Bank of England keeps rates unchanged

The Bank of England voted to keep rates unchanged at its November MPC meeting. The Bank Rate was held at 4% in a 5-4 split in a more dovish than expected outcome. The BoE did outline more rate cuts in the months ahead, saying that policy was likely “to continue on a gradual downward path” and forecasting lower inflation in the years ahead. Market focus will now shift to the outcome of the UK budget in a few weeks with the expectation that further tax hikes will weigh on activity, prompting the BoE to extend its rate cutting cycle further into 2026 albeit on a shallower trajectory.

US companies laid off 153k workers in October, according to the Challenger, Gray and Christmas private sector data. That was three times larger than levels a year ago and was the biggest single month since March this year. Taken in aggregate for the year-to-date, job cuts are now at their highest level since the pandemic while labour demand has also been waning.

Saudi Arabia ran a budget deficit of SAR 88.5bn (USD 23.6bn) in the third quarter, widening from SAR 34.5bn in Q2. This marked the 12th consecutive quarter where the government has run a deficit, with the last surplus recorded in Q3 2022, when the budget was still benefiting from the post-pandemic oil windfall. Oil revenues were down 21.0% y/y in Q3, and by 22.8% y/y over the year to date. Expenditure meanwhile was up 6.6% in Q3 but just marginally higher on an annual basis at 0.3% y/y over the three-quarter period. There has been a 20.3% fall in capex over the year so far (much of the major investment in Saudi Arabia is off-budget and being funneled through PIF), but current spending was up 3.8% y/y.

Today’s Economic Data and Events

17:30 CA net change in employment

18:30 TU cash budget balance

19:00 US U. of Michigan Sentiment Nov: forecast 53

Fixed Income

The private-sector layoff numbers helped to push US Treasuries higher overnight with the 2yr UST yield down 7bps at 3.5553% while the 10yr yield fell more than 7bps to 4.0831%. Market pricing for the December FOMC remains close to a 70% probability of another cut.

Regional credit was broadly positive overnight across most geographies and asset classes.

QIIB priced a UDS 500m 5yr at +85.

FX

The US dollar swung sharply weaker overnight on the back of the lay offs data. EURUSD rose by almost 0.5% to 1.1547 while GBPUSD shrugged off the expectation of more rate cuts following the BoE to rise 0.7% to 1.3137. Japanese yen also pulled higher with a loss in USDJPY of 153.06.

Emerging FX was broadly stable with little change in either the Turkish lira or Indian rupee while the Egyptian pound was slightly stronger at 47.346.

Equities

US equity markets closed weaker overnight with a loss of 0.8% in the Dow Jones, a 1.1% in the S&P 500 and a 1.9% drop in the NASDAQ. European markets also fell on the day while Asian markets have opened in the red this morning. Anxiety over AI-stock valuations have pushed equities into more volatile sessions this week with the VIX index trending higher.

In the UAE, equity markets were positive with a 0.5% rise in the DFM and a 0.2% gain in the ADX. The Tadawul in Saudi Arabia closed its week with a 0.4% rise.

Commodities

Oil prices extended their losses overnight with Brent down 0.2% on the front month to USD 63.38/b while WTI dipped by 0.3% to USD 59.43/b. US President Donald Trump said he could consider removing sanctions on Iran in remarks at the White House.

Precious metals prices closed largely lower with gold showing a negative bias while palladium and platinum showed deeper declines. In industrial metals both copper and aluminium declined while iron ore managed to pick up slightly.