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Daily Economic Update
22.04.2025US: The ‘Sell America’ trade intensifies as Trump persists in attacking the Fed for not cutting interest rates. President Trump continued to criticize the Fed for not cutting interest rates, saying that the economy could slow “unless Mr. Too Late, a major loser, lowers interest rates, NOW”, referring to Fed Chair Powell. Meanwhile, the Fed has maintained its cautious stance due to concerns about higher inflation against the tariff backdrop. Last week, US Economic Council Director Kevin Hasset mentioned that the president was looking for avenues through the judicial system to remove Powell from his post. As financial markets become increasingly concerned that such interference in the Fed’s independence is undermining US dollar credibility, the safety of US treasuries and causing capital outflows, the ‘Sell America’ theme has been intensifying. Monday saw the S&P 500 fall 2.4%, the dollar index (DXY) drop below 98, a three-year low (and down about 10% ytd), and UST 10Y bond yields rise above 4.4%. Current US administration attempts to discredit and remove Chair Powell, if successful, risk scarring to USD assets and the economy at large. Still, the ongoing, heightened uncertainty about the administration’s policies, including trade tariffs, attacks on federal regulators, attempts to cut federal spending that are increasingly subject to legal challenge, immigration crackdowns, along with the deteriorating public debt profile, could keep financial markets on edge over the coming period.
Japan: BoJ faces complex policy landscape amid rising yen, external headwinds. Figures last week showed headline inflation eased for the second straight month in March, to 3.6% y/y, from January’s two-year peak of 4.0%. However, core inflation (excl. fresh food) accelerated to 3.2% from 3.0% in February, exceeding the Bank of Japan’s (BoJ) target for a thirty sixth consecutive month. The closely watched "core-core" measure, which excludes both fresh food and energy, climbed to 2.9% from 2.6%, confirming the persistence of broad-based inflation beyond the food category. Amid these price trends, market expectations of further BoJ rate hikes and US dollar weakness, the yen has appreciated, reaching its strongest level vis-à-vis the US dollar (currently trading at JPY141/$) since mid-September 2024. Still, the BOJ faces a complex policy landscape, balancing persistent inflation against external headwinds such as the imposition of US tariffs and a fragile global trade environment. Consequently, the BoJ is expected to maintain its benchmark interest rate at 0.5% at its upcoming policy meeting in May, with future rate hikes potentially delayed amid the economic uncertainties.
Saudi Arabia: Implementation of VAT refund for visitors. Tourists traveling to Saudi Arabia will now qualify for a full refund on the 15% Value Added Tax (VAT) they incur on products and services purchased during their stay. The Zakat Tax and Customs Authority (ZATCA), the body responsible for administering the tax, will authorize one or more approved service providers to facilitate tax refund services to tourists upon their departure from the Kingdom. The policy, which became effective on April 18, is intended to maintain the competitiveness of Saudi tourism after the UAE implemented its own VAT refund policy in December. The refund may incentivize greater spending by tourists, which alongside the continued growth in visitor numbers, could offset a possible negative initial effect of the refund on tax income.
UAE: Dubai inflation eases in March on steeper declines in transport prices. Dubai consumer price inflation continued to soften in March, easing to 2.8% y/y from 3.2% in February. The reading in March was also the first to show inflation declining in month-on-month terms since July 2024. Slower inflation came mainly due to sharper declines in the transport segment (-3.3% y/y from -0.9% in February), in line with the fall in fuel pump prices during the same month (-10.8% y/y). Moreover, the housing segment logged its softest yearly increase (7.2% y/y) since October 2024, while price rises in the recreation and culture sub-group eased to 1.7% (3.9% in February). Rising trade uncertainties, the escalation in protectionism, supply chain disruptions, and a weakening US dollar represent upside risks to inflation in 2025. However, the impact of these policies could weigh negatively on global oil prices and domestic demand, dampening the projected inflation print for Dubai in 2025 to about 2.7% from 3.3% in 2024.