China's PMI surveys mixed in December

Net quarterly FDI in Saudi Arabia stood at SAR 16.0bn (USD 4.3bn) in Q3, up from SAR 11.6bn in the previous quarter but down 24% y/y from the SAR 21.1bn seen in Q3 2023. Inflows stood at SAR 18.0bn in Q3, down 21% y/y and 7.2% q/q. Inflows over the first three quarters of 2024 totaled SAR 54.3bn, or USD 14.5bn, indicating that the full year level will likely fall short of the targeted USD 29bn for 2024. With FDI inflows disappointing, Saudi Arabia will continue to bear the brunt of its investment targets itself, although investment law reforms coming next year could encourage an uptick. Meanwhile, unemployment in Saudi Arabia ticked up to 7.8% in Q3, up from 7.1% in Q2.

Egypt recorded real GDP growth of 3.5% y/y in Q3 2024, the first quarter of the new fiscal year. This marked the strongest growth since Q3 2022, with the renewal in international support and implementation of reform measures helping boost activity. Transport saw a strong gain of 15.6% y/y, while restaurants and hotels expanded 8.2%. Manufacturing was up 5.9% y/y, the second consecutive quarter of growth as renewed FX availability has aided a recovery in production.

China’s Caixin manufacturing PMI survey fell to 50.5 in December, a fall from November’s 51.5, and missing the predicted improvement to 51.7 by some margin. The disappointing result indicates that China’s pick-up will remain bumpy. The Caixin survey followed the official PMI survey released on December 31 which saw manufacturing marginally expansionary at 50.1 in December, down from 50.3 the previous month and broadly in line with expectations. This was the third straight month of positive readings, while the non-manufacturing PMI surprised to the upside at 52.2, up from a neutral 50.0 previously and beating the predicted 50.2. The stimulus measures implemented by Chinese authorities over the preceding several months appear to have had a positive effect on momentum in services through the end of 2024. President Xi said on Tuesday that the country was on track to meet its 5.0% target in 2024, and that support for the economy would continue in 2025.

Today’s Economic Data and Events

17:30 US initial jobless claims, week to December 28. Forecast: 221,000

Fixed Income

• USTs rallied through the middle of the year before selling off again through the final quarter as expectations of higher for long rates followed President-elect Trump’s election victory. Yields on the 2yr ended December little changed from where they ended December 2023, down by less than 1bp at 4.2416%. This was however up from the low of 3.5592% seen in September. The 10yr saw more change over the year, up 70bps at 4.5690%, and again higher than recorded in September.
• We forecast three 25bps cuts to the Fed Funds rate over the course of 2025, which following the 100bps of cuts implemented by the FOMC since September would see the upper bound at 3.75% at end-December. We expect more aggressive easing from both the ECB and the BoE, forecasting a cumulative 100bps of cuts from both central banks which would see end-2025 benchmark rates at 2.00% and 3.75% respectively.

FX

• The US dollar ended the year on a strong note, with the DXY index closing up 6.5% against its basket of peer currencies, its strongest gain since 2015. The greenback performed strongly through the final several months of the year as the outlook for the US Federal Reserve turned more hawkish, and the index hit levels last seen in 2022 in late December.
• Of the major currencies, the yen was a notable loser as it closed down 9.9% at 157.2 with political uncertainty and a less hawkish BoJ than had been anticipated weighing on the pair. Political uncertainty also weighed on the Euro, along with a weak growth outlook and a sharper easing trajectory from the ECB, and it closed down 6.2% over the year at 1.0354.
• GBP also closed lower though by a lesser degree despite stagflation fears for the UK. It lost 1.7% against the dollar to end the year at 1.2516.

Equities

• While global equity markets conceded some ground through the final several weeks of 2024 following the Fed’s hawkish cut in mid-December, the story was broadly positive in 2024. US markets recorded another year of strong growth, bolstered by the ‘Trump trade’ with the S&P 500 closing up 23.3% y/y, compared with 24.2% in 2023. The Dow Jones added 12.9% in 2024 and the NASDAQ 28.6%.
• Asian equities also performed strongly with the Hang Seng adding 17.7% over the year and the Shanghai Composite gaining 12.7%, boosted by government stimulus measures in September which saw a sharp gain in the index that month.
• European markets lagged by comparison. The composite STOXX 600 ended the year just 6.0% higher. Political turmoil contributed to a loss for the CAC which ended 2024 2.2% lower, while the FTSE 100 added 5.7%. The DAX was a comparative bright spot, ending the year 18.9% higher.
• The performance in local equity markets was mixed, with the DFM closing up 27.1% while the ADX dropped 1.7%. In Saudi Arabia, the Tadawul ended 2024 up just 0.6%.

Commodities

• Both Brent futures and WTI ended the year lower than they started, with Brent at USD 74.64/USD, down 3.1%%, while WTI fell gained 0.1% to USD 71.7/b. The averages over the year were also lower, with Brent at USD 80/b, down from USD 82.2/b in 2023, while WTI fell from USD 77.6/b to USD 75.8/b.
• In 2025 we expect that prices will trend lower still, forecasting Brent to average USD 73.1/b and WTI USD 70.9/b. Increased supply coupled with a questionable demand growth outlook and a fading of risk premia will keep pressure on prices.