UAE pushes forward with CEPA deals

The UAE and Jordan signed a Comprehensive Economic Partnership Agreement (CEPA) over the weekend as the UAE continues to seek greater ease of trade with countries around the world. The agreement with Jordan was the first with a fellow Arab nation, and should help boost trade in the coming years. This is already growing at a robust rate, as non-oil trade between the two countries hit USD 2.7bn in the first half of this year, marking y/y growth of 36.8%. The deal should also facilitate greater two-way investment, and the UAE is already Jordan's largest foreign investor. Meanwhile, the UAE and Serbia have exchanged a CEPA agreement during President Sheikh Mohamed bin Zayed al Nahyan’s visit to Belgrade over the weekend, which once implemented should remove or reduce tariffs on trade and help ‘facilitate mutual investment flows.’

The US nonfarm payrolls report for September came in more than 100,000 higher than the consensus estimate, as the US labour market continues to show remarkable resilience. There was a net gain of 254,000 jobs for the month, while the August figure was revised up to 159,000, from 142,000 on the initial print. Job gains in September were led by the leisure and hospitality and healthcare sectors. The unemployment rate dipped back down to 4.1%, from 4.2% previously and 4.3% in July. The NFP report is just the latest in a string of strong labour market data releases over the past several weeks, and bets on another 50bps cut from the Fed at its next meeting were pared on the news. Average hourly earnings were up 0.4% m/m, a little faster than the predicted 0.3% gain but down from the (upwardly revised) 0.5% logged the previous month.

The Qatar Financial Centre PMI survey for September slowed to 51.7, down from 53.1 the previous month. Nevertheless, the underlying data was fairly buoyant, with hiring expanding at the fastest pace through the series history back to 2017, and business optimism at its highest since March 2023.

Today’s Economic Data and Events

10:00 Germany factory orders, % m/m, August. Forecast: -2.5%

Fixed Income

• Positive data around the US economy, and especially Friday’s NFP report, drove US treasury yields higher last week as bets on another large cut from the Fed were revised.
• The 2yr ended Friday at 3.9217%, up 36bps on the previous Friday and 22bps on the Thursday number. The 10yr was up 22bps on the week and 12 on the day to close at 3.9672%.
• In the UK, gilt yields whipsawed on the back of comments by Governor Andrew Bailey and Chief Economist Huw Pill. In the end, yields on the 2yr were up 20bps on the week at 4.139%, while the 10yr yield added 15bps to 4.130%.
• Central banks holding their rate-setting meetings this week include India, New Zealand, and South Korea. Minutes from the last FOMC meeting are due Wednesday.

FX

• The dollar index strengthened 2.1% against its basket of peers last week, gaining ground against all of the majors as bets on Fed interest rate cuts eased on the back of strong data. This was the strongest week for USD in two years.
• GBP sold off as comments from Andrew Bailey about more aggressive rate cutting saw it lose ground. It closed down 1.9% at 1.3122. EUR was down by 1,7% over the week at 1.0974.
• JPY was the biggest loser of the week, dropping 4.4% against the dollar to close at 148.70. Comments from new Prime Minister Shigeru Ishiba that he would not seek to influence BoJ policy weighed on the currency.

Equities

• Equity markets saw a choppy week last week as mainland China remained closed after stimulus measures announced there, while Middle East tensions prompted some weakness elsewhere.
• US indices eked out a meagre w/w gain after the strong jobs report on Friday dispelled concerns that had driven the movements through the week. The Dow Jones and the NASDAQ both closed up 0.1% on the previous Friday, while the S&P 500 added 0.2%.
• Gains on Friday were not sufficient to move European equity markets into positive territory. The FTSE 100, the DAX, and the CAC closed down 0.5% w/w, 1.8%, and 3.2% respectively.
• Stocks came under pressure within the region. The DFM closed down 2.6% and the ADX 3.1%. In Saudi Arabia, the Tadawul closed down 3.4% w/w on Friday.

Commodities

• Oil prices saw a significant risk premium added over last week as tensions in the Middle East escalated. Brent futures added 8.4% over the week to USD 78.1/b, while WTI closed 9.1% higher at USD 74.4/b. This was the biggest weekly rise for oil prices since March 2023.