16 October 2024
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Inflation in Saudi Arabia picks up in September

Daily Outlook - 16 October 2024

By Edward Bell

Headline CPI inflation in Saudi Arabia accelerated to 1.7% y/y in September, up from 1.6% the previous month. Annual price growth in the kingdom has been quite consistent through 2024 to date, averaging 1.6% over January to September within a range of 1.5% -1.8%. This marks a slowdown from the 2.6% averaged over the same period in 2023 with price pressures easing this year despite strong domestic demand. As has been the trend for several months, the housing sector in Saudi Arabia has been responsible for almost all the headline price growth in the CPI print. Accounting for 20% of the inflation basket (second only to food & beverages), housing & utilities saw annual price growth of 9.3% y/y in September, up 0.6% m/m.

The UK unemployment rate dropped to 4% in the three months to August, down from 4.1% in the prior three-month period. The number of workers in the same period increased by 373k, up from 265k in the previous three-month period. In September, however, total employees on payrolls dropped by 15k. Growth in wages slowed to 3.8% y/y in the three months to August, down from 4% in the previous period while wages ex-bonused cooled to 4.9% from 5.1%. The deceleration in wages growth, down from more than 6% ex-bonuses at the start of the year, will give the Bank of England room to carry on with rate cuts at their next meeting in November where a 25bps cut is 90% priced in.

The ZEW survey of investor confidence in Germany improved in October to 13.1 on the forward -looking assumption, up from 3.6 a month earlier. Easing inflation and lower interest rates from the ECB look to be behind the improvement in the expectations component of the index as an assessment of current conditions worsened to -86.9 from -84.5 a month earlier.

Today’s Economic Data and Events

  • 10:00 UK CPI y/y Sep: forecast 1.9%
  • 11:20 ID BI Rate: forecast 6%

Fixed Income

  • The front end of the US curve reopened yesterday with minimal change, with the 2yr UST yield holding at 3.9454%, down by 1bps. The 10yr UST rallied with the yield down about 7bps at 4.0317%. Raphael Bostic, president of the Atlanta Fed, said that he expected inflation to be “choppy” and that the pace of rate cuts would depend on conditions in both the labour market and with inflation. Markets are pricing in near 100% chance of a rate cut in November.

FX

  • Currency markets closed mixed overnight with the DXY index slightly weaker. EURUSD dropped by almost 0.2% to 1.0893 while GBPUSD rose by 0.1% to 1.3074 even as employment data from the UK suggested the Bank of England was clear to cut rates. USDJPY fell by 0.4% to 149.20.
  • In commodity currencies, USDCAD pulled lower by 0.2% to 1.3775 while AUDUSD dropped 0.3% to 0.6703 and NZDUSD fell by 0.2% to 0.6083.

Equities

  • Equity markets reversed some of the prior day’s strong gains with the Dow Jones down 0.8%, a fall matched by the S&P 500. The NASDAQ was lower by 1%. In Europe, the EuroStoxx 50 index dropped by 1.9% while the FTSE was lower by 0.5%.
  • Markets in Asia have opened heavier this morning with a near 2% decline in the Nikkei and a 0.3% fall in the Hang Seng.
  • Local markets were broadly positive with the DFM up by 0.3% and the Tadawul in Saudi Arabia gaining 0.4%. The ADX, however, fell by 0.1%.

Commodities

  • Oil prices fell a third day running with steep declines in both Brent and WTI. Brent futures fell 4.1% to USD 74.25/ and WTI was lower by 4.4% at USD 70.58/b. Both had dropped further in earlier intra-day trading. The catalyst for the move appeared to be press reports that energy infrastructure would not be dragged into the current conflict in the wider Middle East.
  • The IEA cut its oil demand growth forecast for 2024 by 40k b/d to 0.86m b/d, largely as a result of lower expectations for demand growth in Asia and Africa. For 2025 their demand growth forecast was upgraded to 1m b/d, up 40k b/d from previously. In their monthly oil market report the IEA noted that spare capacity among OPEC+ countries as well as global oil inventories will provided a “buffer” to “oil supply security concerns” and that in the “absence of a major disruption, the market is faced with a sizeable surplus in the new year.”

Written By

Edward Bell Acting Group Head of Research and Chief Economist

Daniel Richards Senior Economist


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