Inflation in the US eases in February

Inflation in the US printed cooler than expected in February with the CPI index rising by 2.8% y/y, down from 3% a month earlier and slower than the 2.9% expected by markets. On a monthly basis CPI inflation rose by just 0.2%, down from 0.5% in January. Core inflation also decelerated to 3.1% on an annual basis for February while the core index rose by 0.2% m/m, down from 0.4%. Food prices contributed to the annual rise in prices, with a particularly acute rise in eggs prices in the US. Core services remain the main drive of prices in the US with shelter the main cause of inflation. There has been no apparent sign of the effect of tariffs on prices in the US so far though they had only be implemented for a few weeks in February and may begin to show up more in the data in coming prints.

The EU and Canada have enacted retaliatory tariffs on the US in response to the imposition of a 25% duty on steel and aluminium imports. The EU’s tariffs cover up to EUR 26bn while Canada’s tariffs are valued at roughly CAD 30bn. US President Donald Trump has pledged to retaliate against the retaliation,

Turkey’s economy recorded a current account deficit of USD 3.8bn in January, smaller than the USD 4.7bn recorded a month earlier, but larger than markets had been expecting. The overall goods and service deficit declined to USD 2.5bn thanks to a dip in import levels. Portfolio inflows returned in January at USD 2.2bn while net FDI inflows were estimated at USD 500m.

Inflation in India printed at 3.6% y/y in January, a seven month low. Food prices have dropped sharply from highs of more than 10% as recently as October to less than 4% in February. Core inflation, however, increased to 4.1% y/y from 3.8% a month earlier. Elsewhere industrial production in India improved to 5% y/y in January from 3.5% at the end of 2024.

Today’s Economic Data and Events

• 14:00 EC industrial production Jan m/m: forecast 0.6%
• 16:30 US PPI final demand m/m Feb: forecast 0.3%
• 16:30 US initial jobless claims Mar 8: forecast 225k

Fixed Income

• An initial positive response to the CPI was quickly faded in US Treasury markets as investors turned toward equities. Yields on the 2yr UST added 4bps to 3.9866% while the 10yr yield rose by 3bps to 4.3124%. Markets are for now holding to three 25bps cuts from the Fed priced in by the end of the year with virtually no chance of a move next week.
• Fitch affirmed its rating on National Bank of Ras al Khaima at ‘BBB+’ with a stable outlook and its ‘A+’ rating on Emirates Islamic Bank, also with a stable outlook.

FX

• Currency markets closed mixed overnight with Euro and Japanese yen both weaker while most other majors managed to rally. EURUSD dipped by 0.3% overnight to settle at 1.0888 while USDJPY ticked up by 0.3% to 148.25. GBPUSD was flat at 1.2963.
• Commodity currencies were more resolutely positive with a 0.5% dip in USDCAD at 1.437 while AUDUSD added 0.4% to 0.6321 and NZDUSD gained 0.2% to 0.5730.

Equities

• Benchmark global equity markets turned to the green last night with a 0.5% gain in the S&P 500 while the NASDAQ stormed away with a 1.2% rise. The Dow Jones, however, dipped by 0.2%. European markets also rallied wit ha 0.9% gain in the Euro Stoxx 50 while the FTSE added 0.5%.
• There was a turnaround in the performance of local equities with the DFM rising by 0.7% overnight and the ADX up by 0.4%. In Saud Arabia the Tadawul closed its trading week with a 0.1% loss.

Commodities

• Oil prices strengthened overnight with 2% gains in both Brent and WTI futures at USD 70.95/b and USD 67.68/b respectively. Commercial crude inventories in the US rose by 1.5% last week, offset by a large draw in gasoline stockpiles. US oil production was marginally higher at 13.58m b/d.
• The US has now imposed tariffs on steel and aluminium flowing into the US, helping to lift Midwest aluminum premiums further in the US. Metals prices were relatively quiet overnight.