US inflation data in focus

By Khatija Haque

The focus today is on the July inflation data in the US. The headline rate is expected to tick up to 3.3% y/y from 3.0% in June due to higher m/m energy prices and base effects. Higher oil prices may boost m/m CPI going forward but on an annual basis will still be a drag on headline inflation until the end of this year. Core inflation, which excludes volatile food and energy prices, is forecast to moderate (slightly) to 4.7% y/y in July from 4.8% y/y.

Dubai's PMI slipped to 55.7 in July from 56.9 in June according to compiler S&P Global. While business activity rose at a sharp pace, new work growth slowed from June, as did private sector employment. Price pressures remain muted with almost no change in input costs and further discounting in selling prices. The three key sectors surveyed also saw their sector PMIs soften in July; however all the sector indices are still in the mid-50s which indicates a solid improvement in business conditions last month.

Today’s key economic data and events

08:30 RBI repurchase rate forecast 6.5%
11:00 Turkey industrial production (Jun) forecast -2.3% m/m and -3.0% y/y
12:00 ECB economic bulletin
16:30 US CPI (Jul) forecast 0.2% m/m and 3.3% y/y
16:30 US initial jobless claims (230k) forecast 230k

Fixed Income

Yields on the front end of the UST curved edged higher ahead of the release of the July CPI report later today. Yields on the 2yr added about 6bps to 4.808% while the 10yr closed lower at 4.0081%, down about 1bp.
Bond markets generally were supported overnight with both emerging market and high yield bonds gaining. Turkey’s 10yr USD bonds were an outlier, dropping marginally with yields nudging higher by about 2bps to 8.126%.

It was a somewhat choppy day in currency markets overnight. GBPUSD dropped by 0.2% at the close to settle at 1.2719 while EURUSD had a modest upward bias to pull higher by about 0.2% to 1.0974. USDJPY added for a third day running, up 0.2% at 143.73.
USDCAD closed near unchanged at 1.3419 while both AUD and NZD fell 0.2% to 0.6528 and 0.6052 respectively.

Equities

Asian equity markets were on the back foot yesterday with the exception of the Hang Seng which ended the day 0.3% higher. Weak Chinese inflation data weighed on sentiment elsewhere and the Shanghai Composite ended down 0.5%. The Nikkei also lost 0.5% yesterday.
European equities were buoyed yesterday by the news that Italy would water down its windfall tax on banks. The FTSE MIB ended the day 1.3% higher, while the composite STOXX 600 added 0.4%.
In the US, the Dow Jones, the S&P 500, and the NASDAQ dropped 0.5%, 0.7%, and 1.2% respectively with tech firms driving the losses.
Locally, both the DFM and the ADX ended down, 0.2% and 0.4% respectively, while the Tadawul closed up 0.4%.

Commodities

Oil prices hit near their highest levels for the year overnight with Brent futures up 1.6% at USD 87.55/b and WTI adding USD 1.8% to USD 84.40/b. WTI prices are actually at their highest level since November last year.
US crude inventories rose by almost 6m bbl last week according to the EIA while there were decent draws in gasoline and distillates. Oil production rose sharply, up by 400k b/d to 12.6m b/d.