US services activity picks up at the end of the year

The ISM services index in the US improved in December, rising to 54.1 on the headline from 52.1 a month earlier. There were improvements across most components of the index, including business activity, new orders and supplier deliveries while employment was roughly flat. More worryingly though, prices paid rose to 64.4 in December, up from 58.2 a month earlier and at its highest level since early 2023. Elsewhere in the US the total number of job openings increased to 8.098m in November, up from 7.839m a month earlier according to the latest Jolts report. The quits rate fell to 1.9% from 2.1% a month earlier.

Eurozone CPI inflation came in at 2.4% y/y in December according to the preliminary data, up from 2.2% the previous month but in line with expectations despite the upside surprises from Spain and Germany previously. France undershot in data released shortly earlier, with headline CPI inflation at 1.8% y/y in December, lower than the predicted 1.9%. On a monthly basis, headline Eurozone price growth was at 0.4%, up from deflation of 0.3% m/m in November but in line with expectations. Higher energy costs were responsible for the acceleration in the headline inflation figure and core CPI was unchanged at 2.7% y/y, hitting the consensus projection. Meanwhile Eurozone unemployment was unchanged at 6.3% in November. There was little in the aggregate data that would dissuade the ECB from continuing on its easing path.

Bahrain recorded real GDP growth of 2.1% y/y in Q3, an acceleration on the 1.3% seen in Q2. This marked the first acceleration in growth in three quarters, with the non-oil sector still driving the expansion as it expanded by 3.9% y/y. The oil sector remained a drag on headline output as it contracted by 8.1% y/y. Qatar also released its Q3 growth figures, with a y/y expansion of 2.0% y/y in Q3 2024, up from 0.7% the previous quarter and the strongest pace of growth since Q2 2023. Growth was driven by the non-hydrocarbons sector which expanded by 4.5% y/y, up from 2.7% previously, while the ‘mining and quarrying’ component of GDP contracted on an annual basis for the second quarter in a row, falling 2.3% y/y following Q2’s 2.6% decline.

Damac has pledged to invest USD 20bn in data centres in the US across multiple states. Hassan Sajwani, the head of Damac, said in a press conference along side US President-elect Donald Trump, that the investment could be increased if market conditions were favourable.

Today’s Economic Data and Events

• 11:00 Germany factory orders, % m/m, November. Forecast: -0.2%
• 17:15 US ADP employment change, December. Forecast: 140,000
• 17:30 US initial jobless claims, week to January 4. Forecast: 215,000

Fixed Income

• US Treasury yields were higher overnight, with a strong Jolts report and ISM services index pushing yields up. The 2yr UST yield closed almost 2bps higher at 4.2911% while the 10yr UST yield added almost 6bps to 4.6850%.
• Bond markets across Europe were softer overnight with bund yields up 3bps while the 10yr gilt yield jumped 7bps to 4.682%.
• Local credit was broadly weaker in line with sell-offs in emerging market bonds generally. National indexes for the US , Saudi and the rest of the GCC markets closed weaker overnight.

FX

• The US dollar pulled higher against most peers overnight with a strong gain against Euro. EURUSD fell by 0.5% to 1.034 as Eurozone inflation broadly came in line with market expectations and didn’t materially shift rate expectations for another 25bps cut from the ECB at the end of the month. USDJPY rose by 0.3% to 158.05 while GBPUSD fell 0.3% at 1.2477.
• Commodity currencies were weaker across the board with USDCAD up by 0.3% at 1.437 while AUDUSD fell 0.3% to 0.623 while NZDUSD dropped 0.1% at 0.5635.

Equities

• US markets were weaker overnight with the Dow Jones down by 0.4% and the S&P 500 giving up 1.1% and the NASDAQ lower by a heavy 1.9%. European markets fared better with a 0.5% gain in the Euro Stoxx index thought the FTSE was near flat.
• Local equity markets were positive with a 0.5% gain in the DFM while the ADX was higher by 0.6%. The Tadawaul tilted positive but with a moderate move.

Commodities

• Oil prices had a positive session overnight with both Brent and WTI futures up nearly 1% at USD 77.05/b and USD 74.25/b respectively. Data from the API showed a draw in US commercial crude inventories of 4m bbl last week while there were offsetting builds in gasoline and distillate stockpiles.
• Gold prices moved higher after two days in a row of selling with a 0.5% gain at USD 2,648.59/troy oz. The rest of the precious metals complex also pushed higher. Industrial metals were mixed with LME aluminium up 1%, copper flat and iron ore up by 0.1%.