Full budget statement from Saudi Arabia confirms drop in spending

Saudi Arabia released a budget statement for 2025 with planned spending of SAR 1,285bn, down roughly 5% from its estimated spending for 2024. Spending cuts will be made to “goods and services” expenditure as well as to “other expenditures.” CAPEX is also projected to decline. Revenue is also projected to drop next year by about 4% leading to a budget deficit of SAR 100bn or slightly more than 2% of GDP according to the ministry of finance statement. Overall the full budget statement is in line with the pre-budget announcement from a few weeks ago.

The UAE is reportedly considering introducing a cap and trade emissions system to limit carbon emissions in the country. Press reports also indicate the UAE could consider direct taxation on companies with large emissions or auctions for certain types of fuels.

Minutes from the November FOMC again highlighted the Fed’s desire to cut rates “gradually” provided that economic data comes in “about as expected.” The Fed has cut rates by 75bps so far this year with an initial 50bps cut in September followed by a 25bps cut earlier this month. The preference from gradual rate cuts seems to be based on the level of uncertainty in the economic outlook, with the minutes noting how the flow of data made it “complicated the assessment of the degree of restrictiveness” of rates. Overall the minutes affirmed the messaging from Fed officials to prefer a steady and slow path downward on rates, rather than front-loading all their cuts into the next several meetings. Markets have raised their expectations for the December FOMC to more than a 60% probability of another 25bps cut.

Consumer confidence in the US improved in November according to the latest Conference Board survey. The headline index rose to 111.7, up from 109.6 a month earlier, with improvements in both the expectations and the present situation components. Inflation expectations moderated with a gauge of whether jobs were easier or harder to get swung toward better labour conditions.

Today’s Economic Data and Events

• 17:30 US GDP annualized Q3 (second): forecast 2.8%
• 17:30 US durable goods orders Oct: forecast 0.5%
• 17:30 US initial jobless claims Nov 23: forecast 215k
• 19:00 US personal spending Oct: forecast 0.4%
• 19:00 US PCE price index y/y Oct: forecast 2.3%

Fixed Income

• US Treasury yields closed mixed overnight with the 2yr UST yield down 1bps to 4.2561% while the 10yr was higher by 3bps to 4.3062%. The minutes from the November FOMC didn’t give the market much more colour as to the Fed’s thinking on how to adjust rates lower but tilted toward December being in play as a live meeting.
• Bahrain has mandated banks for a 7yr USD sukuk issuance.

FX

• After several days of wide moves, currency markets were relatively quiet overnight. The most notable mover was USDCAD with a rise of 0.5% against the Loonie as markets reacted to news that president-elect Donald Trump plans to impose tariffs of 25% on Canadian goods entering the US market. EURUSD closed little changed with a downward bias at 1.0489 while GBPUSD was flat at 1.2569. USDJPY was another notable mover with a drop of 0.8% to 153.08.

Equities

• Equity markets in the US had another positive close even as there has been some building anxiety over how president-elect Donald Trump will make use of tariffs. The Dow Jones index rose 0.3% while the S&P 500 gained 0.6%, a move matched by the NASDAQ.
• European markets were worse, however with the Euro Stoxx down by 0.8% while the FTSE fell by 0.4%.
• Local markets had a strong close overnight with the DFM up by 1.3% while the ADX closed higher by almost 1%. The Tadawul by contrast was lower by 0.4%.

Commodities

• Oil prices extended their losses overnight with Brent down 0.3% at USD 72.81/b and WTI off by 0.3% to US 68.77/b. A lessening of geopolitical risk in the conflict between Lebanon and Israel may help to flatten political premiums in the market.
• The API reported a draw in US crude inventories of almost 6m bbl last week, offset by builds in gasoline and distillates.