Inflation rises in Saudi Arabia

Inflation in Saudi Arabia rose by 1.9% y/y in October, the strongest gain since August 2023. On a monthly basis inflation rose by 0.3%, the highest monthly print since April this year. Inflation in Saudi Arabia has been relatively benign this year, coming in at an average of just 1.6% for the first 10 months of 2024, down from 2.3% in 2023. The relatively moderate inflation picture comes despite robust levels of non-oil activity in the economy. Housing has been the primary contributor to inflation in the Kingdom this year and in October housing and utilities prices rose by 9.6% y/y and rental prices were up by 11.3% y/y. Restaurant and hotel prices also rose y/y, up by 1.9% while education prices were also higher, up by 1.1% in October. Much of the rest of the inflation basket remains in deflation, however. Transport prices were lower by 3.1% in October while recreation and furnishing costs were also lower y/y. Inflation has recorded an average of 1.6% y/y in Saudi Arabia this year, on track for our estimate of 1.7% for 2024 as a whole.

Producer prices in the US rose by 0.2% m/m in October, an acceleration from the 0.1% recorded a month earlier. On an annual basis producer prices were 2.4% higher. Core PPI rose by 3.1% y/y. PPI has been on a noticeable upswing over the last several months and the October print reverses some of the easing that had been in place since the start of H2. The gain in the PPI may mean that PCE inflation, due out on November 27, will move away from the Fed’s 2% target level.

Fed chair Jerome Powell said that the US economy was “not sending any signals we need to be in a hurry” on lowering rates and that they could take “decisions carefully” on setting policy. Chair Powell noted that as the Fed couldn’t be certain if it was getting close to the neutral rate of interest then it would be appropriate to “slow the pace…to increase the chances we may get this right.” Markets took out much of the rise in pricing for the December FOMC meeting, now pricing in just 60% chance of another 25bps cut.

Initial jobless claims in the US fell by 4k last week to 217k, below market expectations and their lowest level since May. Continuing claims were also lower, falling to 1.87m in the week ending November 2.

Japan’s economy expanded by 0.9% on an annualized pace in Q3, faster than markets had been expecting but a cooler pace from the 2.2% recorded in Q2. Consumption was an outperformer, rising by 0.9% in Q3 compared with an estimate of 0.2% while business investment dropped by 0.2%. Net exports were a drag on growth of 0.4% compared with an expectation of 0.1% growth.

The Eurozone economy expanded by 0.4% q/q in Q3 this year, in line with market expectations. Among the large economies in the bloc, France’s economy recorded a 0.4% q/q expansion while Germany’s moved out of the contraction it recorded in Q2 this year to growth of 0.2%. Italy’s economy was flat q/q while the Netherlands increased by a relatively robust 0.8%. On an annual basis economic activity in the Eurozone accelerated to 0.9% y/y in Q3, up from 0.6% in Q2.

Today’s Economic Data and Events

• 11:00 TU inflation expectations year-ahead Nov
• 11:00 UK industrial production y/y Sep: forecast -1.1%
• 11:00 UK GDP y/y Q3: forecast 1%
• 17:30 US retail sales m/m Oct: forecast 0.3%
• 18:15 US industrial production m/m Oct: forecast -0.4%

Fixed Income

• US Treasury yields pulled higher again after Fed Chair Jerome Powell’s comments that the FOMC didn’t need to be in a rush on easing rates. Yields on the 2yr UST were higher by about 6bps at 4.3448%. The 10yr yield, however, dipped marginally to 4.4354%.
• Bond markers closed softer overnight with declines across high-yield and emerging market names. GCC credit also dipped across all geographies and sectors.

FX

• The US dollar continued its pathway higher with a 0.2% gain in the DXY index. EURUSD fell 0.3% to 1.053 while GBPUSD dropped to 1.2666, down 0.3%. USDJPY added 0.5% to 156.27 and has edged higher today even on the back of the positive GDP data.
• Commodity currencies all weakened by about 0.5% across CAD, AUD and NZD.

Equities

• US equity markets pushed lower overnight, fading some of their post-election surge. The Dow Jones fell 0.5% while the S&P was lower by 0.6% along with a similar sized drop in the NASDAQ. European markets fared better with the EuroStoxx index up almost 2% while the FTSE rallied 0.5%.
• Local markets closed weaker with the DFM down by about 0.1% and a similar sized loss for the ADX. The Tadawul dropped by 1.2%.

Commodities

• Oil prices pushed higher for a third day running overnight with a 0.4% gain in both Brent and WTI futures to close at USD 72.56/b and USD 68.70/b respectively. Data from the EIA showed a 2m bbl build in crude stocks while gasoline inventories fell by 4.4m bbl along with draws across the rest of the barrel. Oil production in the US dipped lower by 100k b/d to 13.4m b/d.
• The IEA revised its oil demand growth forecast for 2024 higher by 60k b/d to 920k b/d. OECD demand growth is still anticipated to be flat y/y while non-OECD demand will account for all of the production increase. In 2025, demand growth will be moderately higher at 990k b/d with emerging economies again representing all of the increase. Non-OPEC+ supply will increase by 1.5m b/d this year and next as producers aren’t constrained by OPEC+ production targets.