Saudi Arabia looks to boost foreign investment

• Saudi Arabia aims to attract over USD 100bn in foreign investment per year and boost domestic investment to USD 453bn per year by offering new incentives to investors, creating special economic zones and updating regulations to boost competitiveness and improve the business environment. There was little detail provided on the types of economic zones or the specific incentives that would be offered, but there were plans to provide some “financing solutions” for the private sector according to press reports.  Detailed investment plans for key sectors will be released in due course.  Earlier this year, Saudi Arabia announced it would boost investment in the kingdom’s economy by SAR 12tn over the next 10 years, again without much detail on how this would be financed.    
• It was a very quiet day in terms of international economic data releases yesterday.  Japan’s producer inflation rose by a higher than expected 0.3% m/m and 6.3% y/y in September, accelerating from the August reading of 5.8% y/y, largely on the back of the surge in commodity prices. 
• ECB chief economist Philip Lane said a one-off increase in wages in response to recent higher inflation wouldn’t necessarily feed through to sustained high inflation, suggesting the ECB may remain dovish on monetary policy relative to the US Federal Reserve in the coming months.
• The UK and the EU are set to release new policy proposals on Northern Ireland this week which may further increase tensions between the two parties.  The UK is expected to call for a significant change to the Northern Ireland Protocol that has effectively put a border between mainland UK and Northern Ireland, and argue that the European Court of Justice has no authority over the agreement.
• Key data releases today include UK employment and wage data for September and the German ZEW survey.  In the US, the JOLTS data is expected to show almost 11mn job openings in August.

Today’s economic data and releases

10:00 UK ILO unemployment 3m/3m (Aug) forecast 4.5% prev. 4.6%

10:00 UK Average weekly earnings (Aug) forecast 7.0%

13:00 GE ZEW survey expectations (Oct) forecast 23.5 prev. 26.5

13:00 GE ZEW survey current situation (Oct) forecast 28.0 prev. 31.9

18:00 US JOLTS job openings (Aug) forecast 10.95mn

Fixed Income

• Cash US Treasury markets were closed at the start of the trading week thanks to a public holiday in the US. In the futures market, 10yr TY futures sold off, extending last week’s losses. In early trade today the curve is bear flattening with 2yr UST yields up almost 3bps to 0.3477% while the 10yr UST yield is sliding lower.
• Gilt yields moved higher, adding 3bps on the 10yr as the market responded to further hawkish commentary from central bank officials at the Bank of England. The odds of a rate hike by the end of 2021 from the BoE are increasing with markets pricing in a December hike.
• Even though US markets were closed, emerging market bonds still had no reason for cheer and extended their current slump. Yields on 10yr Turkish government bonds rose above 18% over, gaining 7bps, while South African 10yr yields are closing in on 9.9% after rising 4bps overnight. Indian yields added almost 3bps to settle at 6.3%.

FX

• The dollar opened the week on a stronger footing with the DXY index gaining 0.3% to settle at 93.42 after some early stumbles. EURUSD fell 0.15% overnight to 1.1552 as the chief economist at the European Central Bank pushed back against the threat of a wage-price spiral sending inflation higher.
• Most of the dollar’s gains came via the yen with USDJPY adding almost another full 1% to settle above the 113 level. The next level in focus would be around 114.50. GBPUSD failed to get any benefit from the BoE’s increasingly hawkish turn with sterling slipping by 0.15% to 1.3595.
• Among the commodity currencies it was a day for AUD to shine, gaining 0.57% to settle at 0.7351, while USDCAD was little changed.

Equities

• The three benchmark US indices all closed lower to start the week, with fairly pronounced moves despite the public holiday. The NASDAQ dropped -0.6% while the S&P 500 and the Dow Jones both lost -0.7%.
• One notable gainer was Japan’s Nikkei, where new Prime Minister Fumio Kishida had sought to placate investors by assuring them that his talk of a new form of Japanese capitalism did not entail capital gains taxes. The index closed up 1.6% yesterday but has already ceded some of those gains as it is down -0.9% so far this morning, part of a broader sell-off in Asian equities today.
• Another notable gainer yesterday was the UK’s FTSE, which added 0.7%, compared to a drop of -0.1% for the DAX and a lacklustre 0.2% gain for the CAC. This took the UK index to its highest close in a month, with banks and mining firms among those driving the gains.
• Within the region, the ADX gained 0.7% but the DFM (-0.1%) and the Tadawul (-0.7%) both lost. The EGX 30 added 0.5%, a fifth day of gains for the index.

Commodities

• The relentless rise in oil futures continues with Brent futures up 1.5% overnight to USD 83.65/b and WTI settling at USD 80.52/b, up 1.5% and its first close above USD 80/b since 2014 when the current long-run oil price cycle began.
• Qatar’s energy minister said it was not in the country’s strategy to rejoin OPEC as its economic trajectory lies firmly on natural gas. Qatar, a relatively small oil producer, left OPEC in 2018 and does not participate in the OPEC+ production agreements.

Click here to download charts and tables