US CPI rise 2.9% y/y in August

Headline US CPI rose 2.9% y/y in August, in line with expectations, up from the 2.7% recorded in July. Core inflation held steady at 3.1% y/y. On a month-on-month basis CPI rose 0.4%, marginally higher than expectations for a 0.3% gain. There were notable contributions from shelter costs and discretionary services such as hotels and airfares. There was a moderation in core goods price growth to 0.13% m/m suggesting that tariffs are as yet only having a small impact. Separately, initial jobless claims rose 263k in the week ending September 6. The print was the highest level in four years, and materially higher than expected, strengthening the case for a 25bps cut from the Fed next week.

The ECB kept the deposit rate unchanged at 2% at its latest monetary policy meeting. The hold had been widely expected. At the press conference after the decision, President Christine Lagarde said that “inflation is where we want it to be” but indicated that significant economic uncertainty remained. The ECB provided no further guidance as to the likely future path of rates, saying that decisions would be made on a meeting-by-meeting basis. Markets are currently not pricing in any further rate cuts.

The Turkish Central Bank cut the one-week repo rate by 250bps, to reach 40.5%. While a cut had been anticipated by markets, the scale of the reduction was larger than consensus expectations. The accompanying monetary policy statement highlighted that the trend in underlying inflation remained disinflationary in August.

Today’s Economic Data and Events

10:00 UK industrial production (Jul). Forecast: 0.0% m/m

14:30 IN CPI (Aug). Forecast: 2.12% y/y

18:00 US University of Michigan sentiment (Sept). Forecast: 58.0

Fixed Income

• The yield on US 2yr Treasuries remained fairly flat on Thursday, declining only marginally to 3.5415%, while the 10yr yield dropped 2bps to 4.0206%.
• Moves in major European bond yields were mixed. The 10yr Gilt yield fell 2.5bps to 4.605%

FX

• The dollar fell on Thursday as investors viewed the CPI and claims data as supportive of a Fed rate cut next week. The dollar spot fell 0.3%. Both EURUSD and GBPUSD rose 0.3% to 1.1734 and 1.3574, respectively. USDJPY fell 0.2% to 147.21.
• Commodity currencies were stronger against the dollar. AUDUSD rose 0.7% to 0.6659, NZDUSD gained 0.6% to 0.5976 and USDCAD fell 0.2% to 1.3833.
• In emerging markets, USDTRY gained 0.1% to 41.327 and USDINR rose 0.4% to 88.44.

Equities

• US equity markets saw gains on Thursday, as investors concluded that higher jobless claims data outweighed the mostly in-line with expectations rise in CPI. The Dow Jones rose 1.4%, the S&P 500 gained 0.9%, and the NASDAQ increased by 0.7%.
• Moves in European equity markets were similarly positive. The Eurostoxx 50 rose 5%, the DAX gained 0.3%, while both the FTSE 100 and the CAC 40 gained 0.5%.
• Locally, both the DFM and the ADX rose 0.6%. The Tadawul declined by 0.4%.

Commodities

• The EIA forecast an even larger oversupply of oil in 2026, driven by the OPEC+ decision to return additional barrels to the market. Oil prices fell with supply concerns outweighing geo-political tensions. Brent declined by 1.7% to USD 66.37/b and WTI fell 2% to USD 62.37/b.