PCE inflation in the US picks up

The PCE price index in the US rose by 2.3% y/y in October, faster than the 2.1% recorded a month earlier. The core PCE index also accelerated, up 2.8% y/y in October from 2.7% a month earlier. The pick up in the Fed’s preferred measure of inflation was expected based on the acceleration in CPI and PPI inflation in recent prints. The data follow the minutes of the November FOMC meeting where Fed policy makers advocated a gradual pace of rate cuts. Personal spending rose by 0.4% in October and was up by 0.1% when adjusted for inflation while personal income ticked up to 0.6%.

The second estimate of US GDP for Q3 confirmed the economy grew by 2.8% q/q annualized with consumer spending rising by 3.5%, slightly cooler than the initial estimate. Residential investment fell by 5%, nearly the same as the first estimate, while non-residential investment was revised higher to growth 3.8%.

Initial jobless claims in the US were flat in the week ending November 23 to 213k, below market expectations. Continuing claims for the prior week did increase, up by 9,000 to 1.907m and their highest level for the year.

ADNOC is planning to establish an energy investment firm focusing on natural gas, chemicals and alternative energy. According to the company the new fund named XRG will have a value of USD 80bn and will aim to be a major chemicals producer, according to the statement from ADNOC.

Today’s Economic Data and Events

• 17:00 GE CPI Nov y/y: forecast 2.3%
• SA SAMA net foreign assets Oct

Fixed Income

• US Treasuries closed higher in the run up to the Thanksgiving holiday in the US. Yields on the 2yr UST dropped by almost 3bps to 4.2272% while the 10yr UST yield was lower by 4bps at 4.2634%. Markets are now pricing in the December FOMC meeting at about a 2/3rds chance of another 25bps cut.
• Bahrain priced a USD 1.25bn 7yr sukuk at 5.875%. Order books were greater than USD 3.5bn

FX

• The dollar dropped overnight with the broad DXY index lower by almost 0.9%. EURUSD gained some vigour, up by 0.7% at 1.0566 while USDJPY was the main driver of FX moves. The pair was lower by 1.3% with the yen strengthening to 151.09 against the dollar. GBPUSD added 0.9% to 1.268.
• Commodity currencies also showed some strength with NZDUSD leading the way even after the RBNZ cut rates by 50bps overnight. The kiwi rose by 1% to 0.5894. AUDUSD was higher by 0.3% while USDCAD ticked lower by 0.2%.

Equities

• Equity markets in the US closed weaker overnight with the Dow Jones down 0.3%, the S&P 500 off by 0.4% and the NASDAQ declining by 0.6%. Markets will be closed today for a public holiday in the US.
• European markets were softer with the broad Euro Stoxx index down by 0.6% while the FTSE managed a gain of 0.2%.
• In the region, the DFM fell by 0.5% while the ADX was lower by 0.2%. The Tadawul was lower by 1.2%.

Commodities

• Oil prices were flat overnight with Brent at USD 72.83/b and WTI holding at USD 68.72/b. Trading is likely to be limited thanks to the public holiday in the US later today. EIA data published out overnight showed a 1.8m bbl draw in commercial crude inventories while gasoline stockpiles were higher. Crude oil production rose by almost 300k b/d to 13.5m b/d while implied demand was higher, up to 20.5m b/d.