Dubai inflation accelerates

• Dubai’s CPI rose 1.5% m/m and 7.1% y/y in July, up from 5.8% y/y in June and the fastest annual price growth in more than a decade. Transport costs rose 8.0% m/m and 38.6% y/y as petrol prices rose once again in July. Food prices rose 0.7% m/m and 8.8% y/y last month, while housing costs rose 0.9% y/y. There was also strong growth in the cost of recreation & culture services, which likely includes entertainment and some tourism services.  This component of the CPI is up 44% y/y, with a gain of 7.2% m/m in July alone, although its weighting in the CPI basket is relatively small at just over 2%. Restaurant and hotel prices were up 1.7% m/m and 5.6% y/y. Looking ahead, we expect housing costs to continue to rise through the rest of this year, but the pace of price growth in food and transport should slow as global gasoline and grain prices have come down in recent weeks. Year-to-date, inflation in Dubai has averaged 4.3%, in line with our full year forecast, although the risks to this forecast is skewed to the upside.
• UK retail sales expanded 0.3% m/m in July, beating the previous month’s -0.2% contraction and analyst projections of a repeat of that. Stripping out auto fuel sales expanded 0.4% m/m, but remained down -3.0% y/y. Online sales promotions including Amazon Prime Day helped boost sales in the month, as did government support for lower-income households, while households continue to take advantage of the first summer without Covid-19 related restrictions since 2019. Nevertheless, spending on big-ticket household items and clothing fell and with CPI inflation surprising to the upside in data released last week, while other ONS data showed a 3% fall in real incomes, retail sales are set to come under more concerted pressure in the coming months.
• In Canada, retail sales also beat expectations as they rose 1.1% m/m in June compared to consensus 0.4%, although growth did slow from the 2.3% expansion recorded in May. Lower petrol prices played their part in the slowdown, but higher prices elsewhere and rising interest rates also likely played their part in weighing on consumer sentiment.
• CPI inflation in Morocco accelerated to 7.7% y/y in July, up from 7.2% in June. This marked a series high for the index and is in contrast to the fairly low and stable inflation seen over the years since the global financial crisis. Prices were 0.9% higher than the previous month.

Today’s Key Economic Data and Events

• 12:00 Turkey tourist arrivals, % y/y, July

Fixed Income

• Yields on 10y USTs rose 14bps over last week to 2.9721%, while 2y yields were broadly unchanged, ending the week just shy of 1bps lower at 3.2338%.
• Coming up this week are rate decisions from South Korea, Israel, Indonesia, and Tunisia.

FX

• The US dollar index closed up 2.4% w/w against its basket of currencies on Friday, settling at 108.17 as it nears the multi-year high of 108.54 seen in the middle of last month. Hawkish comments by Fed officials through the second half of last week have supported the greenback as bets on another large hike from the FOMC are placed.
• Rising geopolitical risk concerns weighed on commodity currencies in particular last week, as AUD lost -3.5% against USD to 0.6875.
• GBP lost -2.6% to 1.1829 while EUR dropped -2.2% to 1.0037.

Equities

• Weak data out of China last Monday weighed on East Asian equities even as the prospect of looser Covid-19 restrictions became more likely. The Shanghai Composite ended Friday down -0.4% w/w while the Hang Seng dropped -1.7%. Things were more positive elsewhere, however, with Japan’s Nikkei gaining 1.3% w/w despite losing a little ground on Friday.
• Losses through the close of the week saw all three major US benchmark indices close down w/w on Friday, following four weeks of gains. The NASDAQ was the biggest loser as it dropped -2.6% w/w, followed by the S&P 500 (-1.2%) and the Dow Jones (-0.2%).
• In Europe, the FTSE 100 was an outlier as it gained 0.7% w/w while the CAC and the DAX lost -0.9% and -1.8% respectively.

Commodities

• Despite some choppy trading through the week, further losses on Friday saw both benchmarks close down, with Brent futures dipping -1.5% w/w to USD 96.72/b, while WTI fell 1.4% to USD 90.77/b. The lacklustre Chinese data last week has seen demand concerns continue to outweigh any supply side issues, despite warnings around upcoming tightness in the market from the new OPEC Secretary-General.

Click here to Download Full article