German producer price inflation falls

German producer price inflation declined 6% y/y in July, its first year-on-year fall in over two-and-a-half years, a bigger contraction that the consensus expectation for a 5.1% decline. The fall was driven by lower energy and intermediate good prices. In particular, energy prices fell 19.3% y/y after having soared a year earlier as a result of the conflict in Ukraine. Excluding energy prices, producer prices rose 2% y/y in July.

Consumer price inflation in Lebanon rose 251.5% y/y and 6.8% m/m in July. Although the country has experienced triple digit annual inflation rates since July 2020, the February 2023 devaluation of the Lebanese Pound has caused inflation to rise further recently. On a month-on-month basis there were significant increases in the food and non-alcoholic beverages, housing and utilities, and health sub-components, which rose 5.5%, 7.9% and 44.4% respectively. Separately, Kuwait consumer price inflation rose 3.75% y/y in July, while Oman’s CPI rose just 0.4% y/y in July.

Today’s Economic Data and Events

• 18:00 US existing home sales July: forecast 4.51m

Fixed Income

• US Treasuries pushed lower at the start of the trading week despite no major data or policy catalyst. The 2yr yield was higher by nearly 6bps at just over 5% while the 10yr yield added 8bps to 4.3379%, steepening the 2s10s curve to 67bps. European bonds also pulled weaker at the start of the week with bund yields up 8bps to 2.698% and 10yr gilt yields adding 5bps to 4.722%.
• Overall it was a heavy day for fixed income with EM and high-yield bonds slipping. The primary market in the GCC remains quiet.

FX

• The dollar sold off modestly at the start of the week with gains across all currency peers. EURUSD added 0.2% to settle at 1.0896 while GBPUSD gained 0.2% to 1.2756. Commodity currencies were all moderately stronger though hadn’t shifted enough to recover several days’ worth of losses recently. USDJPY was the only exception with JPY losing ground: the pair added about 0.6% to close at 146.22.

Equities

• Chinese equities were still on the back foot as the trading week started yesterday, with the Hang Seng dropping 1.8% and the Shanghai Composite ending the day 1.2% lower as confusion around the Chinese policy response to a flagging economy weighed on sentiment.
• Elsewhere, however, some of last week’s weakness was starting to be shrugged off. Japan’s Nikkei added 0.4%, while in Europe the composite STOXX 600 closed up 0.1% with the DAX adding 0.2% and the CAC 0.5%.
• In the US, the Dow Jones closed 0.1% lower but there was a strong rebound on the NASDAQ after last week’s losses as it closed up 1.6%. The S&P 500 added 0.7%.
• Locally, the DFM closed up 0.1% while the ADX dropped 0.3%.

Commodities

• Oil prices opened the week on a softer footing with both Brent and WTI lower. Brent futures fell 0.4% to USD 84.46/b and WTI dropped 0.6% to USD 80.72/b.