Delayed US inflation print comes in softer than anticipated

The delayed US inflation print for September was released on Friday, coming in at 3.0% y/y, up from 2.9% in August but still lower than the predicted 3.1%. Prices were up 0.3% on the previous month, down from 0.3% previously and the slowest pace in three months. Core CPI was in line with the headline measure on an annual basis, but slightly slower monthly at 0.2%. The softer-than-expected inflation figures have further cemented expectations for a cut from the Federal Reserve when it holds its rate-setting meeting later this week, and once more this year at the December meeting. The data is the first major release since the government shutdown began, and with no sight in end the White House has warned that the October inflation print likely will not come.

The S&P Global PMI October survey for the US was also released Friday, with the composite reading hitting 54.8, markedly higher than September’s 53.9 and the predicted 53.5. This was the second-strongest reading of the year, with new orders in particular boosting the index. Both manufacturing and services were comfortably above the neutral line, at 52.2 and 55.2 respectively, suggesting a solid start to the fourth quarter.

There was mixed news around global tariffs over the weekend. There was apparent progress between the US and China, with negotiators for the two sides saying that agreement had been reached on a number of issues ahead of the meeting between presidents Xi and Trump this week. On the other hand, developments with Canada were not so positive as President Trump threatened an additional 10% on its tariff rate in response to an advert criticising his tariff policy from the Ontario government.

Dubai welcomed a record 12.54mn visitors over January to August, representing y/y growth of 5.1%. August saw 1.37mn overnight visitors, up 4.6% on August 2024. Western Europe accounted for the largest share of visitors over the year to date at 21%, up 12.2% on last year. Visitors from the GCC accounted for 17%, while Russia and the CIS and South Asia made up 14% each. South Asian visitors had previously accounted for a larger share but more stringent visa rules have seen the number drop 11.1% y/y over the year-to-date.

There was positive data from the UK on Friday, which make a cut from the Bank of England at its November meeting less likely after odds had shortened after the unexpectedly static inflation print released earlier in the week. The headline retail sales measure was up 0.5% m/m in September, far stronger than the predicted 0.4% drop, while the previous month was revised up to 0.6%, from 0.5% previously. Stripping out auto fuel, growth was 0.6%, compared with a predicted 0.6% fall. September sales were the highest in three years. There was also an improvement in the S&P Global PMI survey for October, with manufacturing seeing a particular rise to 49.6, up from 46.2 previously, while services ticked up to 51.1, from 50.8 in September.

The Eurozone also saw an improvement in its PMI survey for October. The composite measure rose to 52.2, up from 51.2 previously and higher than the consensus prediction of 51.1. This was the strongest reading for the index since May last year, boosted by a strong services performance in Germany in particular. France, however, returned weak results in the midst of political uncertainty. Services PMI for the bloc was at 52.6, from 51.3 previously, while manufacturing was neutral at 50.0, up from 49.8 in September.

Today’s Economic Data and Events

13:00 Germany IFO business climate, October. Forecast: 88.0

16:30 US durable goods orders, % m/m September. Forecast: 0.3%

Fixed Income

• The lower-than-expected inflation print initially saw sharp gains for US treasuries on Friday, but the robust PMI survey results saw these eroded later in the session, with yields on the 2yr ending down by less than 1bps, compared to around 5bps earlier. Over the week, the 2yr yield closed higher by 2bps, ending Friday at 3.4799%, while the 10yr closed down by less than 1bps at 4.0007%.
• It is a busy week for major central banks. The most closely followed will be the US, where a 25bps cut to the Fed funds rate is anticipated on Wednesday, which would take the upper bound down to 4.0%. The Bank of Japan is expected to leave the target rate on hold at 0.50% on Thursday, while the ECB is also expected to leave rates on hold, with the benchmark deposit facility rate at 2.00% currently. The Bank of Canada is also expected to remain on hold, at 2.15%.

FX

• The dollar spot ended the week higher, gaining 0.5% against its basket of currencies. Much of the gains were won against the yen which sold off by 1.5% w/w to end Friday at 152.86 as Takaichi was confirmed as prime minister, raising expectations of a push for growth.
• Both the EUR and the GBP also lost ground against the greenback over the week, though to a lesser degree. The Euro fell 0.2% w/w to 1.1627, while GBP ended the week at 1.3311, down 0.1%.

Equities

• US equity markets were boosted by the softer-than-expected inflation print released on Friday, with the S&P 500 closing up 0.8% on the day and 1.9% for the week, the second weekly gain in a row. The NASDAQ closed Friday up 2.3% w/w.
• Locally, the DFM added 0.5% on the week after strong gains on Friday. The ADX closed up 0.7% while Saudi Arabia’s Tadawul ended the week down 0.7% on Thursday. In Turkey, the Borsa Istanbul closed up 3.1% on Friday after a court case against the opposition CHP party was dismissed, translating into a 7.2% w/w gain.

Commodities

• Oil prices rose sharply last week after three weeks running of declines previously, with further sanctions against Russian energy from the US raising supply concerns.
• Brent futures closed up 7.6% w/w at USD 65.9/b, while WTI ended the week at USD 61.5/b, up 6.9%.

• After a sharp drop of 5.3% on Tuesday, gold prices settled lower for the week for the first time since mid-August. Spot gold closed at 4,113.1/troy oz on Friday, down 3.3% w/w.