UAE federal budget approved

• The UAE’s federal budget has been approved for the years 2023-26 at USD 69.69bn, and counting on revenue of USD 69.61bn, effectively making it a balanced budget. In 2023, growth in revenue will reach 11% according to government estimations, while revenue expenditure will lag at 3.9%. The federal budget accounts for a fairly small proportion of total spending given that the individual emirates have their own budgets, but it can be a useful pointer for government spending intentions.
• The UK’s Chancellor of the Exchequer, Kwasi Kwarteng, is set to announce the government’s medium-term fiscal strategy and economic forecasts on October 31, bringing the date forward from the previously scheduled November 23. The move could help placate markets which have been roiled by the government’s economic announcements since Liz Truss was made prime minister. Kwarteng’s statement informed that the government met with the Office for Budget Responsibility (OBR) on September 30 and that it would be working with the body in the run-up to the new publication date.
• Scheduled just a few days prior to the Bank of England’s November 3 meeting, if the announcement successfully calms markets, then a less severe hike could be implemented by the central bank than might otherwise be the case. The BoE was active again yesterday as it pledged to increase its daily auction size to GBP 10bn per day and announced other support measures in a move aimed at buttressing pension funds following the turmoil seen in the wake of the mini budget last month.
• The Eurozone’s Sentix investor confidence index has fallen to -38.3, from -31.8 in September. This was the weakest reading since May 2020 during the peak of the pandemic crisis and marks the fourth month in a row that the score has deteriorated, slipping to such a level as to indicate a sharp recession. Europe is especially exposed to high gas prices and arbitrary cut-offs of supply, meaning major uncertainties around energy.
• Egypt’s CPI inflation ticked up to a new multi-year high of 15.0% y/y in September, up from 14.6% in August. Prices were 1.6% higher compared with the previous month. Headline inflation should start to soften as the pace of growth in food prices slipped from 23.1% to 21.7% while transport costs accelerated only marginally at 17.9% from 17.8%, with both measure benefitting from base effects and softening global prices. However, all other components of the basket barring recreation & culture saw faster price growth than in August, meaning that core inflation is likely to remain high in coming readings.

 Today’s Economic Data and Events

• 10:00 UK ILO unemployment rate, 3mths to August. Forecast: 3.6%

Fixed Income

• US Treasury markets were closed to start the week of trading for a public holiday in the US. Lael Brainard, vice-chair of the Federal Reserve, backed up moving rates to being “restrictive for some time” but also said the Fed would move in a “data-dependent manner” to monitor the effects of tighter policy on the economy.
• Gilt yields spiked again as the Bank of England announced it was expanding its effort to support the UK bond market ahead of the expiry of the emergency intervention at the end of this week. Yields on the 10yr gilt added 24bps to 4.459%. In Europe, bond markets also sold off with an escalation of the war in Ukraine following Russian missile strikes raising the geopolitical tension.
• Emerging market bonds were generally weaker overnight as risk sentiment weakened. South African 10yr bond yields added 5bps to 11.132% while 10yr Turkish bond yields jumped 29bps to 11.94%. Indian yields settled up modestly higher at 7.476%.

FX

• Currency markets drifted lower against the US dollar with no material catalyst to support a sizeable move. EURUSD dropped by 0.4% to 0.9702 and is edging lower in early trade today. GBPUSD fell further as the Bank of England’s expansion of its intervention highlight the fragility of UK markets at the moment: cable fell 0.3% to 1.1055. USDJPY added 0.3% to settle at 145.72.
• In commodity currencies, AUDUSD pushed lower as weak Chinese economic data weighed on the market. AUDUSD fell by 1.1% to 0.6303 while NZDUSD dropped 0.78% to 0.5567. In Canada, the loonie weakened against the US dollar with USDCAD up 0.29% at 1.3779.

Equities

• Asian markets started the week on the back front on Monday, following the US markets lower from Friday’s losses after the NFP report was published. The Nikkei dropped -0.7%, while China’s Shanghai Composite ended the day down -1.7% as it reopened following the holiday week – China stocks are also seeing negative pressure from US measures against the technology sector over the weekend.
• In the US, there was further selling pressure in equities even as bond markets were closed. The Dow Jones, the S&P 500 and the NASDAQ dropped -0.3%, -0.8% and -1.0% respectively.

Commodities

• The general risk-off move in markets overnight weighed on oil with both benchmark prices falling. Brent futures settled at USD 96.19/b, down 1.8%, while WTI fell 1.6% to USD 91.13/b. Markets will be waiting for releases from the IEA and OPEC this week for a clearer sense on how demand is set to fare.

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