Chinese economy grows 5.2% in 2023

China recorded real GDP growth of 5.2% y/y in Q4, faster than the 4.9% seen in Q3, but still undershooting projections of a 5.3% expansion. This puts full-year 2023 growth at 5.2%, so beating the official target of 5.0%, but still fairly weak for the economy which has struggled to regain speed following the pandemic reopening, with concerns around the property sector in particular weighing on growth. Growth remained under pressure through the final months of the year and December data from China was mixed – retail sales expanded 7.4% y/y, missing the 8.0% consensus prediction but industrial production saw growth of 6.8% y/y in December, beating the predicted 6.6%. The consensus prediction for growth this year is 4.5%.

Wage growth in the UK has continued to slow sharply, with average weekly earnings over the 3m/3m measure to November coming in at 6.5%, down from 7.2% the previous month and slower than the predicted 6.8% as well. Stripping out bonuses, the measure was at 6.6%, also from 7.2% previously. This is positive news for UK policy makers, as growth in real wages (CPI inflation was 3.9% y/y in November and projected to slow further to 3.8% in December data released today) should support a pick-up in activity. Slowing wage growth should also soften inflationary pressures in the months ahead, enabling the Bank of England to start easing policy later in the year. Meanwhile headline unemployment stood at 4.2% in the three-month period to November, although the ONS data is still experimental under the new method.

The recent slowdown in the German economy was underscored by the confirmation earlier this week that the economy contracted 0.3% last year, and in the current situation ZEW survey released yesterday there was no improvement in the near-term outlook as the index came in at -77.3 for January, from -77.1 the previous month. However, the expectations survey rose from 12.8 in December to 15.2, well above the predicted 11.7 as respondents looked through the immediate challenges to hopefully easier times ahead as inflation eases and monetary policy is expected to loosen.

A number of Egyptian banks have limited cash withdrawals abroad as the country’s ongoing shortage of FX deepens. Al Baraka Bank has stopped all foreign withdrawal according to its website, as has EG Bank, while others have limited withdrawals to USD 50.

Canada’s CPI inflation was 3.4% y/y in December, in line with expectations and up from 3.1% the previous month. Prices fell 0.3% m/m. Core inflation accelerated, however, with the trim core at 3.7% y/y, up from 3.5% in November and above the predicted 3.4%, reducing the likelihood of a cut by the Bank of Canada in April.

Today’s Economic Data and Events

11:00 UK CPI inflation, December, % y/y. Forecast: 3.8%

17:30 US retail sales, December, % m/m. Forecast: 0.4%

18:15 US industrial production, December, % m/m. Forecast: 0.0%

Fixed Income

• US treasuries sold off yesterday with the 10yr yield rising 12bps to 4.06%. The move was prompted by comments by Fed Governor Christopher Waller who warned that the central bank should take a cautious approach when it comes to rate-cutting this year. The 2yr added 8bps to 4.22%.
• Omantel has mandated banks for a USD 7yr sukuk. The telecoms company is majority owned by the government of Oman.
• FAB priced a USD 600mn 5yr Formosa bond at SOFR+120.

FX

• The USD showed significant strength yesterday as bets on imminent rate cuts from the FOMC were pared, and the dollar index jumped 0.9%, its biggest one-day rise since March.
• Its gains were across the board, adding 0.7% against both GBP and EUR (which closed at 1.2637 and 1.0975 respectively) and 1.0% against JPY which ended the day at 147.19.
• Commodity currencies also lost ground with global demand concerns to the fore, and the NZD and the AUD closed 1.0% and 1.1% lower respectively.

Equities

• US equities were in the red yesterday as expectations of imminent rate cuts weakened, and all three major benchmark indices closed lower. The NASDAQ, the S&P 500, and the Dow Jones ended down 0.2%, 0.4%, and 0.6% respectively.
• There was a similar trend in Europe as the DAX dropped 0.3% and the FTSE 100 0.5%.
• Locally, the ADX ended down 0.2% and the DFM dropped 0.5%.

Commodities

• Oil prices were mixed yesterday. Brent futures added 0.2% to USD 78.3/b but after trading in WTI was closed for the US public holiday on Monday, WTI fell 0.4% to USD 72.4/b. Both benchmarks are trading lower this morning, with the dollar’s gains yesterday weighing on prices.