"Al-Watani": Continued rise in energy prices increases inflationary pressures

The National Bank of Kuwait report noted that markets continued to focus on strong economic data, rising Treasury yields, and developments in the geopolitical landscape. New applications for US unemployment benefits remained near their lowest levels in approximately six decades last week, indicating that the labor market has regained strength after a period of slowdown during the summer and continues to show resilience despite economic uncertainty linked to tensions in the Middle East.

The latest weekly jobless claims report issued by the US Department of Labor pointed to continued stability in the labor market, with expectations for the unemployment rate to remain at 4.1% in September. Additionally, the number of individuals receiving unemployment benefits stayed close to a three-year low during the period used to calculate the monthly unemployment rate.

The report stated that heightened geopolitical tensions in the Middle East have driven up energy prices, with diesel prices reaching record levels. It highlighted warnings from economists that sustained high energy prices could ultimately lead to increased inflation and pressure on economic activity overall. However, recent surveys of business activity indicate the continued strength of the US economy, as private sector activity grew at its fastest pace in over five years, alongside rising price pressures. Initial claims for state unemployment benefits fell by 1,000 to 197,000.

The report noted that yields on 10-year US Treasury bonds remained stable at around 5.11%, staying close to their highest levels since July 2007, after rising 16 basis points in the previous session. The rise in yields was driven by weak demand in a $70 billion auction of 5-year Treasury bonds, as well as the release of strong US economic data showing private sector activity grew at its fastest pace in over five years in September. Accelerating activity and rising price pressures have fueled concerns about persistent high inflation, while several Federal Reserve officials continued to support tightening monetary policy.

The report indicated that markets currently price in a roughly 70% probability of the Federal Reserve raising interest rates again in October, up from 55% the previous day.

Meanwhile, rising oil prices, amid uncertainty surrounding US-Iran negotiations, have added further pressure to inflation expectations.

In the United Kingdom, manufacturing sector activity showed signs of stability, with order books improving to their strongest levels in over a year. Meanwhile, Bank of England Governor Andrew Bailey adopted a more hawkish tone, warning that rising energy prices might necessitate further monetary tightening, thereby bolstering expectations for an interest rate hike in November.

Australian markets continued to price in a 25-basis-point interest rate hike by the Reserve Bank of Australia to 4.6%, amid persistent inflation and robust growth. Although the unemployment rate rose to 4.6%, job growth exceeding expectations and an increase in the labor force participation rate indicated that the fundamental pillars of the labor market remain strong.

The Japanese yen rose, approaching the 158 yen per dollar level, amid growing speculation about potential intervention by Japanese authorities.