Abu Dhabi GDP grows 1.4% y/y in Q3

Abu Dhabi’s GDP grew 1.4% y/y in Q3, slower than the 3.5% growth recorded in Q2. However, non-oil sector growth was surprisingly robust at 7.7% y/y in the third quarter, and non-oil sector growth in the year to September stood at 8.7% y/y. This was offset by a -4.7% y/y contraction in oil and gas value added in Q3, and we expect oil and gas GDP to remain weak in Q4 2023. Emirates NBD estimates 2023 UAE GDP growth at 3.6%, down from 7.9% in 2022.

Retail fuel prices in the UAE will be lower in January, with average oil prices having moderated further in December. Mid-grade petrol prices will decline to AED 2.71/litre, down 4.9% m/m, from AED 2.85/litre in December. Diesel prices will also be lower, falling from AED 3.19/litre to AED 3.00/litre.

The official Chinese composite PMI reading for December was marginally lower, at 50.3, from 50.4 in November. Underlying the slight deterioration was a weaker manufacturing PMI reading but an improvement in the non-manufacturing PMI print, which rose to 50.4 from 50.2 in November. The bulk of the improvement in the non-manufacturing measure was driven by the construction sub-index, while the services sub-index remained flat at 49.3. The manufacturing PMI, in contrast, fell to 49.0 in December from 49.4 in November, the 3^rd consecutive month of a reading below the neutral 50 mark, and below consensus expectations of an improvement to 49.6. The deterioration in the official manufacturing PMI stands in contrast to the Caixin manufacturing PMI reading, which rose above expectations, to 50.8 in December from 50.7.

The week ahead will see some key data prints, particularly for the US. The December 13 FOMC meeting minutes are due to be released on Wednesday, potentially shedding some light on the more dovish remarks made by Chairman Powell at the press conference. November job openings data is also due to be released on Wednesday, followed by the December ADP employment change on Thursday and the December non-farm payroll print on Friday. Markets will be watching for any further signs of a cooling in the US labour market. Eurozone inflation data is also due to be released on Friday, with expectations for core CPI to have cooled to 3.4% in December from 3.6% in November.

Today’s Economic Data and Events

• 13:00 EC HCOB manufacturing PMI (Dec final): forecast 44.2
• 13:30 UK S&P Global manufacturing PMI (Dec final): forecast 46.4
• 18:45 US S&P Global manufacturing PMI (Dec final): forecast 48.4

Fixed Income

• Moves in US Treasury yields were mixed at the end of last week, the final day of trading for 2023, with the yield on the 2yr falling 3bps, and the yield on the 10yr rising 3bps. Over the year, that leaves the yield of the 2yr roughly 18bps lower when compared to the final day of trading in 2022, and the 10yr yield broadly similar to its value at the end of 2022.
• Yields rose on both the 10y Gilt and Bund on the final day of trading of 2023, rising 4bps and 8bps, respectively. Nonetheless, the yield of the 10yr Gilt was 13bps lower at the end of last week compared to the end of 2022, while the yield on the 10yr Bund was over 50bps lower on an annual basis.

FX

• The US dollar was stronger against a basket of major peers on Friday, although moves within the basket were mixed. EURUSD fell 0.2% to 1.1039 and GBPUSD dropped 0.02% to 1.2731, while USDJPY fell 0.26% to 141.04. The dollar was stronger against major commodity currencies on Friday. AUDUSD fell 0.26% to 0.6812, NZDUSD fell 0.21% to 0.6319, and USDCAD rose 0.11% to 1.3243.
• In aggregate the US dollar ended the year weaker, with the dollar index spot falling just over 2% y/y.

Equities

• US equities ended marginally weaker on Friday, with the Dow Jones falling 0.05%, the S&P 500 dropping 0.28% and the Nasdaq declining 0.56%. Despite the weaker performance on the final trading day of 2023, major US equity markets rose sharply on an annual basis. The S&P 500 rose just over 23% y/y, while the Nasdaq jumped almost 44% y/y.
• Major European equity indices rose on Friday. The Eurostoxx 50 gained 0.16%, the CAC 40 rose 0.11% and the Dax increased by 0.3%. On an annual basis the CAC 40 rose almost 17%, while the Dax gained 20.31% y/y. While the FTSE 100 also rose on Friday (up 0.14%) it saw a smaller annual rise of just under 4%.
• Locally, the DFMGI rose 0.25% on Friday, while the ADXGI gained 0.03%.

Commodities

• Brent and WTI futures both declined at the end of last week. On the final day of trading Brent declined 1.72% to 77.04/b and WTI fell 0.17% to USD 71.65/b. On an annual basis Brent ended 2023 over 10% lower, while WTI was almost 11% weaker.