US personal spending ends 2023 on a strong footing

Personal spending in the US picked up in December, rising by 0.7% m/m in nominal terms and 0.5% in inflation-adjusted terms. Both measures came in stronger than expected and affirmed the GDP data released earlier in the month that the US economy ended 2023 with some moderate tailwinds. The PCE deflator for December, the Federal Reserve’s inflation target, held steady at 2.6% y/y for a second month while the core PCE deflator dropped to 2.9% y/y. The signals from the PCE numbers will help to shore up market expectations of an early rate cut from the Fed although there is essentially no chance of a cut priced in for this week’s FOMC meeting.

ECB officials gave somewhat of a muddle message after the bank kept policy rates unchanged at their first meeting for 2024. Francois Villeroy de Galhau, governor of the French central bank, said that the ECB will “cut our rates this year…everything will be open at our next meeting.” That appears to be a far more dovish stance than the message from the ECB’s official statement after the governing council meeting. Elsewhere Martins Kazaks and Boris Vujcic both sound more hawkish with Kazaks saying the worst risk would be if the ECB had to raise rates after cutting too early while Vujcic said markets had been “trigger happy” in pricing in imminent rate cuts.

The government of Dubai has announced an AED 500m programme to support small and medium sized enterprises in the Emirate. The plan will fit with the objectives of the D33 economic agenda to double the size of Dubai's economy. SMEs represent roughly 90% of registered business in the UAE according to press reports and account for the bulk of employment. 

Economic data week ahead

• 01/30 EC GDP q/q Q4: forecast -0.1%
• 01/30 US Conference Board consumer confidence Jan: forecast 114
• 01/31 CH Manufacturing PMI Jan: forecast 49.2
• 01/31 GE CPI y/y Jan: forecast 3%
• 01/31 US ADP employment change Jan: forecast 148k
• 01/31 US FOMC decision
• 02/01 EC CPI y/y Jan: forecast 2.7%
• 02/01 UK Bank of England bank rate
• 02/01 US ISM manufacturing Jan: forecast 47
• 02/02 US Nonfarm payrolls Jan: forecast 180k

Fixed Income

• Another slate of stronger than expected US data—real spending for December—helped to push USTs lower at the end of the week. Yields on the 2yr UST added almost 6bps to close at 4.3489% while the 10yr added about 2bps to 4.1373%. No change in policy rates will be expected from the FOMC this week with market attention likely to focus on how the Fed describes the economy and if there will be any push back from Fed officials on market anticipation of early cuts.
• Moody's upgraded Qatar's long term sovereign debt rating to Aa2 from Aa3, reflecting the stronger fiscal position achieved over the last two years and the expectation that this will be sustained over the medium term. The outlook is stable. 
• Emerging market bonds ended the week up marginally amid broader gains in high-yield bonds. Regional bond indexes dropped, however, though CDS spreads for most GCC economies tightened.

FX

• Currency markets closed mixed on Friday with EURUSD up marginally at 1.0853 while GBPUSD dipped slightly to settle at 1.2703. USDJPY pushed higher by 0.33% to 148.15. Commodity currencies also had a mixed performance with both AUDUSD and NZDUSD dropping while USDCAD moved lower, in favour of the loonie, by 0.2% to 1.3453.

Equities

• Global equity markets had a broadly positive close on Friday with the Dow Jones up 0.2%, offsetting drops from both the S&P and the NASDAQ. European markets were more resolutely positive, however, with the FTSE up 1.2% and the CAC gaining by 1.4%.
• The Nikkei declined at the end of the week, down 1.3% while the Hang Seng dropped by 1.6%.
• In the UAE the DFM index fell 0.2% while the ADX dropped by 0.6%.

Commodities

• Oil markets capped a relatively strong week with gains on Friday. Brent futures closed at USD 83.55/b, up 1.4% while WTI added 0.8% to close at USD 78.01/b. Both contracts had their strongest weekly gain since early October with more than 6% increases in both markets.
• The OPEC+ joint ministerial monitoring committee meets this week with likely no change to production targets to be encouraged. While much of the market focuses on the risk of softening demand conditions, data will start to show in coming weeks the impact of the cuts that some OPEC+ countries have made for Q1.