Eurozone inflation rose 2.1% in August

Eurozone inflation jumped to 2.1% in August, breaking above the European Central Bank’s 2% target for the first time since April and casting doubt on potential interest rate cuts before year-end. The flash estimate exceeded economist forecasts and marked an increase from July’s 2% reading. The inflation spike was primarily driven by higher prices for food, alcohol and tobacco, which rose 3.2% y/y. Core inflation, excluding these volatile categories, remained steady at 2.3% for the fourth consecutive month. Services inflation, a key ECB indicator, fell to 3.1%, its lowest level since March 2022.

US manufacturing contracted for the sixth consecutive month in August, with the ISM index at 48.7, below the 50 expansion threshold despite improving from July’s 48. Factory output plunged 3.6 points to 47.8, returning to contraction after three months of growth. Employment remained near pandemic lows. ISM’s Susan Spence cited “weak demand overall, still due to tariff uncertainty,” noting 69% of manufacturing GDP remains in contraction. However, positive signals emerged. New orders expanded for the first time this year, surging 4.3 points to 51.4 in the largest monthly gain since early 2024. Raw material prices fell to 63.7, the lowest since February, suggesting tariff-induced volatility may be stabilizing.

Today’s Economic Data and Events

18:00 US JOLTS Job Openings, July. Forecast: 7382k

18:00 US Factory Orders July. Forecast: -1.3

Fixed Income

• The 2yr yields rose 1bps point to 3.6495 and the 10yr yields rose 2bps points to 4.2809
• UK markets suffered a fresh selloff on Tuesday, with the yield on long-dated bonds hitting the highest since 1998. The 30-year gilts rose 8bps to 5.72%.
• Saudi Arabia is pricing a USD benchmark sukuk in two tranches. A 5yr tranche is set to price at +95 while a 10yr is being priced at the +105 area.
• APICORP is pricing a USD 5yr bond at mid-swaps +85.
• Arab National Bank priced a USD 750m sustainable sukuk at 6.4%.
• CBQ has mandated banks for a USD 5yr benchmark bond.
• Sobha Realty is pricing a USD 5yr green sukuk.

FX

• The dollar index rose 0.6% to 98.397. The dollar made it’s biggest gain against the pound that dropped 1.1% to 1.3394.
• The Euro rose 0.6% to 1.164.
• The Japanese yen depreciated 0.8% to 148.36.

Equities

• US equities markets closed lower on Tuesday. The Dow Jones, the S&P500, and the Nasdaq declined 0.6%, 0.7%, and 0.82% respectively.
• Locally, ADX and DFM closed up 0.2% and 0.7% respectively.
• Saudi Arabia’s Tadawul closed flat

Commodities

• Oil prices rose on the back of the news of new US sanctions against Iranian oil revenues and market expectations that OPEC+ would maintain current voluntary production cuts.
• Brent futures rose 1.45% to USD 69.14/b. and WTI grew 2.47% to 65.59/b
• Gold prices continued to rise and setting new record prices. Gold rose 1.64% to 3533/troy oz.
• Silver reached a 14-year high rising 0.46% to 40.8/try oz.