Industrial production in the US increased by 0.4% month/month in September and prior months’ reading were revised upward. The manufacturing component of the data rose by 0.4% m/m as vehicle output has been running strongly. Mining output, which includes oil and gas production, managed to increase even as the Gulf of Mexico region was hit by Hurricane Ian last month. All told, the industrial data from the US still point to an economy weathering the impact of higher interest rates with considerable resilience and shows the US economy had considerable momentum going into the final months of 2022.
Investors’ expectations in Germany improved in October, according to the latest survey from the ZEW. The expectations component of the ZEW index rose to -59.2 from -61.9 a month earlier and came in better than markets had been expecting. However, the index remains at its lowest levels since the financial crisis and is at worse levels than the height of the Covid-19 pandemic. The survey’s measure of current conditions, however, worsened, falling to -72.2 in October from -60.5 a month earlier and weaker than estimates. Economic growth in Germany has slowed sharply, rising by just 0.1% q/q in Q2 2022 and is expected to have contracted in Q3 with the economy moving fully into a recession by the end of the year.
The Bank of England will start its sales of bonds on its balance in November, disputing press reports that it was going to delay quantitative tightening until there was more stability in the gilt markets. Considering how febrile the UK markets are, substantial selling of gilts could tip markets into another round of panic selling if carried out without explicit communication.
Saudi Arabia’s Crown Prince Mohammed bin Salman has launched a National Industrial Strategy, which aims to boost the kingdom’s industrial exports to USD 148bn by 2030, according to the state news agency. The number of factories in KSA will rise more than threefold to 36,000 by 2035.
Today’s Economic Data and Events
- 10:00 UK CPI y/y September: forecast 10%
- 12:00 SA CPI y/y September: forecast 7.6%
- 13:00 EC CPI y/y September (f): forecast 10%
- 16:30 US Housing starts September: forecast 1.464m
- 16:30 CA CP y/y September: forecast 6.8%
Fixed Income
- Treasury markets traded in choppy two-way action with the 10yr UST hitting an intraday high of a bit more than 4.05%. There weren’t many material catalysts to push the market solidly one way or the other though the relentless hawkishness from Fed officials in the US could end up giving yields another push higher. The 2yr UST actually closed stronger with yields down a bit more than 1bps at 4.4286% while the 10yr UST yield closed essentially unchanged.
- Gilts pared initial losses with yields closing lower across the curve. The 10yr gilt yield settled lower by 2bps at 3.935%. German bonds were moderately weaker, with yields up 1bps at 2.276%.
- Neel Kashkari, president of the Minneapolis Fed, said that the Fed couldn’t halt its pace of monetary tightening at the 4.5%-4.75% level if inflation was still increasing. Opening up the idea of 5%+ policy rates may start to get more credence as the inflation story, and general US economy, aren’t showing signs yet of responding to higher rates.
- Saudi Arabia is reportedly looking to buy back as much as USD 15bn of existing bonds and issue new 6yr sukuk and 10yr bonds, denominated in dollars. Pricing for the USD 2.5bn sukuk came in at T+105 and for the USD 2.5bn bond at T+150bps.
- Emirates NBD priced a USD 500m 5yr bond at T+155bps, tighter than initial guidance.
FX
- Currency markets failed to show much conviction in any of their moves overnight with the broad dollar index gaining modestly. EURUSD added 0.17% to 0.9858 while GBPUSD faded some of its gains from earlier in the week, falling by 0.33% to 1.132. USDJPY added another leg higher, nearing in on the 150 level with a 0.15% bump to 149.26.
Equities
- Risk-on sentiment carried over from the US to Asia yesterday morning, with most major indices closing up. The Nikkei and the Kospi added 1.4% and the Hang Seng 1.3%. By contrast, the Shanghai Composite ended the day down marginally at -0.1%.
- The ADX was the major gainer among local markets, as it closed the day 3.5% higher. The DFM gained 1.0% and the Tadawul 2.1%.
- In the US, the rally continued as the NASDAQ gained 0.9% and the S&P 500 and the Dow Jones both added 1.1%. Gains in Europe were more muted but the FTSE 100 closed up 0.2%, the CAC 0.4% and the DAX 0.9%.
Commodities
- Oil prices fell for a third day running as the path of least resistance in the very near term appears to be lower for now. Brent futures fell by 1.7% to USD 90.03/b while WTI fell more than 3% to USD 82.82/b. The US government is planning the final release of its strategic petroleum reserves of the 180m bbl release announced earlier this year and may consider more in the coming winter months.
- Suhail al Mazrouei, the UAE’s energy minister, said that the OPEC+ decision to cut output by 2m b/d was the “right decision” and that the proof was that there was “a decrease in prices” in the week following the decision.
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