US labour market remains tight

The latest reading of both initial and continuing jobless claims suggested a marginal softening in what is still nonetheless a tight US labour market. The readings should however be treated with some caution as they tend to be volatile on a week-by-week basis and may have been affected by unseasonable weather. Initial claims rose by 211K in the week ending 4 March, above expectations for a 195K rise, and higher than the 190K the week prior. The uptick in claims were concentrated in California and New York. The rise in claims from New York may have been boosted by a renegotiation of employment contracts that allow school staff to claim benefits during school holidays. Continuing claims rose to 1718K in the week ending 25 February. The was again above both expectations and the previous week’s reading of 1655K.  

Egypt’s CPI inflation rose to 31.9% y/y in February, up from 25.8% in January. Prices were 6.5% higher than the previous month. The multiple moves lower by the Egyptian pound against the USD over the past year, alongside strong domestic demand and some residual issues around raw materials costs have all contributed to the acceleration in price growth. Food prices were up 61.8% y/y. Inflation is now at levels last seen in August 2017, in the wake of Egypt’s last IMF-mandated currency adjustment. With the pound still under pressure, Ramadan about to start, and fuel prices having been raised at the start of March, price growth will likely remain strong on a monthly basis, although the pass-through of late-March 2022’s FX move should alleviate some of the y/y pressures from April onwards. The CBE’s next rate decision is due on March 30.

Saudi Arabia published its final Q4 2022 GDP growth figures yesterday, with a modest upwards revision on the initial reading, to 5.5% y/y compared with 5.4% previously. This marked a slowdown from the 10.0% growth averaged over the previous three quarters, as favourable base effects in the oil sector eased and production was cut compared with Q3. This year we forecast headline GDP growth of 3.1% with the non-oil sector driving the bulk of the expansion with 5.5% growth compared with 0.5% growth in the oil sector.

DEWA has said that it has a “clear target” to support Dubai’s Clean Energy Strategy and Net Zero targets thanks to investment to expand the emirate’s renewables capacity. Solar capacity at the Mohammed bin Rashid al Maktoum Solar Park will more than double to 5,000 MW by 2030 from capacity of around 2,000 MW at present, according to DEWA CEO Saeed Mohammed al Tayer, while investment will also carry on at a pumped storage hydropower at Hatta. Along with the investments into renewables, DEWA will also retrofit buildings to improve their energy efficiencies as well as expand the network of electric vehicle charging sites. The UAE has set a target of net-zero carbon emissions by 2050.

Today’s Economic Data and Events

• 11:00 UK Industrial production Jan: forecast 0% m/m
• 17:30 US Non-farm payrolls Feb: forecast 225K

Fixed Income

• US Treasuries rallied sharply later in the US session, recouping some of their losses from earlier in the week on the back of Fed chair Jerome Powell’s hawkish commentary. Yields on the 2yr UST fell 20bps to close at 4.87%, helped by risk-off moves and a strong 30yr UST auction. The 10yr UST yield fell 9bps to 3.9032%.
• European bond markets were a bit quieter with German 10yr yields edging slightly lower to 2.633% though gilt yields in the UK added 3bps to 3.791%.

FX

• Currency markets generally moved against the dollar overnight, making up for some lost ground earlier in the week. EURUSD pulled upward by 0.3% to 1.0581 while GBPUSD added almost 0.7% to 1.1925. USDJPY dropped by 0.9% to 136.15.
• Commodity currencies, however, moved in favour of the US dollar. USDCAD added 0.2%, closing higher six days in a row and settling at 1.3828. NZDUSD dropped by 0.1% to 0.61 while AUDUSD was the strongest of the bunch, only closing with a modestly higher bias 0.659.

Equities

• Selling pressure was to the fore yesterday, with most major global equity indices ending the day down. Japanese stock markets were outliers as the Nikkei added 0.6% and the Topix 1.0%, but elsewhere in East Asia the Kospi closed down 0.5% while the Shanghai Composite lost 0.2% and the Hang Seng lost 0.6%. In India, both the Nifty and the Sensex ended the day 0.9% lower.
• The bearish momentum continued in Europe, where the composite STOXX ended down 0.2%. The DAX managed to close flat but the CAC dropped 0.1% and the FTSE 100 ended down 0.6%.
• In the US, trouble in the banking sector led to the sharpest loss in two weeks for the S&P 500 as it dropped 1.9% on the day. The Dow Jones lost 1.7% and the NASDAQ 2.1%.
• Locally, the DFM dropped 0.5% and the ADX 0.8%. In Saudi Arabia, the Tadawul closed up 0.5%.

Commodities

• Oil prices extended losses overnight with Brent futures down 1.3% at USD 81.59/b and WTI giving up 1.2% at USD 75.72/b. There was no major fundamental catalyst to push prices beyond the general risk-off tone to markets following hawkish comments from Fed chair Jerome Powell earlier in the week.
• Global benchmark wheat prices remain relatively soft, down 3% overnight to USD 653/bu. The Black Sea grain export corridor agreed between Russia, Ukraine and Turkey will be up for renewal in a few weeks’ time with Russian negotiators currently meeting UN officials.