20 September 2021
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Retail recoils from impact of delta variant

Rising prices are also helping to discourage consumers.

By Edward Bell

  • The spectre of the Delta variant hung over retail activity in major economies during the summer months as the seven-day average of Covid-19 cases moved considerably higher over July and August. In the US, retail sales expanded by 0.7% m/m in August, better than the market expected, but the nature of gains suggest that consumers still aren’t confident about returning to stores and leisure activities in full force. Non-store spending (essentially online shopping) rose more than 5% while grocery sales outpaced spending on food services. In the UK too, retail sales disappointed in August, dropping by -0.9% m/m with a similar drop in food away from home purchases.
  • Beyond the anxiety over the Delta variant, consumers in the US at least are also being discouraged by rising prices. The University of Michigan Consumer Confidence survey rose to 71 for September, up only marginally from the August reading of 70.3. Consumer inflation expectations for one year forward rose to 4.7% from 4.6% previously. Consumers do see prices slipping over the next several years although their expectation for transitory inflation appear higher than either financial markets or the Fed. The risk of an embedded inflationary mindset, which could entrench globally, could derail the transitory narrative espoused by central banks.
  • An uncertain inflation outlook dominated the Eurozone headlines over the last few days with press reports suggesting the ECB is modelling inflation faster than its published forecasts. Several governing council members publicly noting that there is “some upside” for inflation in the medium term, according to Martins Kazaks. While there are longstanding deflationary pressures in the Eurozone economy, the effects of the Covid-19 pandemic may not be neatly wound up by 2023 when the ECB projects inflation falling sharply from current levels of more than 3%.
  • Abu Dhabi has removed its requirements for Covid-19 tests to travel between emirates which should help provide a boost to domestic tourism, in particular just ahead of Expo 2020 to be held in Dubai. The precise impact of the end to travel barriers, brought about by low overall positivity in Covid-19 testing, is difficult to measure given the sparse inter-emirate trade data available but should help to remove some frictions on operating across the country, bring down logistics costs and offer a single consistent system for travelling that should benefit international tourists.
  • Hotel occupancy in Dubai rose to 58% in August from 54% in July, and sharply higher than the 41.2% occupancy recorded in August 2020. RevPAR also increased 50% y/y to just under USD 60. With further easing in travel restrictions in key markets in September, we expect both hotel occupancy and RevPAR to rebound further in Q4 21.
  • The Central Bank of Egypt left its benchmark overnight deposit rate on hold at 8.25% on Thursday, the seventh consecutive meeting it has held pat. This was in line with our expectations and the consensus projection, given that the balance of risks is fairly even at present. The bank acknowledged that inflation was picking up, but still expects it to fall within its target range, and an attractive real interest rate helps attract portfolio investment into the country. On the growth side, the bank’s communiqué stated that the 2020/21 real GDP expansion was 3.3%, an upward revision from the previous 2.8% reading.

Today’s economic data and events

10:00 GE PPI y/y Aug.: forecast 11.1%

18:00 US NAHB Housing index Sept.: forecast 74

All day CA parliamentary election

Fixed Income

  • The US Treasury curve managed to move broadly higher last week even as inflation came in softer than expected. All eyes now will be on the FOMC which concludes on Sept. 22nd. While we don’t expect to see an announcement that tapering will begin at this week’s meeting, we do expect the Fed will continue to signal that the economy is ready for an unwinding of extraordinary stimulus measures with tapering to begin later in the year, after the November FOMC.
  • Yields on the 2yr UST added almost 1bps over the week to settle at 0.2217% while the 10yr yield gained 2bps to close out at 1.3616%, more than unwinding the CPI-prompted drop. New economic projections from the Fed, if they show a higher inflation outlook, could also help spur more of a move higher in yields in the near term.
  • Gilt and bund yields both outpaced the gains on USTs. Yields on 10yr gilts added almost 9bps over the week to settle at 0.845% as the Bank of England, which also meets this week, may start to signal a more hawkish tilt on policy. Bund yields on the 10yr added 5bps over the week to close at -0.281%, their highest close since July.


  • Markets took a sharp risk-off tone toward the end of the trading week with the DXY index gaining solidly on Thursday and Friday. The headline index settled at 93.195 at the end of trading, a gain of 0.6% week/week. EURUSD bore the brunt of the decline even as headlines suggested the ECB could move faster on rates than expected. EURUSD settled at 1.1725 at the end of week, down 0.75%.
  • GBPUSD also fell sharply, down by more than 0.7% at GBPUSD 1.3741. While the BoE may give a hawkish tilt at this week’s MPC meeting, it’s unlikely to move immediately given a recent slowdown in UK data. Commodity currencies were the other major losers over the week with USDCAD up 0.57% to 1.2764 and AUD and NZD both dropping more than 1% to 0.7279 and 0.7040 respectively.


  • Global equity markets were hit by a bout of risk-off sentiment on Friday which led to some multi-month lows at the close of the week. The FTSE 100 dropped -0.9% w/w to end the week at levels last seen in July as mining firms were hit by the iron ore price slump. The CAC ended down -0.8% w/w and the DAX -1.4%.
  • In the US, the S&P 500 was the biggest w/w loser, dropping -0.6%, followed by the NASDAQ on -0.5% and the Dow Jones on -0.1%.


  • Energy commodities managed to avoid the general risk aversion that took hold of markets, particularly in the second half of the week. Both Brent and WTI added more than 3% over the week to settle at USD 75.34/b and USD 71.97/b respectively. Near-term conditions in the oil market remain positive with supply disruptions helping to drain inventories. However, from October onward the market will need to absorb the additional flow of barrels from OPEC+ countries, with Russian announcing it will increase its exports in line with its production increases.
  • While energy commodities rode out the risk-off storm, metals markets weren’t as lucky. Precious metals prices were lower as a whole with spot gold down 1.9% at USD 1,754/troy oz while copper and aluminium fell 3.9% and 1.3% respectively. The downswing has been most apparent in iron ore which fell a third week running, this time by more than 14% to USD USD 115/tonne.

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Written By

Edward Bell Head of Market Economics

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