19 October 2021
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US manufacturing slips


By Emirates NBD Research

  • US Manufacturing output dropped 0.7% m/m last month, the largest decline since February, according to a report issued by the Federal Reserve. Data for August was revised down to show production falling 0.4% m/m instead of rising 0.2% m/m as previously reported. It was only the second time since April 2020 that manufacturing output fell for two straight months. Output increased 4.8% y/y compared to September 2020. Manufacturing, which accounts for 12% of the US economy, is underpinned by businesses desperate to replenish stocks after inventories were drawn down in the first half of the year amid solid demand for goods. Production at auto plants tumbled 7.2% m/m after dropping 3.2% m/m in August. Motor vehicle assembly dropped to an annualized rate of 7.78mn units, the lowest since April 2020, from a pace of 8.82mn units in August. Excluding autos, manufacturing output dropped 0.3% m/m. The Fed said Hurricane Ida, which devastated US offshore energy output in August, contributed 0.3 percentage points to the drop in manufacturing output. Overall, manufacturing output increased at a 5.3% q/q in the third quarter after growing at a 5.0% q/q in the second quarter. Capacity utilization for the manufacturing sector fell 0.6% m/m in September to 75.9%. Overall capacity use for the industrial sector dropped 1.0% m/n to 75.2%. It is 4.4% below its 1972-2020 average
  • European Central Bank policymaker Ignazio Visco said yesterday that the factors pushing up inflation in the euro zone, namely higher commodity prices and supply disruptions, are transitory but they may last well into next year. He added market expectations for an ECB interest rate hike in late 2022 were not that consistent with the bank's guidance, which says rates will stay at rock bottom until inflation is seen stably at 2%.
  • Confidence among US single-family homebuilders rose by 4 points according to the National Association of Home Builders/Wells Fargo Housing Market Index - the most since November 2020 - to 80 this month. Customer traffic improved for a second straight month but builders remain concerned over shortages that are driving up materials prices impacting home affordability. A reading above 50 indicates that more builders view conditions as good than poor. All three subindexes improved, and conditions were seen as better in all four regions tracked in the monthly survey. The current conditions index rose 5 points to 87, the highest since June; the index measuring sales expectations for the next six months rose 3 points to 84, the highest since last December; and the customer traffic index improved by 4 points - the most since February - to 65.

Today’s economic data and releases

16:05 GB BoE Gov Bailey Speaks

16:30 US Building Permits (Sep) Forecast 1.680M

Fixed Income

  • Yields on USTs climbed earlier in the day before retreating later in the session. The 10-yr ended at 1.549, up 1bps, while the 2-yr closed almost where it started, up marginally from 0.3580 to 0.3560.
  • As CPI inflation in New Zealand soared to a 10-year high of 4.9% y/y over 3Q in data released yesterday, yields on New Zealand bonds also spiked. The 10-yr yield climbed 16bps to 2.410%, while the 2-yr rose by 24bps to 1.680%.
  • Hawkish language from BoE governor Andrew Bailey prompted a sharp rise in UK gilt yields on the first day of the week as expectations for 2022 rate hikes rose. Yields on 2-yr gilts added 14bps to 0.723% while the 10-yr climbed a more muted 2bps to 1.136%, suggesting expectations of slow growth or a policy misstep.
  • The UAE is reportedly looking into issuing local debt at the federal level, following on from its USD 4bn Eurobond issuance last week, although this is unlikely to materialise this year. The authorities are also looking into offering green bonds.
  • Hungary and Indonesia’s central banks are due to meet today. Expectations are for a hold at 3.5% in Indonesia, and a further 15bps hike to 1.8% in Hungary.


  • The dollar was bid yesterday as inflation fears and weak Chinese data weighed on risk sentiment, but gave up most of its gains later in the day as poor US industrial data was released to close almost unchanged at 93,953.
  • Despite the sharp rise in kiwi bond yields, the NZD ended the day comparatively unchanged, losing -0.2% against the USD to 0.7051. There was a more pronounced -0.4% loss against the greenback for the China proxy AUD, negatively impacted by the weak Chinese GDP data released yesterday. It closed at 0.7388.
  • The prospect of tightening in the UK has been taken as bad for growth and bad for the pound. Cable fell -0.1% to 1.3732 yesterday.


  • Moves in East Asian equity markets were fairly sedate on Monday after the gains last week, but what movement there was was primarily to the downside following disappointing GDP growth data from China. While the Hang Seng continued to trend upwards with a gain of 0.3%, the Shanghai Composite (-0.1%), the Nikkei (-0.2%) and the KOSPI (-0.3%) all closed down.
  • Movement was more positive in India, where stocks were boosted by finance minister Nirmala Sitharaman’s Sunday interview which in she backed up the ongoing pandemic-era stimulus. The Sensex closed 0.8% higher.
  • In Europe, the general risk-off tone following the China results continued, with the composite STOXX 600 losing -0.5%. The FTSE 100 lost -0.4%, the DAX -0.7% and the CAC -0.8%. However, in the US, only the Dow Jones closed lower (-0.1%), while the S&P 500 (0.3%) and the NASDAQ (0.8%) managed to secure gains.


  • Following the strong gains last week (3.0% w/w for Brent futures, 3.7% for WTI), both key oil benchmarks continued to head higher yesterday in early trading before Brent lost ground later in the day. After heading up by over 1% earlier in the session, Brent closed down -0.6% at USD84.33/b. WTI clung on to some of its gains, adding 0.2% to USD 82.4/b.
  • Both benchmarks are heading higher again in early trading this morning. Prices are rising on the back of a global energy crunch and ongoing commitment by OPEC+ to its previously planned increase in oil production of 400,000 a month. Bloomberg reported that compliance with production curbs was 116% in August, while noting that this could have been due to an inability to raise production rather than an overzealous commitment to curbs.

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Written By


Emirates NBD Research Research Analyst

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