US retail sales beat expectations

US retail sales notched up a third consecutive month of growth as they expanded 0.6% m/m in August, matching the July pace after that as revised up from 0.5% initially. This was far stronger than the predicted 0.2% expansion, and core growth was even stronger – stripping out autos and gas, the m/m expansion was 0.7%, up from 0.3% previously. The growth was broad based, with nine out of 13 categories seeing stronger sales compared with the previous month, including restaurants & bars, the only service sector included in the figures and which grew 0.7% also. Industrial production also beat expectations in August as it expanded 0.1% m/m, compared with the 0.4% contraction recorded in July. Manufacturing output was up 0.2% m/m, and stripping out autos factory output was up 0.1%.

Headline CPI inflation in Dubai slowed to 2.4% y/y in August, down from 2.9% the previous month. This marked the first deceleration in annual price growth in four months. On a monthly basis, prices were up 0.1%, compared with a 0.4% rise logged in July. Housing & utilities inflation slowed to 6.1%, the slowest pace in 20 months and the sixth straight disinflationary print. Transport saw deflation of 3.5% y/y in August, a modestly steeper fall in prices than the 3.4% in July but still a smaller drag than the 7.4% fall in June. Clothing & footwear inflation was at 0.4% y/y in August, down from 1.0% previously, restaurants & hotels inflation slowed to 0.4%, from 0.7% in July, while food & beverages prices were down 0.4% y/y in August, from 0.4% inflation in July.

Today’s Economic Data and Events

10:00 UK CPI inflation, % y/y, August. Forecast: 3.8%

17:45 Bank of Canada rate decision, %. Forecast: 2.50%

22:00 US FOMC rate decision, upper bound, %. Forecast: 4.25%

Fixed Income

• US Treasuries saw further gains yesterday as expectations of a Fed rate cut are nailed on, with the stronger-than-expected retail sales data doing nothing to change that.
• Yields on the 2yr closed 3bps lower at 3.5003%, while the 10yr yield ended the day down 1bps at 4.0279%.

FX

• The dollar index continued to weaken against its peers as rate-cut expectations heightened, closing down 0.7% on the day.
• The Euro saw particularly strong gains, hitting a four year high and closing up 0.9% against the USD to 1.1867, boosted by diverging monetary policies and better-than-expected ZEW survey data from Germany in the day. GBP added 0.4% to a two-month high, closing at 1.3647.

Equities

• US equities saw mild losses yesterday, with investors waiting to see the outcome of tonight’s meeting, and possibly paring bets on bigger cuts following the solid retail sales data.
• The NASDAQ and the S&P 500 both closed down 0.1%, while the Dow Jones ended the day 0.3% lower.
• Locally, the DFM closed 0.7% lower while the ADX added 0.3% and Saudi Arabia’s Tadawul ended up 0.9%. The Borsa Istanbul continued to climb following the court case postponement earlier in the week, closing up 1.7%.

Commodities

• Global oil prices continued to climb higher yesterday with the focus still on the potential impact of mooted sanctions on supply.
• Brent futures added 1.5% to close at USD 68.5/b, while WTI closed up 1.9% at USD 64.5/b.