01 September 2022
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Eurozone inflation reaches a record high in August

By Daniel Richards

  • Eurozone inflation came in slightly ahead of forecasts in the preliminary reading, up 0.5% m/m and 9.1% y/y, a new all-time high.  Core inflation also exceeded estimates at 4.3% y/y, up from 4.0% in July suggesting that inflation is becoming more broad-based in the eurozone as well. The weaker euro and strong wage growth are likely also contributing to inflation in the eurozone, in addition to the high energy and food prices on the back of the conflict in Ukraine and sanctions on Russia. The ECB is expected to raise rates by at least 50bp when it meets next week.
  • China’s Caixin manufacturing PMI, which surveys smaller, export-oriented private sector firms, declined to 49.5 in August from 50.4 in July, slightly below forecasts. The data confirms the trend of slower manufacturing activity in August that was evident in the official PMI released yesterday. Softer global demand for goods is likely to weigh on export manufacturing in China in the coming months, as will domestic issues including the zero-Covid policy and property sector slump.
  • In the US, the ADP Research Institute has resumed publication of its private sector employment report using new methodology.  The data shows that private sector firms added 132k jobs last month, well below the market’s forecast of 300k, and the fewest since early 2021.  The ADP report has not been a good indicator of official employment data historically. August NFP data is due tomorrow, and the market expects 298k jobs were added last month.  
  • Petrol prices in the UAE declined by almost -16% m/m in September, following at -13.3% m/m decline in August.  95-octane petrol is now at the lowest price per litre since March 2022 at AED 3.30/l. The move will help to slow headline inflation, which topped 7% y/y in Dubai in July.
  • Turkey’s economy expanded more rapidly than consensus expectations in the second quarter, rising 2.1% q/q versus the predicted 1.5%. Q1’s growth meanwhile was revised up by half a percentage point to 1.2%. On an annual basis, Q2 GDP was up 7.6% y/y. The rapid expansion was driven in large part by an upswing in private consumption levels (+22.5% y/y) as consumers looked to get ahead of the high inflation that averaged 74.0% y/y over the three months, while still enjoying comparatively cheap credit. However, this will likely slow in the second half as rapid price growth continues to erode spending power. Exports also saw strong growth at 16.4% y/y, while imports expanded just 5.8%, as the ongoing depreciation in the lira aided the trade balance.
  • Reuters and local press in Egypt reported that a loan agreement with the IMF will be announced imminently. The loan amount is expected to be between USD 3-5bn. In recent days, the finance minister has indicated that the Fund did not ask the government to cut subsidies on bread and other food commodities as part of a deal, and that the government has agreed to a budget deficit target of 6% in FY 2022/23. The IMF is likely to demand significant structural reform to boost FDI and private sector growth as part of any programme, and has also indicated that a more flexible exchange rate regime is desirable.
  • Reuters also reported that the IMF has reached a staff-level agreement for a loan programme with embattled Sri Lanka, with details mooted to be released later today. Details are not yet clear but newly installed President Ranil Wickremesinghe had earlier this week pledged to hike taxes and reinforce social support schemes as the government looked to secure the IMF deal. Meanwhile, a Sri Lankan delegation has been visiting Saudi Arabia as it looks to improve ties between the two countries, with a particular focus on a proposed refinery to be developed in Sri Lanka by Saudi Arabia.

Today’s Economic Data and Events

  • 12:00 Eurozone flash manufacturing PMI (Aug) forecast 49.7
  • 12:30 UK flash manufacturing PMI (Aug) forecast 46.0
  • 16:30 US initial jobless claims (Aug 27) forecast 248k
  • 17:45 US flash manufacturing PMI (Aug) forecast 51.3
  • 18:00 US ISM manufacturing (Aug) forecast 51.9

Fixed Income

  • US Treasuries endured a choppy day of trading, moving around a 5bps range until late in the session where there was heavy selling in the long end. Yields on the 2yr UST ended the day 5bps higher at 3.4929% while the 10yr added 9bps over the day to close at 3.1926%. Loretta Mester, president of the Cleveland Federal Reserve said it was “necessary to move the fed funds rate” above 4% and hold it there, a much higher prospect than markets appear to be expecting. She also ruled out any cuts to policy rates next year.
  • European bonds closed weaker again as the prospect of large hike at the September ECB meeting gathers momentum. Yields on 10yr bunds added about 3bps to 1.533% while the 10yr French yield added 2bps to 2.143%. In the UK gilt yields jumped almost 10bps to 2.796% as the prospect of a Truss premiership nears which may mean lower taxes and persistently high inflation.    


  • The prospect of much tighter ECB policy is helping to turn the Euro around somewhat with three days of gains in a row. The single currency added 0.4% to settle at 1.0054 last night and is managing to hold above parity in early trade today. While the ECB may indeed move with another large hike in rates, policy rates will still remain well below the Fed, keeping a wide advantage for the dollar.
  • Elsewhere the dollar remained strong against all peers. USDJPY added 0.12% to 138.96 overnight while GBPUSD fell by almost 0.3% to 1.1622 and it has broken to a 1.15 handle in early trade today. The BoE is likely to keep hiking rates but markets are at risk of losing considerable confidence in the general policymaking environment in the UK.
  • In commodity currencies USDCAD added 0.28% to 1.313 while AUDUSD dropped by 0.18% to 0.6842 and NZDUSD fell 0.16% to 0.6119.


  • Global stock markets continued to head lower yesterday, amidst some high profile warnings that the bottom is yet to be hit and ongoing concerns around recession risks and central bank tightening. In the US, the NASDAQ, the Dow Jones and the S&P 500 dropped -0.6%, -0.8% and -0.9% respectively while in Europe the CAC (-1.4%) was the major loser, followed by the DAX (-1.0%) and the FTSE 100 -1.1%).
  • Within the region, the EGX 30 dropped -1.3% and the Tadawul fell -1.4%. In the UAE, the DFM lost -0.6% and the ADX -0.9%.


  • Oil prices fell a second day in a row, closing out August at USD 96.49/b in Brent and USD 89.55/b in WTI. The OPEC+ meeting next week is the next major catalyst for markets and the alliance’s advisory body endorsed the Saudi view of a disconnect between physical and futures markets and also revised its expectations for 2023 to a deficit of around 300k b/d from a 900k b/d surplus.
  • Oil inventories in the US fell by 3.3m bbl last week with draws across all geographies. Gasoline stocks dropped by 1.1m bbl while distillates were negligibly higher. US oil production increased slightly, up by 100k b/d to 12.1m b/d while product supplied showed a modest increase.

Click here for charts and tables




Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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