US inflation prints in line with expectations in July

US inflation rose by 2.7% y/y in July, marginally below market expectations and the same pace it printed a month earlier. On a monthly basis, inflation eased to 0.2% in July from 0.3%. Core inflation ticked higher to 3.1% y/y (from 2.9% previously) while on a monthly basis core price accelerated to 0.3%. Overall core goods prices rose by 0.2% m/m though a large proportion of that rise seems to have been on higher car prices. Furniture costs were 0.7% higher m/m while recreational goods were up by 0.4%. The impact of tariffs on inflation data still appears to be modest while core services remain the primary contributor to inflation in the US. Core services prices rose 0.37% m/m in July, up from 0.25% a month earlier. Markets have increased their expectation of a September 25bps cut from the Fed to as much at 96% probability following the release of the CPI data.

Inflation in India slowed to 1.6% y/y in July, down from 2.1% a month earlier and the slowest pace since 2017. Housing and clothing inflation was slower in July while fuel prices rose by 2.7%, marginally up from 2.6% a month earlier. The July print was notably below the 2-6% target band set by the RBI and could help to encourage more cuts from the RBI when it next meets in October. About 11bps of easing are currently priced in for the October 1 meeting.

Türkiye recorded a wider current account deficit than expected in June with the shortfall increasing to USD 2bn from USD 750m a month earlier. Markets had been expecting closer to a USD 1.3bn deficit. Both exports and imports declined m/m in June leaving the goods balance at USD -6.5bn. Net FDI into Türkiye remained positive in June at USD 616m while net portfolio inflows were positive at USD 1.05bn.

Industrial output in Saudi Arabia increased by 7.9% y/y in June with gains in both the mining and quarrying index (which includes oil output) as well as manufacturing. The gain in overall industrial activity was the strongest level since the end of 2022 as oil output increases as Saudi Arabia unwinds output restraint. Oil production in Saudi Arabia increased to almost 9.8m b/d in June from 9.1m b/d a month earlier and will continue to push higher thanks to higher target levels over the next several months.

Bahrain’s economy expanded by 2.7% y/y in Q1 2025, slowing from 3.4% in the previous quarter. Accommodation and hospitality, financial services and construction all recorded strong growth in Q1.

The labour market in the UK performed better than expected in the three months to June with an increase of almost 240k while there was a drop in employment of just 8k in July, a much smaller decline than expected. Wage growth was steady at 5% y/y ex bonuses in the three months ending June while the unemployment rate held at 4.7%, unchanged on the previous print. Markets are assigning a low probability of a cut from the Bank of England at their next meeting in September and are pricing in about 18bsp of easing by the end of the year.

Today’s Economic Data and Events

10:00 Germany CPI inflation, % y/y, July final. Forecast: 2.0%

Fixed Income

US Treasuries gained on the release of the July CPI report as markets expect it will clear the way for the Fed to cut rates in July. Yields on the 2yr UST fell almost 4bps by the close of the day to settle at 3.7308%, fading an even bigger move immediately following the data release. Movement in the 10yr yield was less pronounced with yields closing near unchanged at 4.2888%.

GCC credit was generally higher overnight with stronger bids in high yield and sukuk indexes. Kuwait and Bahrain bonds were the relative outperformers on a regional basis.

FX

The July CPI data from the US pushed the US dollar weaker against most peers overnight. EURUSD added 0.5% to close at 1.1675 while GBPUSD added about the same amount to settle at 1.35. The Japanese yen also strengthened with a drop in USDJPY of 0.2% to 147.84 while USDCHF showed the biggest move among majors with a drop of 0.7% in favour of the franc to 0.8065.

Commodity currencies were broadly higher with AUDUSD up 0.3% at 0.6533 even as the RBA cut rates. USDCAD was more muted, closing near unchanged at 1.3772.

In emerging markets, the Indian rupee was largely unchanged at 87.7125 while the Turkish lira was moderately softer at 40.7285 and the Egyptian pound closed at 48.4352.

Equities

Equity markets bounced in anticipation of a rate cut in September with major US indices all gaining more than 1% overnight. European markets were more muted with less than a 0.1% gain in the EuroStoxx index and a 0.2% rise in the FTSE.

Regional markets closed on a softer footing. The DFM index fell by 0.6% while the ADX 15 was off by a bit less than 0.1%. In Saudi Arabia the Tadawul was lower by 0.2%.

Commodities

Oil prices settled lower overnight as markets anticipate a hardening of US positions toward Russia, particularly in regard to oil exports. Brent futures fell 0.8% to USD 66.12/b while WTI fell by 1.2% to UDS 63.17/b.

OPEC kept its estimate for oil demand in 2025 unchanged at 1.3m b/d with growth coming from both emerging and developed markets. For 2026, the exporters’ alliance upgraded their demand growth outlook marginally by 100k b/d to 1.38m b/d, including accelerations in both segments.

In self-reported data included in the OPEC report, Saudi Arabia estimated it supplied 9.525m b/d to the market in July, including draws from inventories, while its actual production was estimated at 9.201m b/d. The UAE reportedly increased output by 108k b/d to 3.141m b/d.

Gold prices edged higher, up 0.2% at USD 3,348/troy oz while silver pulled stronger, gaining 0.8% to USD 37.91/troy oz. In industrial metals both aluminium and copper edged upward while iron ore futures were modestly higher.