Consumer sentiment remains weak in the US

Consumer sentiment in the US deteriorated in November according to the University of Michigan with its benchmark index dropping to 60.4 from 63.8 a month earlier. The slide in consumer sentiment was worse than markets had been expecting and was the lowest print since May this year. Both current and future expectations declined in the survey but one-year ahead inflation expectations rose to 4.4% and long-term inflation expectations (5-10 years ahead) rose to 3.2%, their highest since 2011. Persistently high inflation expectations, even as the headline CPI index has moved lower, will likely keep a hawkish edge to the Fed at upcoming meetings and commentary.

The UK recorded flat q/q GDP growth in the third quarter, moderately better than the predicted -0.1% but still weaker than the 0.2% expansion in Q2 and the worst growth print since the contraction in Q3 last year. On an annual basis, GDP was up 0.6% y/y, bolstered by base effects from that contraction. Services declined 0.1% q/q, offsetting 0.1% growth in construction and no change in manufacturing. The September growth print was also somewhat stronger than anticipated as it rose 0.2% m/m but the August print was revised down to 0.1% from 0.2% initially. The GDP data indicates that the tight monetary environment is weighing on growth as business investment declined 4.2% q/q while private consumption fell 0.4%. Chancellor of the Exchequer Jeremy Hunt said of the results that ‘high inflation is the single greatest barrier to economic growth’. CPI inflation was still at an elevated 6.7% y/y in September but is expected to see a material fall to 4.8% in the October print this week as the fall in the energy price cap feeds through.

Inflation in Egypt rose by 35.8% y/y in October, down from 38% a month earlier according to urban measure of CPI inflation. On a m/m basis, the pace of inflation eased to just 1% from 2% in September. Inflation has risen sharply in 2023 on the back of currency volatility and acute inflation in food prices. The food and beverages component of the CPI rose by 71% y/y. Furnishings and household goods prices also rose strongly, up almost 39% y/y in October.

Saudi Arabia plans USD 25bn of investment into African nations over the next five years according to comments from Crown Prince Mohammed bin Salman. The investment would include export insurance as well as development financing. Press reports did not indicate which countries would receive the investment. The crown prince also said that Saudi Arabia would increase its number of embassies across Africa to 40 from 25 at present.

Today’s Economic Data and Events

• 11:00 TU Current account balance Oct
• 16:00 IN CPI Oct y/y: forecast 4.8%

Fixed Income

• US Treasuries had a choppy close to the trading week with a pull higher in yields thanks to elevated inflation expectations in the University of Michigan Survey. Yields on the 2yr UST added 4bps on Friday to close the week at 5.0623% while the 10yr UST yield added 3bps to settle at 4.6518%.
• Raphael Bostic, president of the Atlanta Federal Reserve Bank, said that inflation could get to target levels without the Fed needing to raise rates further. Bostic said it was “something that is going to take some time” and that the impact of tightening will be felt when firms with existing fixed rate loans see their “debts roll over.”
• Moody’s changed its outlook on the US sovereign rating to negative from stable and affirmed the rating at ‘Aaa’. Moody’s cited debt affordability for the US government when deficits are roughly 6% of GDP. Fitch downgraded the US in August while S&P lowered its rating on the government in 2011.
• Fitch affirmed their ‘BB-‘ rating on Jordan with a stable outlook.

FX

• The US dollar rose against all peers last week with the strongest weekly gain since September. EURUSD managed to pull back somewhat on Friday, up 0.2% but still closed lower on the week at 1.0686. USDJPY steadily moved in favour of the dollar all last week with the pair up 0.1% on Friday at 151.52, taking the weekly move 1.4%. GBPUSD dropped 1.2% over the week, closing at 1.2227.
• Commodity currencies also stumbled. USDCAD steadied on Friday but was still about 1% higher on the week as a whole with the pair at 1.3801. AUDUSD dropped 2% last week to 0.6361 while NZDUSD fell almost 1.8% to 0.5891.

Equities

• Benchmark equity indexes closed the week mixed with US markets higher and European equities lower. The Dow Jones added 1.2% on Friday while the S&P gained 1.6% and the NASDAQ was up by a healthy 2%. In contrast, the FTSE dropped 1.3% on Friday while the Eurostoxx index fell 0.8%.
• Asian equity markets were somewhat mixed over the week last week. More lacklustre data out of China combined with the cautious tone from Jerome Powell to weigh on the Hang Seng which closed down 2.4% w/w. On the mainland the Shanghai Composite managed to close up 0.3% over the week despite a 0.5% drop on Friday. In Japan, the Nikkei added 1.5% w/w, supported by a weaker yen.
• Within the region, Saudi Arabia’s Tadawul ended the week down 0.1% on Thursday, while Egypt’s EGX30 closed up a further 7.4% w/w and is now up 66.5% ytd as the index serves as an inflation hedge.

Commodities

• Oil prices dropped for a third week running as markets grow more anxious about the demand outlook. Brent futures fell 4% last week to USD81.43/b while WTI fell 4.2% to USD 77.17/b. Time spreads across the curve also weakened last week with the 1-2 month spread in WTI falling to a contango and holding just barely above USD 0/b.
• The US drilling rig count dropped by a net 2 rigs last week according to Baker Hughes data. The drop was down to conventional drilling though as horizontal drilling rigs actually added 2 last week.
• Metals prices fell in tandem with oil last week with LME aluminium and copper forwards both lower by almost 2%. Gold also gave back some of its recent haven gains, falling by 2.6% to USD 1,940.20/troy oz. Iron ore, however, was more robust in adding 2.3% last week to USD 128.31/tonne.