US retail sales surprise to the upside ahead of Fed decision

US retail sales grew 0.7% m/m in November, higher than the predicted 0.6%, while October’s reading was revised up to 0.5%, from 0.4% previously. Stripping out automotives and gas, however, growth came in below expectations at 0.2%, in line with the previous month and missing the predicted 0.4%. Meanwhile, industrial production fell 0.1% m/m in November, missing the predicted 0.3% growth but beating the previous month’s 0.4% contraction. This marked the third consecutive month of lower output, with utilities and mining driving the fall, while manufacturing logged a disappointing 0.2% m/m growth after a 0.7% fall in October.

CPI inflation in Canada came in slightly lower than expected for November, at 1.9% y/y (compared with expectations that it would remain at 2.0% for a second month running) and 0.0% m/m, down from 0.4% previously. This was the second time in three months that headline annual inflation came in below the central bank’s target rate, giving credibility to the aggressive monetary easing policy stance the bank has adopted.

UK labour market data released yesterday showed a surprise uptick in wage growth, raising questions about the pace by which the Bank of England will be able to cut rates next year. Average weekly earnings for the three months to October were up 5.2% y/y, up from an upwardly revised 4.4% the previous month and compared with a predicted 4.6%. The unemployment rate meanwhile remained at 4.3%. The BoE is meeting this Thursday, with a hold at 4.75% expected.

Germany saw mixed results from its monthly survey releases yesterday. The IFO business climate survey fell to 84.7 on the headline, down from 85.6 in November, with the deterioration coming from the expectations component. This fell to 84.4, down from 87.0 and missing the predicted 87.5, with the political uncertainty in Germany likely contributing to the decline. On the other hand, the current assessment saw a modest improvement, rising to 85.1 from 84.3 previously. Investors were a little more sanguine about the coming months, with the expectations component of the ZEW survey rising to 15.7, from 7.4 in November,

Money supply in the UAE was up 15.7% y/y in September, down from 16.6% the previous month and compare with a ytd average of 16.3%.

Today’s Economic Data and Events

11:00 UK CPI inflation, % y/y, November. Forecast: 2.6%

23:00 US FOMC rate decision. Forecast: 4.50%

Fixed Income

• There was little change in USTs once again by the close on Tuesday, with markets looking ahead to the FOMC decision expected 11pm time tonight UAE time. We expect a 25bps cut from the Fed, with a market pricing probability currently at 95%.
• Yields on both the 2yr and the 10yr were changed by less than 1bps, with the 10yr up very marginally at 4.3987%, while the 2yr closed slightly lower at 4.2447%.
• Other central banks setting rates today include Thailand and Indonesia. Chile cut by 25bps in the early hours UAE time.

FX

• The dollar index resumed its upwards trend yesterday, although currency moves were fairly muted ahead of the FOMC tonight and the BoE and BoJ tomorrow. The dollar index closed up by less than 0.1% against its basket of peers.
• Political uncertainty in Canada has weighed on the loony which weakened 0.5% against the USD yesterday with the spot price now at 1.4318, the softest since early 2020. Commodity currencies were weak generally yesterday, with both the NZD and the AUD also closing 0.5% weaker.
• GBP gained 0.2% yesterday to close at 1.2710 as strong wage growth data raised questions over the BoE’s cutting path. EUR closed down 0.2% at 1.0491 as weak data out of the single currency bloc continues.

Equities

• The higher than expected retail sales growth in the US contributed to a sell-off in equities yesterday, with all three benchmark indices closing lower. The NASDAQ, the Dow Jones, and the S&P 500 fell 0.3%, 0.4%, and 0.6% respectively.
• Locally, the DFM had another day of robust gains, closing up 0.6%. The ADX closed 0.2% lower while Saudi Arabia’s Tadawul ended the day down 1.2%.

Commodities

• Oil prices fell for the second day running yesterday, with Brent futures ending the day 1.0% lower at USD 73.2/b, while WTI fell 0.9% to USD 70.1/b.
• Both benchmarks have seen modest gains in early trading today after data from the US indicated a fall in stockpiles. The weekly API report stated that crude inventories declined by 4.7mn bbl last week.