Eurozone manufacturing remains weak

The Eurozone composite PMI reading rose to 49.5 in December on the preliminary reading, up from 48.3 previously and beating the predicted 48.2. The improvement was driven by services which turned positive at 51.4, up from 49.5 in November, while manufacturing remained soft, unchanged at 45.2 for the second month running, indicating an ongoing contraction. France’s manufacturing sector looked especially weak as it fell to 41.9, down from 43.1 previously, while Germany’s troubled manufacturing sector also underperformed as it slipped to 42.5, from 43.0 in November. France’s services remained in sub-50 contractionary territory as well but Germany’s turned positive at 51.0, up from 49.3 previously. Both countries are facing political uncertainty, with Germany set for an early election in February following a confidence vote yesterday, while in France the central bank has cut its growth outlook on the back of recent political upheaval.

The trend was similar in Japan, where manufacturing was a contractionary 49.5, following the 49.0 seen in November, while services came in at 51.4, up from 50.5. The composite reading rose to 50.8 from 50.1. The Bank of Japan is holding its rate-setting meeting on Thursday with a hold at 0.25% expected as the country comes through a period of political uncertainty following inconclusive elections in late October.

Dubai’s annual CPI inflation rate accelerated to 3.0% y/y in November, up from 2.4% the previous month. This marked the fastest pace of annual price growth since August, while on the monthly measure inflation was at 0.5%, up from 0.2% in October. Over the year to date, headline annual inflation has averaged 3.3%, the same pace as seen in 2023. Next year we forecast that price growth will slow to an average 2.8% y/y, with transport set to remain a drag on the headline measure but housing remaining the key driver. Oman’s inflation rate meanwhile slowed to 0.5% y/y in November, down from 0.8% the previous month.

Today’s Economic Data and Events

11:00 UK unemployment rate, 3 months to October. Forecast: 4.3%

13:00 Germany IFO business climate survey, December. Forecast: 85.5

14:00 Germany ZEW survey expectations, December. Forecast: 6.8

17:30 Canada CPI inflation, % y/y, November. Forecast: 2.0%

18:15 US industrial production, % m/m, November. Forecast: 0.3%

Fixed Income

• There was little movement in US treasuries as markets wait for the FOMC decision on Wednesday. Yields on the 10yr were unchanged at 4.3967%, while the 2yr yield was up by less than 1bps at 4.2490%.

FX

• The dollar index broke its run, slipping against its basket of peers for the first time in seven sessions, although this was marginal, closing down 0.1%.
• Sterling gained against the dollar for the first time since last Tuesday, adding 0.5% on the day to close at 1.2683. EUR’s gains were slighter as the major economies in the bloc continue to face political and economic challenges, and the single currency closed up 0.1% at 1.0512.

Equities

• Locally, the DFM closed up 4.5% yesterday, its biggest jump in three years, boosted by the news that Emaar Properties was increasing its dividend. The ADX added 0.2% and the Tadawul gained 0.3%.
• European stock markets closed down yesterday, with the composite STOXX 600 ending the day 0.4% lower. The CAC dropped 0.5% and the DAX 0.7%. In the UK, the FTSE 100 ended the day 0.5% lower.

• US equity markets were mixed yesterday. The Dow Jones closed down 0.3% while the S&P 500 added 0.4% and the NASDAQ gained 1.2%.

Commodities

• Weak retail sales and housing data out of China yesterday weighed on oil prices to start the week. Brent futures closed down 0.8% at USD 73.9/b while WTI ended the day 0.8% lower at USD 70.7/b.