Dubai CPI was unchanged at 3.3% y/y in December

Dubai CPI rose 0.6% m/m in December, taking the annual rate to 3.3% y/y, unchanged from November. Food prices declined -0.2% m/m (4.2% y/y) last month, which helped to offset a 0.5% m/m (6.1% y/y) rise in housing and utilities prices. Transport costs rose 0.4% m/m but were down -5.8% y/y, while other services costs including recreation, hospitality and personal services also increased in the final month of 2023.

Average CPI in Dubai for 2023 came in at 3.3%, slightly below our 3.5% forecast, and down from the 4.7% average recorded in 2022. Housing and household durables saw the fastest price growth on average last year at 5.7% and 8.1% respectively, sharply higher than in 2022, and we expect housing to be a key driver of inflation again in 2024. Food inflation moderated to 4.6% on average last year, down from 6.7% in 2022, while services inflation slowed sharply. The main driver of disinflation last year however was transport costs, which declined -4.9% on average, following a 22% increase in 2022, largely reflecting lower fuel prices. Overall, we expect inflation to moderate further to average 3.0% this year.

The IMF concluded its annual Article IV with Oman and commended the authorities on prudent fiscal management, which has allowed the stock of central government debt to decline to 38% of GDP in 2023 from 68% in 2020. Non-oil sector growth accelerated last year to 2.1% according to the Fund and is forecast at 2.5% in 2024.

Japan’s composite PMI rose to 51.1 in the preliminary January reading, up from 50.0 in December. Both the manufacturing and services indices improved but manufacturing remains in contraction territory at 48.0. The services PMI accelerated to 52.7 from 51.5 in December.

Today’s Economic Data and Events

13:00 Eurozone flash composite PMI (Jan), forecast 48.0

13:30 UK flash composite PMI (Jan), forecast 52.1

18:45 Bank of Canada rate decision, forecast 5.0%

18:45 US flash composite PMI (Jan), forecast 51.0

Fixed Income

• US yields moved mostly higher on Tuesday despite little in the way of macro data releases. The 2y yield slipped to 4.37% from 4.39% but the 10y yield rose 2bp to 4.13% and the 30y rose 4bp to 4.36%. The 30y yield ticked higher in Asian trading this morning to its highest level this year.
• Benchmark 10y yields rose across the board in Europe yesterday with 10y Gilts up 8.2bp to 3.98% and Bunds up 6.1bp to 2.35%.

FX

• The USD index gained 0.3% on Tuesday with EUR and CHF losing the most ground among the majors. EUR declined another -0.2% yesterday while CHF was down -0.1%. CHF has weakened -3.3% since the start of the year. SNB President said on Tuesday that while a stronger franc had helped to lower inflation in Switzerland it had also “hurt” companies. JPY gained for the second day in a row after the BoJ signalled it had increasing confidence that inflation could be sustained at 2%.
• The commodity currencies weakened against the dollar on Tuesday, with NZD down -0.5%.

Equities

• US equities rebounded late in the trading session yesterday, allowing the S&P500 and the Nasdaq100 to close 0.3% and 0.4% higher respectively. The DJIA close down a quarter percentage point. European indices closed largely in the red on Tuesday, with the EuroStoxx50 down -0.3%, along with CAC40 and the DAX. Chinese markets are trading higher this morning with the Hang Seng up 1.8% as of this writing.
• Local equity markets were mixed on Tuesday, with the DFMGI closing 0.6% higher while ADXGI closed -0.3% lower. The Saudi Tadawul ASI was broadly unchanged.

Commodities

• Oil prices gave back some of Monday’s gains yesterday as concerns over weak demand outweigh geopolitical risks in the Middle East. Brent closed down -0.6% on Tuesday while WTI lost -1.1%.
• API reported a 6.67mn bbl decline in US crude inventories last week.