Saudi Arabia inflation ticks up modestly in June

CPI inflation in Saudi Arabia ticked up modestly to 2.3% y/y in June, up from 2.2% the previous month. The primary driver of headline price growth remained housing & utilities, though this did slow to a 30-month low of 6.5%. Food & beverages inflation also slowed last month, dipping to 1.5% from 1.6% in May. The slight uptick in headline inflation last month was driven by an acceleration in tobacco inflation and a more modest deflationary print for clothing & footwear, for which prices were down 0.6% y/y compared to the 0.9% fall recorded in May. Inflation has averaged 2.2% over H1 and we maintain our forecast of 2.0% for 2025 as housing price pressures continue to ease.

Headline CPI inflation in the US advanced 0.3% m/m in June (in line with expectations) and 2.7% annually (slightly above the 2.6% expectation). Underlying inflation rose less than expected for a fifth consecutive month, with the core CPI (excluding food and energy) increasing 0.2% m/m below the 0.3% forecast and 2.9% y/y, matching estimate. Declines in new and used car prices helped offset sharp rises in tariff-exposed categories like toys, appliances, household furnishings, sports equipment, furniture, and apparel, where core goods prices (excluding cars) surged 0.55%, the largest monthly gain since November 2021. This indicates emerging pass-through of costs from President Trump’s levies on major trade partners, though broader inflation remains tame five months post-imposition, with no widespread spikes as companies mitigate effects via inventory stockpiling or margin absorption. This mixed report divides Federal Reserve policymakers on tariffs’ potential for one-time shocks versus persistent impacts, likely leading to unchanged rates at the upcoming meeting but possible larger cuts in September. Trump used the data to urge the Fed for immediate rate reductions via social media.

President Trump announced a preliminary trade deal with Indonesia, the first with over 20 trading partners notified last week of impending tariffs, under which the Southeast Asian nation will pay a 19% tariff on its exports to the US—down from a threatened 32%—while US exports to Indonesia face zero tariffs, granting American ranchers, farmers, and fishermen “complete and total access” to Indonesia’s market of over 280 million consumers. Trump, after speaking with Indonesian President Prabowo Subianto, described the agreement as a “good deal for both parties” that provides the US “full access to Indonesia, everything,” including its strengths in copper (subject to a 50% US levy) and critical minerals. In a subsequent Truth Social post echoed across platforms, Trump detailed Indonesia’s commitments to purchase 15bn USD in US energy, 4.5bn USD in American agricultural products, and 50 Boeing jets, many of them 777s. He hinted at similar upcoming deals, including with India, amid broader tariff impositions on global partners.

Today’s Economic Data and Events

10:00 UK CPI: Forecast 3.4%

16:30 US PPI YoY: Forecast 2.5%

Fixed Income

• US Treasuries displayed modest weakness amid lingering trade uncertainties, with the 10-year yield climbing 2bps to 4.43%. The 2-year yield rose by about 1bps to close at 3.8998%. Markets have pared back rate cut expectations for the rest of this year with fewer than two 25bps cuts now fully priced in by the end of 2025.
• The Bloomberg GCC Sovereign Index hit a historically low point of 80 bps with UAE and Oman sovereign spreads reaching new lows in July, while the GCC Quasi Index is 5 bps away from that claim. GCC Credit is also leading global indexes as the region is quietly sidelined from tariff effects. Quasi Issuance is expected to outpace sovereigns in H2, with total sovereign and quasi issuance projected to surpass USD 80 bn in 2025.

FX

• The US dollar extended its gains against peer currencies at the start of the week with a 0.2% rise in the DXY index. Much of the dollar strength was concentrated in USDJPY which rose by 0.8% to 147.43 while EURUSD was lower by 0.1% to 1.1689. GBPUSD also showed weakness overnight with a 0.6% loss to 1.3493.
• In emerging markets, USDTRY pushed higher to 40.1747 while Indian rupee also depreciated with USDTRY up 0.2% at 85.8025.

Equity Markets

• The S&P 500 advanced 0.14% to close at 6,268.56, the Nasdaq gained 0.18% to 20,677.80, and the Dow Jones declined 1% to 44023.29. European markets closed in the red with the EuroStoxx declining 0.3% and the FTSE 100 down 0.66%.
• Locally, both ADX General and DFMGI rose 1% to 5,914.05 and 10,150.65. In Abu Dhabi, Abu Dhabi Commercial Bank PJSC contributed the most to the index gain, increasing 7.6%. Multiply Group PJSC had the largest increase, rising 7.7%. In Dubai, Emirates NBD Bank PJSC contributed the most to the index gain and had the largest move, increasing 5.2%.
• Saudi Arabia’s Tadawul closed down 1%.

Commodities

• OPEC kept its demand growth estimate for 2025 unchanged at 1.3m b/d with total demand at an average of 105.13m b/d this year. For 2026, OPEC expects a similar pace of demand growth with global oil demand reaching 107.52m b/d by Q4 2026. The demand growth forecast from OPEC stands in sharp contrast to the IEA which projects just 700k b/d of demand growth this year.
• Based on direct communication to OPEC, Saudi Arabia reported supply to the market of 9.36m b/d and production of 9.75m b/d. Saudi Arabia has said the distinction between the two values relates to oil that is freely accessible versus some production that went into stockpiles.
• Brent crude closed at USD 68.90/b down 0.45%, while WTI settled at USD 66.82/b down 0.24%.

• Gold edged down 0.72% to USD 3,334.92 per ounce and silver declined 1.64% to USD 38.105.