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Daniel Richards - MENA Economist
Published Date: 19 November 2020
CPI inflation in the UK hit 0.7% y/y in October, exceeding expectations that price growth would be the same as the previous month at 0.5%. On a m/m basis, inflation was 0.0%, compared with September’s 0.4%. Clothing was one of the bigger drivers of higher prices, but food prices also took the headline figure higher, and this will likely accelerate in November as restaurants shut again under the current lockdown, driving up demand for foodstuffs from supermarkets. Even should inflation accelerate further through the end of the year, it is still less than half the Bank of England’s current target rate of 2.0%, although the risk of no trade deal being agreed with the EU could see it rise. While the UK-EU trade deal remains in the balance, there was some positive news for the UK yesterday as the UK’s Department for International Trade said that talks regarding a trade deal with Canada were at an advanced stage.
US housing starts beat expectations in October at 1.53mn, compared to consensus of 1.46mn. This was 4.9% greater than the upwardly revised 1.46mn recorded in September, perhaps indicating that the ultra-loose monetary policy being pursued by the Fed is encouraging activity in the housing sector. The potentially long-lasting structural changes to working patterns wrought by the pandemic could also be playing a part in boosting activity.
The virtual G20 summit is scheduled to start in Saudi Arabia this weekend. Speeches by world leaders are expected to focus on the global recovery from the Covid-19 crisis, with a focus from some on rebooting multilateralism, a green agenda, and support for poorer countries struggling to deal with the fallout from the pandemic.
Source: Bloomberg, Emirates NBD Research
Treasuries oscillated in a narrow range overnight but ended the day broadly lower with yields across the curve showing some modest pick-up. However, most of those improvements in yields have already been given back in early trade today with the 2yr UST at 0.1692% and the 10yr at 0.8505%.
Aramco’s USD 8bn issue dominated regional bond markets yesterday. Early market indicators show the deal doing well with the new Aramco 2030 gaining after opening.
Dollar selling continued in FX markets overnight with Sterling and JPY the notable gainers. GBP continues to benefit from expectation that a trade deal will be agreed between the UK and EU soon. GBP closed up 0.2% at 1.3273 but has given back those gains in early trade today following reports that EU members are planning to prepare for a no-deal Brexit.
The optimism in equities over the past couple of weeks continued to moderate, with all three major US indices closing lower amidst an atmosphere of rapidly rising Covid-19 cases and more state-wide restrictions. The NASDAQ lost -0.8% yesterday, while both the Dow Jones and the S&P 500 lost -1.2%.
In the region, the DFM and the Tadwaul both eked out gains at 0.3% and 0.6% respectively, and a similar story of modest expansion was seen in Europe, with the FTSE 100 climbing 0.3% and both the CAC and the DAX closing 0.5% higher.
Oil prices closed higher overnight thanks to a smaller than anticipated build in US crude stocks reported by the EIA. Brent futures gained 1.3% to close at USD 44.34/b while WTI settled shy of a 1% gain at USD 41.82/b.
However, oil market chatter will be dominated by a reported plan from the UAE that it may consider leaving OPEC. OPEC+ has yet to formalize a plan for how to deal with the next steps of production cut agreement and extending output cuts will weigh heavily on the domestic economy and will not guarantee that prices will rise near to levels that will provide a fiscal boost to the UAE, among other OPEC members.
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