2% to 48.1283 and USDZAR fell 0.3% to 17.4875.

Equities

• US equity markets were mixed on Wednesday, as investors look ahead to CPI inflation data. The Dow Jones fell 0.5%, the S&P 500 gained 0.3%, and the NASDAQ increased by 0.03%.
• Moves in European equity markets were similarly varied on the day. The Eurostoxx 50 fell 0.1%, the FTSE 100 dropped 0.2%, the CAC 40 gained 0.2%, while the DAX fell 0.4%.
• Locally, the DFM fell 0.6%, while the ADX declined by 0.4%. The Tadawul declined by 0.3%.

Commodities

• Oil prices rose on the back of geo-political tensions, with both Brent and WTI futures gaining 1.7% to USD 67.49/b and 63.67/b, respectively.
• The EIA reported that US crude inventories rose by 3.94m barrels last week.
• Gold prices reversed the previous day’s decline, rising 0.4% to 3,640.75 /troy oz.