UAE and Eurasian Economic Union finalise an economic partnership agreement

The UAE and the Eurasian Economic Union (EAEU) have finalised an economic partnership agreement. The deal is intended to reduce both tariff and non-tariff barriers between the 5 members of the EAEU – Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia – and the UAE. Minister of state for foreign trade, Dr Thani Al Zeyoudi, said that the EAEU “offers a rich seam of opportunity for our private sector”, with bilateral non-oil trade amounting to USD 13.7bn in the first half of 2024.

US headline CPI rose to 2.7% y/y in November, in line with expectations, but marginally higher than the 2.6% recorded in October. On a monthly basis prices were 0.3% higher. Core CPI came in at 3.3% y/y in November, unchanged from the previous four prints. The drivers of inflation have however changed in the November release, with used vehicles prices rising 2.0% m/m and new vehicle prices rising 0.6% m/m, suggesting that the damage caused by recent hurricanes are pushing up demand. Housing costs have however moderated relative to October, with rents rising just 0.2% m/m. Markets interpreted the print as cementing a 25bps cut from the Fed next week.

The Bank of Canada rate cut rates by 50bps, taking the overnight lending rate to 3.25%. The cut was the second consecutive 50bps reduction in rates and had been widely expected by markets and takes the overnight lending rate to the top end of the Bank of Canada’s estimate of the neutral rate. The bank flagged that future cuts were unlikely to be as large, with a return to a more gradual pace of easing.

Today’s Economic Data and Events

14:30 IN CPI (Nov): Forecast 5.53% y/y

17:15 ECB rate decision: Forecast 3.0%

17:30 US PPI (Nov): Forecast 2.6% y/y

17:30 US Initial jobless claims (w/e Dec 7): Forecast 220K

Fixed Income

US Treasury yields ended the day a little higher, after initially falling on news of the November headline CPI print being in line with expectations. The 2yr yield gained 1bps to 4.153% and the 10yr yield rose 4bps to 4.2711%.

Yields on European bonds were mixed on Wednesday. The 10yr Bund, gained 0.7bps to 2.124%, while the 10yr Gilt yield fell by less than 1bps to reach 4.316%.

FX

The dollar advanced once again on Wednesday, with the spot index rising 0.36%. EURUSD fell 0.29% to 1.0496, GBPUSD declined 0.16% to 1.2751, and JPYUSD rose 0.3% to 152.45.

Moves in commodity currencies were mixed against the dollar. AUSUSD fell 0.13% to 0.6369 and NZDUSD dropped 0.24% to 0.5785. USDCAD fell 0.16% to 1.4159, with the Bank of Canada signaling that further rate cuts are likely to be smaller and more gradual.

Equities

After falling for two consecutive days, US equity markets rallied on Wednesday, with markets taking the November CPI print as confirmation that the Fed will cut rates when they meet next week. The S&P 500 gained 0.8% and the NASDAQ rose by 1.8%. The Dow Jones was the outlier, declining 0.2% on the day.

European equity markets also edged up as a result of the CPI print. The Eurostoxx 50 gained 0.15%, the FTSA 100 rose 0.26%, the CAC 40 increased by 0.39%, and the DAX rose 0.34%.

Local markets also saw positive moves, with the ADX up 0.38% and the DFM rising by a more modest 0.03%. In Saudi Arabia the Tadawul index fell 0.36%.

Commodities

Oil prices rose on Wednesday, despite OPEC making a sizeable downward revision to their projections for future global oil demand. The OPEC report highlighted concerns around demand from China, given the country’s slower growth prospects, as well as the rise of demand for electric vehicles. Prices were supported by reports that the US is considering tightening sanctions on the Russian energy sector, together with data from the EIA showing that crude inventories fell by more than expected last week. Brent futures rose 1.84% to USD 73.52/b while WTI was up 2.48% at USD 70.29/b.