Consumer sentiment improves in the US ahead of last Fed decision of the year

Consumer sentiment in the US improved in the December reading of the University of Michigan Consumer Sentiment index, rising to 53.3 from 51 a month earlier. The estimate for December was the first improvement since July though the gains were mostly down to an increase in the expectations component rather than an assessment of current economic conditions which deteriorated. Year-ahead inflation expectations also moderated, falling to 4.1% from 4.5% a month ago while longer-run inflation expectations were softer.

Real personal spending in the US was flat in September according to the delayed release of expenditure and price data. Income growth was steady at 0.4% m/m. The PCE deflator for September rose by 2.8% y/y, up marginally from a month earlier, while the core PCE was higher by 0.2% m/m. The data is relatively stale by this point and is unlikely to impact the Fed’s decision this week where we expect they will cut rates by another 25bps.

Forex reserves at the Egyptian central bank rose to USD 50.22bn in November, up from USD 50.07bn a month earlier. In November last year, foreign reserves stood at USD 46.95bn.

Today’s Economic Data and Events

10:00 KSA GDP Q3

11:00 GE industrial production Oct: forecast 0.3% m/m

Fixed Income

US Treasuries were lower at the end of last week with the 2yr UST yield up almost 4bps at 3.5603% while the 10yr yield rose about the same amount to 4.1351%. Markets are placing a 95% probability of the Fed cutting rates at this week’s FOMC meeting with another two cuts at least priced in for 2026.

Regional credit has a softer session at the end of the week with declines across all GCC geographies and nearly all sub-categories. Emerging market bonds more generally were lower.

Fitch rated Etisalat at ‘AA-‘ with a stable outlook, noting the “strength of links” in the UAE economy.

FX

The US dollar index closed flat against peers last week with modest selling in EURUSD offset by gains largely in commodity currencies. EURUSD settled at 1.1642, USDJPY was higher by 0.15% at 155.33 while GBPUSD was near flat at 1.3328.

In emerging markets the Indian rupee was steady at 89.9925 following the RBI’s 25bps cut while the Turkish lira was moderately softer at 42.5492. The Egyptian pound was flat at 47.5722.

Equities

Benchmark equities in the US were higher at the end of the week with a gain of 0.2% in both the Dow Jones and the S&P 500 while the NASDAQ was 0.3% higher. European markets were more mixed with a 0.2% rise in the Euro Stoxx index offset by a 0.5% fall in the FTSE 100 in the UK.

Markets in the UAE had a strong close at the end of the week with a 0.9% rise in the DFM and a 0.5% gain in the ADX. The Tadawul was higher by 0.1% at the start of the week.

Commodities

Oil prices had a positive end to the week with a 0.8% rise in Brent futures to USD 63.75/b on Friday, matched by a 0.7% gain in WTI which moved back above USD 60/b.

Saudi Aramco cut its official selling prices for January, including pricing its medium grade exports to Asia at a discount to benchmarks.

Gold prices are trading relatively steady at either side of USD 4,200/troy oz while silver had a stronger session on Friday, rallying 2.1% to USD 58.34/oz.

Industrial metals were mixed with copper higher while both aluminium and iron ore prices ticked lower.