Saudi Aramco looks to expand industrial investment

• Saudi Aramco has signed 22 new memoranda of understanding and a joint venture agreement in an expansion of its industrial investment program.  The new projects are focused on sustainability, technology, industrial and energy services (including logistics) and advanced materials.  No financial details about the projects were included in the announcement.
• Chinese CPI inflation fell to 0.8% y/y in August, down modestly from 1.0% in July. Consensus had expected the pace of price growth to remain the same. The spread of the Delta variant in China has weighed on consumer prices, with transportation and hotel prices impacted. On the other hand, PPI inflation rose from 9.0% to 9.5%, with the factory gate prices driven higher by the global rise in commodity prices.
• Both the Canadian and Polish central banks left their benchmark interests rates unchanged yesterday, in line with expectations. In Poland’s case, this is in the face of a 20-year high for CPI inflation, as the bank is looking for a more durable recovery and improved labour market before hiking rates. In Canada, the rate of asset purchases was also left unchanged, but the bank dismissed the recent run of comparatively weak data and struck an optimistic tone, paving the way for easing at the next meeting. Canada is in the midst of an election campaign.
• Turkish central bank governor Sahap Kavcioglu spoke yesterday, using the platform to state his view that monetary policy was sufficiently tight to bring about the bank’s projected fall in inflation in the final quarter of the year. CPI inflation hit 19.3% y/y in September, leaving real interest rates in negative territory, but Kavcioglu said that core inflation levels were the more appropriate measure. Nevertheless, while the bank does expect price growth to slow, it did revise up its year-end projection by some two percentage points this week, and any rate cut at the upcoming meeting is also unlikely.

Today’s Economic Data and Events

15:45 Eurozone deposit facility rate. Forecast: -0.5%

16:30 US initial job claims, week ending September 4. Forecast: 335,000

Egypt CPI inflation, August. Forecast: n/a

Fixed Income

• Strong demand for a 10yr UST auction helped to bring yields across the dollar curve lower, with more declines on the long end. Yields on 2yr USTs settled down by less than 1bp at 0.2162% while the 10yr yield gave up more than 3.5bps to close at 1.3376%. the moves helped to unwind some of the recent steepening in the 2s10s curve although at around 112bps still remains elevated by the standards of recent weeks.
• Emerging market bonds were generally quiet with limited moves in both Indian and South African 10yrs. Turkish 10yr lccy bonds added 8bps as the governor of the CBRT has said the bank will focus on core inflation rather than headline. Core inflation in August ran at 16.76%, considerably below policy rates of 19% and potentially opening up room for a rate cut, rather than a hike which markets appear to want.
• Abu Dhabi priced a dual tranche USD issue, its second dollar bond this year. A 10yr USD 1.75bn tranche priced at T+63bps while a USD 1.25bn 30yr tranche priced at a flat 3%.

FX

• The dollar managed to eke out another day of gains with the DXY index up 0.15% to 92.653. Most of the gains came from EURUSD which fell 0.2% to 1.1816 as markets revaluate just how hawkish their expectations for the ECB may be. USDJPY held roughly flat at around 110.25.
• GBPUSD also gave up ground for a third day, falling by 0.11% to 1.3771. Commentary from Bank of England officials overnight gave no real indication if the bank is preparing to loosen or tighten policy in the immediate future.
• The loonie led commodity currencies lower after the Bank of Canada held policy unchanged and said that rates would not move until there was a full recovery from the pandemic. The BoC also did not change its pace of asset purchases with this month’s policy choice likely being affected by the ongoing election in the country. USDCAD added 0.35% to settle at 1.2691. Elsewhere, the AUD slipped 0.28% to 0.7365 while NZD was flat.

Equities

• Recovery concerns were to the fore yesterday, as markets in Europe and the US trended lower. The European composite STOXX 600 index lost -1.1%, with Germany’s DAX dropping -1.4% while the CAC lost -0.9% and the FTSE 100 -0.8%. In the US the S&P 500, the Dow Jones and the NASDAQ all closed lower, by -0.1%, -0.2% and -0.6% respectively.
• Asian markets held up comparatively well yesterday, as the Shanghai Composite closed flat and the Nikkei gained 0.9%, still enjoying the resignation news boost. The general trend is lower this morning and while the Shanghai Composite is currently up 0.2%, most indices are down, with the Nikkei -0.5% off its close yesterday.
• Delayed plans by the Egyptian government to raise funds through selling stakes in more than 20 state-run enterprises will resume before the end of the year, according to planning minister Hala el-Saeed. The EGX 30 closed up 0.4% yesterday, while elsewhere in the region the DFM closed down -0.1%, the ADX gained 0.7% and the Tadawul rose 0.4%.

Commodities

• Oil prices were higher overnight, snapping a few days of losses. Brent futures settled up 1.3% to USD 72.60/b while WTI added 1.4% to USD 69.30/b. The API reported a draw in US crude inventories of 2.9m bbl last week along with a strong draw in gasoline of more than 6.4m bbl. Data around stocks may be volatile in the weeks following the impact of Hurricane Ida which made landfall along the Gulf coast of the US.

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