UAE invited to join BRICS

Leaders from the BRICS nations have agreed to invite 6 other countries - Saudi Arabia, Iran, Egypt, Argentina, Ethiopia and the UAE – to join the bloc at the start of 2024, in a bid to strengthen its global influence. The announcement was made as part of the BRICS summit taking part in Johannesburg, with South African president, Cyril Ramaphosa, indicating that these invitations were the first part of a larger expansion plan.

The central bank of Turkey hiked its one-week repo rate by 750bps yesterday, taking the benchmark rate to 25.0%. This was three times greater than the consensus prediction of 250bps and underscores the TCMB’s greater commitment of late to orthodox monetary tightening policies to dampen down elevated inflation that has left real interest rates negative for some time. The bank’s communique noted that ‘recent indicators point to a continuation of the increase in the underlying trend of inflation’ and it anticipates that cost pressures from tax regulations will put further pressure on prices already stemming from wages and exchange rates. The statement maintained a relatively hawkish stance, stressing that ‘Monetary tightening will be further strengthened as much as needed…’.

US initial jobless claims in the week ending 19 Aug declined by 10k from the week prior, to reach 230k. This was below expectations of 240k new applications for unemployment benefits and was the lowest level of the series in 3 weeks, pointing to continued demand for labour. Continuing claims in the week ending 12 August similarly ticked down to reach 1.702m from 1.716m the week prior.  

Preliminary estimates of US durable goods orders point to a 5.2% m/m decline in July, a stronger contraction than the 4% fall that had been expected, and also well below the 4.6% m/m growth seen in June. That said, the decline was in large part due to a reversal of strong aircraft orders seen in June. Once transport related orders are stripped out core durable goods orders rose 0.5%.     

Today’s Economic Data and Events

• 10:00 GE GDP, Q2 final: forecast 0% q/q
• 12:00 GE IFO business climate, Aug: forecast 86.8

Fixed Income

• Treasury markets had a choppy day of trading overnight with market attention on comments from Fed chair Jerome Powell at the Jackson Hole symposium later today. Susan Collins, president of the Boston Fed, said it was “extremely likely” that the Fed will hold for a “substantial amount of time” but didn’t clarify at what level they would hold. Patrick Harker, her counterpart at the Philadelphia Fed, said he thought the Fed had “probably done enough.”
• Treasuries closed cheaper across the curve with the 2yr UST yield up almost 6bps at 5.0229% while the 10yr UST yield added 5bps to 4.2372%. European bonds closed stronger with yields lower across French and German bonds while gilt yields fell by 4bps to 4.42%.
• Turkish government bonds—both local and USD—fell overnight as the central bank hiked rates more than expected. Yields on the 10yr lira bond rose 18bps to 20.39%. However, the 5yr CDS tightened by 16bps.

FX

• The US dollar closed stronger against peers overnight with focus on potential hawkish tilt from Fed chair Jerome Powell’s comments at the Jackson Hole symposium. EURUSD fell 0.5% to 1.081 while GBPUSD sank nearly 1% to 1.2602. USDJPY also pulled higher, rising by 0.7% to 145.84.
• Commodity currencies were resolutely weaker with both AUDUSD and NZDUSD down about 1% to 0.6417 and 0.5923 respectively. USDCAD also moved against the loonie with a rise of 1.3582.

Equities

• Asian equity markets followed the US in heading higher on Thursday, with the Hang Seng leading the back with a 2.1% gain. The Nikkei closed up 0.9% while the Shanghai Composite lagged with a 0.1% gain.
• European equity markets also headed higher initially but lost their gains later in the session and all major indices closed down save the FTSE 100 which added 0.2%. The composite STOXX 600 fell 0.4%, with the CAC falling 0.4% and the DAX 0.7%.
• There were sharp losses in the US once again also. The NASDAQ dropped 1.9%, while the Dow Jones fell 1.1% and the S&P 500 1.4%.
• Locally, the DFM closed up 0.2% and the ADX 0.4%.

Commodities

• Oil prices managed to claw back some modest gains overnight with Brent futures up 0.2% at USD 83.36/b and WTI rising by a similar amount to USD 79.05/b. There has been little in the manner of a fundamental catalyst to push prices substantially in one direction or another, with markets balancing supply coming back on from producers like Iran and potentially Venezuela, as well as uncertainty over China’s economic outlook, against the potential of Saudi Arabia extending its production cuts for the rest of the year.