Egypt kept rates on hold, Turkey cut by 100bp yesterday

• CPI inflation in Japan picked up to 2.6% July, levels last seen in 2014. This was up from 2.4% the previous months and puts the annual inflation rate well above the central bank’s 2.0% target level now, raising questions around the adherence to ultra-loose monetary policy while most global central banks have been tightening policy.
• The CBE kept its benchmark overnight deposit rate on hold at 11.25% at its MPC meeting yesterday, in line with our expectations. There was a greater level of uncertainty prior to the meeting following the previous day’s resignation of long-serving governor, Tarek Amer. Hassan Abdalla has been named as interim head, amid speculation that there might be a major move in the currency as Egypt looks to secure a new IMF deal. The bank’s statement noted the pressures on growth from various external factors and made the case that most of the inflationary pressures are also exogenous, making a hold the most appropriate action.
• The Turkish central bank cut the benchmark one-week repo by 100bps to 13.00% at its MPC meeting yesterday, confounding widely held expectations that there would be an eighth consecutive hold. The move came despite inflation having ticked up to 79.6% at the latest July print, thereby leaving real interest rates deep in negative territory, and an acknowledgement in the bank’s communiqué that ‘central banks in advanced economies emphasize that the rise in inflation may last longer than previously anticipated.’ By contrast, the TCMB holds to the expectation for the ‘disinflation process to start on the back of measures taken’, and so the bank’s focus is squared on growth, which it is looking to support with this rate cut.
• Eurozone July inflation was revised up to 8.9% y/y in the final reading, from 8.6% previously. The m/m measure remained at 0.1%. The Baltic states saw some of the most rapid price growth (23.3% y/y in Estonia).
• US initial jobless claims were 250,000 in the week to August 13, lower than the consensus projection of 264,000 and moderately lower than the (downwardly revised) 252,000 the previous week.

Today’s Key Economic Data and Events

• 10:00 UK retail sales, % m/m, July. Forecast: -0.2%
• 16:30 Canada retail sales, % m/m, June. Forecast: 0.4%

Fixed Income

• Yields on the US 2y fell 9bps to 3.1974 while the 10y dropped 1bps to 2.8822%. In the UK, 2y gilts added 1bps to 2.454% while the 10y added 2bps to 2.310%
• FOMC officials were commenting on the necessity of continued strong action against inflation yesterday, pushing back against any dovish interpretation of the latest meeting minutes.

FX

• The US dollar index gained against its basket yesterday, adding 0.9% to 107.484 as FOMC officials made hawkish comments.
• Much of this gain came against the EUR which dropped -0.9% to 1.0087 and GBP which closed -1.0% lower at 1.1930.

Equities

• Global equity markets were largely positive yesterday, albeit with no major moves for the most part. In the US, the Dow Jones added 0.1% while both the S&P 500 and the NASDAQ closed 0.2% higher. In Europe, both the CAC and the DAX gained 0.5%.
• There were losses locally however, as the DFM dropped -0.7% and the ADX -1.5%. The Tadawul lost -0.2%.

Commodities

• Brent crude prices added a further 3.1% yesterday to USD 96.59/b, while WTI gained 2.7% to USD 90.50/b. Both benchmarks were boosted by President Xi’s comments yesterday regarding the potential “opening up” of China, although this was likely referring to globalization than any change in its zero-Covid policy.

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