18 October 2023, Emirates NBD
Dubai CPI rose to 3.8% y/y in September, up from 2.3% in August. On an annual basis there were notable increases in the food and beverages, education, and clothing and footwear categories. The largest influence on the September figure was however the transport sub-component. On the month the pace of deflation in the transport slowed to -0.4% y/y from -11.2% y/y in August. On a month-on-month basis headline inflation rose 0.9% in September from 0.5% in August.
There was further evidence of a cooling in the UK labour market, with the number of payroll employees declining 11,000 in September. This came on top of a revision to the August print, which now suggests that the number of payroll employees fell 8,000 rather than the 1,000 drop originally published. There was also a fall in job vacancies in the three months to September, declining to 0.988m from 0.998m in the three months to August. This weakening in labour demand appears to be reflected in wage growth, with earnings rising at a slower pace. Headline average weekly earnings rose 8.1% in the three months to August, when compared to the same period in 2022, down from 8.5% 3m/YoY in July.
Germany’s ZEW survey of investor expectations rose sharply in October, beating expectations. Although the forward-looking survey measure increased from -11.4 in September to a value of -1.1 in October, it remains at a low level. The improvement was likely driven by the majority of respondents being of the view that interest rates have reach a peak. The current conditions index in contrast painted a more negative picture of the German economy, declining from a value of -79.4 in September to -79.9 in October.
Growth in September’s US retail sales surprised on the upside, growing 0.7% m/m, compared to consensus expectations for a 0.3% gain. The figures are unadjusted for inflation and will therefore have been boosted by higher gasoline prices. However, even when gasoline and automobiles are excluded, retail sales growth remained robust at 0.6% m/m, pointing to continued resilience in consumer spending in Q3.
Industrial production data for September provided additional evidence of strength in the US economy, growing 0.3% m/m. This outturn was higher than expectations for activity to have been unchanged on the month, and an uptick from the 0% m/m growth recorded August. A variety of sub-sectors saw solid growth including a 0.4% m/m rise in mining output on the back of higher crude production.
There was further evidence of a stabilization in Chinese economic activity, with better-than-expected GDP, retail sales and Industrial production numbers published this morning. Chinese GDP rose 4.9% y/y in Q3, better than the 4.5% growth that had been expected. While this is lower than the 6.3% y/y growth seen in Q2, it is worth noting that the Q2 figure was flattered by Covid lockdown base effects. On a quarter-on-quarter basis, Q3 GDP rose 1.3%, up from a downwardly revised 0.5% in Q2. In addition, industrial production rose 4.5% y/y in September, slightly higher than consensus expectations for a 4.4% gain. Retail sales also improved, gaining 5.5% y/y in September, up from 4.6% the month prior. The residential property market nonetheless continues to act as a drag on economic activity, with property investment falling by a worse-than-expected 9.1% y/y YTD in September.
Today’s Economic Data and Events
10:00 UK CPI, Sept. Forecast: 6.6% y/y
US Treasury yields rose again on Tuesday, driven by better-than-expected retail sales and industrial production prints. The 2yr yield rose 11bps to reach 5.209% while the 10yr yield climbed just under 13bps to 4.834%.
There were also gains in yields across the majority of European bond markets. The 2yr German Bund yield added 3bps to 3.173% and the 10yr Bund yield rose 10bp to reach 2.879%. The UK 10yr Gilt yield added 3bps to reach 4.509%. The 2yr Gilt yield was the outlier in European markets, declining 4bps on news of slower wage growth, to 4.838%.
The movement of major currencies against the dollar was mixed on Tuesday. EURUSD rose 0.16% to 1.0577, while GBPUSD fell 0.28% to reach 1.2183. USDJPY rose 0.2% to 149.81.
Commodity currency moves were also mixed, with AUDUSD gaining 0.36% to 0.6365 while NZDUSD fell 0.51% to 0.5897. USDCAD gained 0.27% to 1.3648.
There was little concrete movement from global equity markets yesterday. In the US, the S&P Global and the Dow Jones both closed almost flat, while the NASDAQ ended the day 0.3% lower.
Earlier, the STOXX 600 had closed down 0.1% but the CAC and the DAX both added 0.1% while the UK’s FTSE 100 closed up 0.6%.
Locally, the DFM fell 0.2% while the ADX added 0.8%. Saudi Arabia’s Tadawul closed 1.0% higher.
Oil prices rallied once more later in the session yesterday as they continue to be driven by regional geopolitical tensions. Brent futures closed up 0.3% to close at USD 89.9/b and have added a further 2.4% in early trading this morning to USD 92.1/b. WTI closed flat yesterday at USD 86.7/b but has added 2.7% so far this morning.