COP 28 summit off to strong start in Dubai

Developments so far at COP 28 over the long UAE weekend include 118 governments pledging to triple global renewable energy capacity by 2030 in a move led by the UAE, EU, and US, and an agreement on a loss and damage fund that was reached on the first day of the summit. This will see some of the most vulnerable countries to climate change in the world receiving support from other states, and the UAE and Germany both pledged USD 100mn to the startup fund. The UAE Banks Federation, an organisation which represents 56 different lenders in the country and all of the major banks, has pledged to make available USD 272bn in sustainable financing in order to facilitate the UAE hitting its net-zero by 2050 target. The announcement was made around the finance themed day of the COP 28 summit and was in keeping with messages from IMF head Kristalina Georgieva who called for more to be pledged.

The Caixin services PMI for China was at 51.5 in November, surprising to the upside compared to the predicted 50.5 and higher than the previous month’s 50.4. The Caixin data release followed the official PMI survey released last week and stands in contrast to that as non-manufacturing come in at 50.2, missing the predicted 50.9 as services activity slipped to 49.3, the first contraction for the measure in 2023.

US factory orders contracted 3.6% m/m in October, compared to 2.3% growth in September and a greater contraction than the predicted 3.0%. Excluding volatile transportation orders, the measure showed a decline of 1.2% m/m, compared with a (downwardly revised) 0.4% expansion the previous month.

CPI inflation in Turkey came in at 62.0% y/y in November, up from 61.4% in October but moderately lower than the predicted 62.6%. Prices were 3.3% higher than the previous month. A cold weather snap saw consumers use more gas than was allocated in the giveaway earlier this year, pushing expenditure higher. Real rates in Turkey remain deeply negative despite the aggressive tightening implemented by the central bank since June, with a cumulative 2,650bps of hikes over six meetings taking the benchmark one-week repo rate to 40.0% following the surprise 500bps added at the November meeting (the consensus prediction had been for 250bps).

IMF head Kristalina Georgieva has made comments about Egypt’s stalled reform plan while at the COP 28 summit in Dubai, saying that the priority is to focus on curbing inflation rather than moving to a more flexible exchange rate regime. This raises the prospect that the IMF could release scheduled funds to Egypt before any further devaluation or adjustment to the exchange rate regime has been implemented. She also said that the financing was very close to being finalised, and that the sum of money could in fact be larger than had initially been proposed last year.

Today’s Economic Data and Events

11:45 France industrial production, October, % m/m

19:00 US ISM services index, November. Forecast: 52.0

Fixed Income

• Yields on USTs rose sharply on Monday as the rally in bonds and equities seen at the close of last week lost steam. The 10yr added 6bps to 4.529%, while the 2yr was up 10bps to 4.6353%.
• In Europe, 10yr gilt yields were up 5bps to 4.19%, while 10yr bund yields fell 1bps to 2.35%.
• Egypt is reportedly considering issuing USD 500mn of INR-denominated Masala bonds next year.

FX

• The dollar bounced on Monday following recent losses, with the DXY index ending the day 0.4% higher against its basket of peers.
• The gains were universal, but commodity currencies ceded significantly as oil prices fell. The NZD dropped 0.7% to 0.6165 and the AUD 0.8% to 0.6620. The loonie fell by a lesser 0.3% to 1.3537.
• GBP fell 0.6% against the USD to 1.2633 while the EUR reported a fourth consecutive day of losses, dropping 0.4% to 1.0836.

Equities

• There was some weakness in global equity markets yesterday as the rally seen at the close of last week started to peter out. In the US, the Dow Jones, the S&P 500, and the NASDAQ dropped 0.1%, 0.5%, and 0.8% respectively.
• There was a similar story in Europe, and while the DAX eked out a 0.4% gain, the CAC and the FTSE 100 both closed 0.2% lower.
• Local equity markets were shut on Monday.

Commodities

• Crude oil prices slipped further yesterday, with the voluntary nature of the further cuts announced by OPEC+ at the close of last week meaning that the focus remains on relatively weak data points coming out of the major global economies, and what that will mean for demand rather than supply.
• Brent futures dropped 1.1% to start the week following on from Friday’s 4.8% fall, to close at USD 78.0/b. WTI fell 1.4% after Friday’s 2.5% fall, to end Monday at USD 73.0/b, although both benchmarks are trading up modestly early this morning as Saudi Arabian oil minister Abdulaziz bin Salman has been defending the OPEC+ move, telling Bloomberg that the planned cuts would overcome an expected inventory build in Q1 2023, and that they could be extended further into 2024 if necessary.