IMF publishes revised MENA forecasts

The IMF released its Regional Economic Outlook for the Middle East and Central Asia yesterday, with revised forecasts for the region. For MENA, the IMF now forecasts GDP growth of 2.1% this year, down from its previous projection of 2.7% made in April, while 2025 was downgraded to 4.0%, from 4.2% previously. The downward revision this year is on the back of weaker growth now expected from both oil exporters as production curbs continue (2.3%, down from 2.9% previously) while the forecast for oil importers has fallen to 1.5%, from 2.4% previously, as regional unrest weighs on output. Both oil exporters and oil importers are forecast to see a substantial improvement next year, with growth at 4.0% and 3.9% respectively, although the Fund does note risk around extended oil cuts or protracted conflicts.

The flash estimate of Saudi Arabia’s Q3 GDP put headline y/y growth at 2.8%, marking the fastest pace of annual growth since Q1 2023 as additional oil production curbs implemented last year pass through the base. Oil GDP logged growth of 0.3%, still marginal but in contrast to the average quarterly y/y contraction of 11.2% seen over the preceding five quarters. Non-oil GDP expanded by 4.2% y/y, a slowdown from the 4.9% in Q2. On a quarterly basis headline growth was 0.8%, down from 1.4% in Q2. Oil GDP expanded by 1.3%, while non-oil activity was up 0.5%, down from 2.1% previously.

Prices at the pump in the UAE are heading higher as of today, as per the monthly fuel price announcement issued yesterday. The cost of a litre of petrol has risen by around 3.0%-3.5% depending on the grade. Compared to a year earlier however, a litre of Super 98 is 10.9% lower which will exert downwards pressure on headline CPI inflation in Dubai. Headline inflation has averaged 3.6% so far this year, but transport inflation has averaged just 0.2%, with higher housing costs responsible for much of the headline price growth.

China’s Caixin manufacturing PMI surprised to the upside as it hit 50.3 in October, up from 49.3 in September and compared with the predicted 49.7. This follows a similar upside surprise for the official PMI index yesterday, further suggesting that the initial stimulus measures announced by the authorities over the past month are starting to have a beneficial effect on activity.

The Fed’s preferred measure of inflation, the core personal consumption expenditures price index, was at 2.7% y/y in September, unchanged from the previous month and just slightly higher than the predicted 2.7%. The monthly measure was at 0.3%, up from 0.2% the previous month but in line with expectations. The weekly initial jobless claims print in the US came in at 216,000 in the week to October 26, lower than the predicted 230,000 and down from 228,000 the previous week. Slowing disinflation and robust labour market data will likely mean a cautious path forward from the Fed after its initial 50bps cut. The NFP print is due later today with a consensus estimate of 100,000, down from 254,000 in September.

Headline Eurozone CPI inflation was at 2.0% y/y in October, up from 1.7% in September and higher than the consensus projection of 1.9%. Core inflation was unchanged at 2.7%, while sticky services inflation remained unchanged at 3.9%. The uptick in headline inflation was largely due to a less pronounced drag from energy prices, as they were down 4.1% y/y compared with the 6.3% fall seen the previous month. The ECB had anticipated that the disinflation trend would slow through the close of the year, but following on from Germany’s GDP surprise the previous day the inflation data does potentially complicate the ECB’s rate-cutting path. Meanwhile, Eurozone unemployment was at 6.3% in September, in line with August figure following its downwards revision from 6.4% on the initial print.

Today’s Economic Data and Events

16:30 US NFP report, October. Forecast: 101,000

18:00 US ISM manufacturing index, October. Forecast: 47.6

Fixed Income

• US treasuries rallied a little on the last day of October, with yields on the 2yr falling 1bps to 4.1702%, while the 10yr yield ended down 2bps at 4.2844%. This was insufficient to offset the worst month for USTs in two years, however, with yields having risen in line with expectations of a Trump presidency.
• In the UK, treasuries continued to sell off following the first budget from the new Labour government on Wednesday. The 2yr yield was up 12bps at 4.437%, while the 10yr was up 9bps at 4.446%

FX

• The dollar index closed all but flat against its basket of peer currencies yesterday, although that somewhat belies more movement seen against individual currencies.
• JPY gained 0.9% against the dollar yesterday, the first gain since the previous Thursday, following the relatively hawkish tone struck at the BoJ meeting. It closed at 152.03.
• GBP on the other hand ended the day 0.5% lower at 1.2899 as stagflation fears mount following the budget presentation. EUR closed up 0.3% at 1.0844.

Equities

• Equity markets were under pressure yesterday as Fed easing bets were pared and some earnings results disappointed. In the US, some weak figures from major tech firms weighed on sentiment, and the NASDAQ closed down 2.8%. The S&P 500 had its worst session since early September as it lost 1.8%, while the Dow Jones fell 0.9%.
• The trend was the same in Europe, if not quite the same magnitude. The FTSE 100, the DAX, and the CAC fell 0.6%, 0.9%, and 1.1% respectively,
• Locally, the DFM ended the day 0.3% lower while the ADX closed flat. Saudi Arabia’s Tadawul closed all but flat as well on Thursday, with a 1.1% gain over its trading week.

Commodities

• Oil prices closed higher for a second straight session yesterday and are up again in early trading this morning as concerns around a possible Iranian retaliation come to the fore once more. Brent futures ended Thursday at USD 73.2/b, up 0.8%, while WTI gained 1.0% to USD 69.3/b.
• Taking off the risk premium, the fundamentals still look fairly weak for oil in the coming months, and the US saw oil production hit a record 13.4mn b/d in August.