UK inflation cools in September

Inflation in the UK decelerated in September, setting the Bank of England up for a rate cut when it meets next month. Headline CPI cooled to 1.7% y/y in September, down from 2.2% a month earlier. On a monthly basis, inflation was flat. For both the annual and monthly prints, UK inflation was slower than expected. Core inflation also slowed, falling to 3.2% y/y from 3.6% a month earlier. An outright decline in transport costs helped to limit the monthly pace of inflation while on an annual basis housing and household costs were lower year/year. Markets are now pricing in slightly more than a 25bps cut at the November 7 Bank of England meeting and almost fully pricing in another cut in December.

Markets will be watching for the European Central Bank to set policy today where another 25bps cut to policy rates is expected. The ECB has already cut rates twice this year to take the deposit rate to 3.5% and another two more cuts by the end of the year are more than 100% priced in by markets. Inflation in the Eurozone has moved below 2% as of the September flash estimate, abetted by declining energy prices, while PMI data for the bloc have suggested a stagnating economy in aggregate. We expect another 100bps of cuts in 2025.

Today’s Economic Data and Events

• 15:00 TU One-week repo rate Oct 17: forecast 50%
• 16:15 EC ECB Deposit facility rate Oct 17: forecast 3.25%
• 16:30 US retail sales m/m Sept: forecast 0.3%
• 16:30 US initial jobless claims Oct 12: forecast 260k
• 17:15 US industrial production m/m Sept: forecast -0.1%
• Central Bank of Egypt deposit rate: forecast 27.25%

Fixed Income

• US Treasuries closed marginally higher overnight with little data to support a major move. Markets will likely increasingly fixate on political developments in the US with the presidential and congressional elections only a few weeks away.

FX

• The US dollar pitched higher against peers overnight with EURUSD down 0.3% at 1.0862, GBPUSD off by a strong 0.6% to 1.299 as inflation data clears the way for the Bank of England to cut rates and USDJPY rose by 0.3% to 149.64.
• Commodity currencies were mixed with USDCAD down by 0.2% at 1.3751 while AUDUSD fell 0.5% to 0.6667 and NZDUSD dropped 0.4% to 0.6057.

Equities

• US equity markets had a positive session with a gain of 0.8% in the Dow Jones and a 0.5% rise in the S&P 500 while the NASDAQ showed a more muted 0.3% gain. European markets were more uneven as the FTSE rose by 1% while the EuroStoxx dropped by 0.8%.
• Local markets had a positive close with the DFM in Dubai up by 0.4% and the ADX gaining 0.5%. The Tadawul rose by 0.3%.

Commodities

• Oil markets seemed to pause for breath overnight with little change in Brent markets at USD 74.22/b and WTI dipping by 0.3% at USD 70.39/b. Data from the API showed a draw of 1.6m bbl in US commercial stockpiles last week along with sizeable draws in gasoline and distillate inventories.