China PMI picked up in December

• China’s official manufacturing Purchasing Managers' Index (PMI) rose to 50.3 from 50.1 in November, according to data from the National Bureau of Statistics. Data from the statistics bureau showed a sub-index for new orders improved slightly in December but remained in contraction, at 49.7 versus 49.4 in November. New export orders shrank further, with the sub-index coming in at 48.1 compared with 48.5 a month earlier, reflecting fragile overseas demand. A sub-index for production remained in positive territory at 51.4 but was lower than November's 52.0. China’s economy has faced headwinds since the early summer after rebounding from last year's pandemic slump, on the back of a slowing manufacturing sector, debt problems in the property market, carbon emissions-related curbs, and small-scale Covid-19 outbreaks. China’s Vice Commerce Minister Ren Hongbin warned on Thursday the country will face unprecedented difficulty in stabilising trade, as production capacity in other exporting countries recovers from Covid-induced shocks and competes with Chinese exports.
• Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, approved an AED 181bn budget for 2022-24, with the general budget for the fiscal year 2022 at AED 59.95bn of expenditure. Salary and wage allowances of the 2022 budget account for 34% of total government spending, grant and social support expenditure accounts for 21%, 4% to capital expenditures,  4% debt servicing, 9% on infrastructure projects while 2% will be kept as special reserves. The government has allocated an amount of AED 5.2bn for construction projects. Public revenue this year is expected to reach AED 57.55bn, 10% over 2021 revenue, the government expects 57% of its revenue this year to come from fees, 20% from taxes, including VAT, 10% customs fees, 6% from oil, 6% from returns on government investments and 1% cent from taxes on foreign financial institutions.
• South Korea's exports expanded at the fastest pace in 11 years in 2021, they rose 25.8% y/y to USD 644.54bn, a record high, trade ministry data showed on Saturday. That also marked the first growth in three years after contractions of 5.5% y/y and 10.4% y/y in 2020 and 2019, respectively. A breakdown by items showed exports of semiconductors jumped 29% y/y to a record USD 128bn, while those of petrochemicals also surged 54.8% y/y to a record USD 55.1bn. Other items such as cars and steel jumped 24.2% y/y and 37% y/y respectively. By destination, exports to China, South Korea's biggest trading partner, rose 22.9% y/y, and those to the US and the EU jumped 29.4% y/y and 33.9% y/y. Meanwhile, imports jumped 31.5% y/y to a record USD 615.1bn, rebounding from a 7.1% y/y contraction in 2020.
• India's current account balance moved back into deficit at USD 9.6bn or 1.3% of GDP (compared with a surplus of USD 15.3 bn in the same period a year ago) in the three months from July to September (Q2 of fiscal year 2021/22), mainly due to the widening of the trade deficit, the Reserve Bank of India (RBI) said on Friday. RBI said net services receipts decreased marginally over the previous quarter but increased y/y on the back of a robust performance from computer and business services exports. Private transfer receipts, mainly remittances by overseas Indians, rose 3.7% y/y, while net foreign direct investment had an inflow of USD 9.5bn, lower than USD 24.4bn in the same quarter a year ago. India’s balance of payments stood at a surplus of USD 31.2bn in Q2 of the financial year, compared with a surplus of USD 31.6bn a year earlier.

Today’s Economic Data and Events

11:00 Turkish CPI inflation, % y/y. Forecast: 27.4%

12:55 German Manufacturing PMI (Dec) Forecast 57.9

Fixed Income

• Rates on US treasuries had a fairly rollercoaster year in 2021, as bets on FOMC tightening prompted a sharp rise in rates over the first quarter which subsequently eased off again over Q2. Yields on the 10-year ended December at 1.5101%, up 59.7bps over the year, while the 2-yr added 61.1bps to end the year at .7322.
• Yields have trended higher in recent weeks as concerns around the Omicron variant have receded and the tone from the Federal Reserve has turned decidedly more hawkish, as it starts to focus more on the inflation side of its dual mandate rather than its apparent previous focus on the labour market recovery, though some of the upward moves were driven by relatively thin trading.
• Israel’s central bank is due to announce its rate decision today, while Poland will follow tomorrow. Minutes from the December FOMC meeting are due for release overnight on Wednesday.

FX

• The dollar index closed the year at 95.67, a gain of 6.4%. This was the biggest annual gain since 2015 for the greenback against its basket. The index slipped modestly in December, dropping -0.3% over the month.
• This relative December dollar weakness was in part owing to gains by the British pound following the Bank of England’s decision to hike rates at its MPC meeting that month. GBP added 1.8% over December to close the month at 1.3532, though it remained down -1.0% from its year-ago level.
• The euro also saw some modest gains against the greenback in December, adding 0.3% over the month to end the year at 1.1370. However, over 2021 as a whole the currency was much weaker, dropping -6.9% to its lowest annual close since 2016.
• Within the wider region, a notable mover over 2021 was the Turkish lira, which fell from 7.4404 to 13.3040, having briefly breached the 16 handle in December.

Equities

• 2021 was another stellar year for developed market equity markets, with indices hitting fresh record highs as they were boosted by easy monetary and fiscal policy and the reopening fillip. The MSCI World Index (DM only) gained 20.1% over the period, compared to a -4.6% y/y loss on the EM equivalent. In the US, the broad-based S&P 500 was the primary gainer, adding 26.9% over the year, lagged by the NASDAQ (21.4%) and the Dow Jones (18.7%). The UK’s FTSE 100 added 14.3%, coming in behind France’s CAC (20%) and Italy’s FTSE MIB (23%).
• Trading was thin over the holiday period, but the moves were largely positive as concerns around the Omicron variant of Covid-19 dissipated amongst signs that it is not as deadly as first feared. While the NASDAQ dropped -0.1% w/w both the S&P 500 (0.9%) and the Dow Jones (1.1%) both higher. In Europe, Germany’s DAX was the key gainer, adding 1.9% w/w, while the CAC gained 0.9% and the FTSE 100 0.6%. In Asia, Indian markets had a strong week, with both the SENSEX and the NIFTY adding around 2% w/w. The Hang Seng gained 0.9% and the Shanghai Composite added 0.6%, but Japan’s Nikkei closed flat over the week to close up just 5.6% y/y.
• Within the region, the DFM added another 1.6% w/w for a y/y gain of 23.9% as the index is bolstered by new listings. This still lagged the ADX however, which added 65.9% in 2021 with a 0.7% gain last week. The Tadawul closed up 30.2% in 2021.

Commodities

• Oil prices saw a gain of around 50% in both primary benchmarks over 2021, with Brent futures ending the year at USD 77.8/b (up 50.2%) and WTI at USD 75.21/USD (up 55.0%), both of which were the highest closes for the benchmarks since 2013. The ongoing recovery in demand following the pandemic crisis, alongside tight policy from OPEC+ producers helped the recovery.
• The year-end levels were down from the near-USD 85/b highs hit in late October and early November, as fears around the Omicron variant had saw some downward action back to nearly USD 65/b. However, as concerns around the new strain have abated, prices have recovered once more, with Brent futures adding 10.2% in December.
• Prices are moving upward in early trading this morning, as an outage in Libyan oil production has tightened the market ahead of the OPEC+ meeting tomorrow. The producers’ group is expected to maintain the signposted 400,000 b/d in production reintroduced each month.