Inflation in Dubai cools

Inflation in Dubai eased to 3.3% y/y in July, down from an average of 3.9% where it had spent the previous three months. Housing remains the primary driver of inflation in Dubai with the housing and utilities component of the CPI basket rising by 6.8% y/y in July, up from 6.7% a month earlier. Food prices, the second largest weighting in the basket, rose by 2.5% y/y while transport costs were just 0.2% higher. As oil prices have dropped on average in August compared with July, transport may again be a drag on inflation in subsequent estimates. On a monthly basis, the CPI index fell by 0.1% m/m.

Inflation in India slowed to 3.5% y/y in July, down from 5.1% a month earlier and below the Reserve Bank of India’s target range of 4-6%. Headline food price inflation dropped to 5.4% y/y from more than 9% a month earlier and was the lowest since the middle of 2023. Energy prices declined year/year by 5.5% helping to keep inflation relatively contained in India’s economy.

Today’s Economic Data and Events

• 10:00 UK unemployment rate June: forecast 4.5%
• 11:00 TU current account balance June: forecast USD 0.25bn
• 13:00 GE ZEW survey Aug: forecast 34.0
• 16:30 US PPI final demand m/m Jul: forecast 0.2%

Fixed Income

• US Treasuries were higher to start the trading week as markets grow anxious over geopolitical threats from the Middle East and Eastern Europe. Yields on the 2yr UST fell nearly 4bps to 4.0173% while the 10yr yield fell around the same amount to settle at 3.9035%. Markets are still pricing a greater than 100% likelihood of a 25bps cut for the September FOMC meeting, with about 40bps of cuts priced in for next month.
• Bond markets generally were positive overnight. Emerging market and high yield bonds both rallied while European markets closed near flat. Bund yields were unchanged while gilt markets rallied.

FX

• The dollar closed mixed against peer currencies overnight as markets will look to inflation data later this week for more clarity. EURUSD added 0.1% to 1.0931 while GBPUSD added a bit less to close at 1.277. USDJPY, however, moved against the yen to settle higher by 0.4% at 147.21.
• Commodity currencies were split overnight with USDCAD higher by 0.1% at 1.3744 while AUDUSD pulled stronger to 0.6586, up 0.1% and NZDUSD rose 0.3% to 0.6019.

Equities

• Equity markets had an uneven start to the week. The Dow Jones drifted lower by 0.4% while the S&P was unchanged and the NASDAQ managed a gain of 0.2%. In Europe, the EuroStoxx index fell by about 0.1% while the FTSE gained 0.5%.
• Asian markets have opened on a strong footing today with the Nikkei up 2.3%, well ahead of smaller gains in Chinese markets.
• Local markets in the UAE were mixed. The DFM added 0.15% while the ADX index declined by 0.5%. The Tadawaul slipped by 0.3%.

Commodities

• Oil prices had a strong start to the week with Brent futures up 3.3% to settle solidly back above USD 80/b at USD 82.30/b, prompted by fears of geopolitical escalation in the Middle East. WTI rallied by 4.2% to USD 80.06/b. Both contracts are trading slightly softer in early trade today.
• OPEC revised its oil demand growth forecast for 2024 lower by about 140k b/d based on what it described as “softening expectations for China.” The overall demand forecast is still at 2.1m b/d, well ahead of projections from the IEA which will be updated later this week.