US durable goods orders rebound in August

Minneapolis Fed President Neel Kashkari said that the Fed may “do less” with monetary policy if downside risks to the economy posed by a prolonged autoworkers strike and government shutdown materialise. Kashkari said after the last FOMC meeting that he expected another rate hike this year, and then no change to the policy rate in 2024.

US durable goods orders grew 0.2% m/m in August, according to preliminary data. This was much better than the -0.5% forecast contraction and also better than the sharp decline in July. Excluding transport, durable goods rose 0.4% m/m as business equipment orders rebounded strongly last month. The increase in orders was led by computers, electrical equipment and machinery.

The UAE is considering allowing GCC residents to travel to the UAE without the need for a visa. This would simplify travel for non-GCC nationals living in the other five gulf states, including Saudi Arabia.

Lucid Group opened its first ever car manufacturing facility in Saudi Arabia, which will produce electric vehicles for the Saudi market and for export. The initial capacity of the plant is 5000 cars a year.

Today’s Economic Data and Events

• 16:00 German flash CPI (Sep) forecast 0.3% m/m and 4.6% y/y
• 16:30 US Q2 GDP (2^nd reading) forecast 2.2%
• 18:00 US pending home sales (Aug) forecast -1.0% m/m

Fixed Income

• US Treasuries sold off sharply overnight despite there being no major market catalyst. Yields on the 2yr UST moved up 9bps from their open to the close at 5.1354% while the 10yr yield added 7bps to 4.6075%. Markets are entrenching their expectation of no imminent change in policy stance from central banks like the Fed though substantial upside for yields would be contingent on the Fed hiking once more.
• European bonds also sold off with bund yields up 3bps at 2.837% and gilt yields adding 3bps to 4.352%.
• Emerging market bonds took another move lower overnight as risk appetite faded. The Bloomberg EM USD aggregate index fell 0.3% while the high yield bond index fell 0.3%. Local currency markets also sold off with Turkey 10yr yields up 25bps at 25.7% and South Africa 10yr yields up 2bps at 12.409%.    

FX

• The dollar extended gains over peers last night as risk appetite ebbed. EURUSD slumped by 0.7% to 1.0503, its lowest close since Q4 last year. Markets seem to be looking through hawkish warnings from ECB governors with the potential for the pair to test lower levels in the near term. GBPUSD fell 0.2% to 1.2135 while USDJPY moved above 149, closing at 149.63 or up 0.4%.
• Commodity currencies were more mixed with USDCAD moving in favour of the loonie, down 0.1% at 1.3489. AUDUSD dropped