Saudi government announces 2024 budget

The Saudi government has announced a budget of SAR 1.25tn next year and expects a budget deficit equivalent to around 1.9% of GDP as it continues ‘funding and supporting the implementation of programs, initiatives, and economic transformation projects in line with Saudi Vision 2030.’ However, finance minister Mohammed al-Jadaan acknowledged this week that some of the Vision 2030 projects could be expanded beyond the present deadline. Saudi Arabia’s Q3 GDP print was confirmed at a contraction of -4.4% y/y, broadly in line with the initial print of -4.5%. The oil sector contracted -17.0%, modestly slighted than the initial -17.3%, while the non-oil GDP rose 3.5%, slightly weaker than the initial 3.6%. With oil production cuts set to be maintained through the start of 2024 the oil sector will remain under pressure, but the non-oil economy will likely maintain a robust pace of growth given strong new orders growth in the PMI survey, and the supportive government spending confirmed in the budget.

Japan’s final Q3 GDP print was revised lower, now showing a q/q contraction of 0.7%, compared with the initial print of a 0.5% contraction. On an annual basis, GDP was down 2.9%. This was the weakest growth print since the pandemic, driven by weak consumer spending, and will complicate the Bank of Japan’s aims to move away from its long-held policy of supportive policy, despite increasing rumours around plans to end the negative interest rate policy this month.

US initial jobless claims were at 200,000 in the week ending December 2, in line with expectations and little changed from the previous week. All eyes are on the NFP report today to see if it will confirm the slowdown in the labour market indicated by the JOLTS and ADP figures earlier this week, although the numbers will be complicated by factors such as the return of striking workers, and the forecast is for 180,000, from 150,000 last month.

There was further weak data out of Germany yesterday as industrial production registered a contraction of 0.4% m/m in October, following a 1.3% contraction in September. This was significantly weaker than the consensus projection of 0.2% growth and follows on from the weak factory orders released on Wednesday. Output was 3.5% lower than a year previous and 8.8% lower than prior to the pandemic, with a sizeable drop in machinery and equipment output (down 6.3% m/m).

The IMF has said in a press briefing that Egypt will require further financing in order to ensure the success of the reform programme and to offset any potentially negative fallout on tourism from the conflict in Gaza. The size of this is subject to ongoing discussions between the Fund and the Egyptian authorities, alongside the need to tighten policy, implement a flexible exchange rate regime, and move to inflation targeting.

Today’s Economic Data and Events

08:30 Reserve Bank of India repurchase rate decision. Forecast: 6.5%

17:30 US change in nonfarm payrolls, November. Forecast: 150,000

19:00 US University of Michigan, December preliminary. Forecast: 62.0

Fixed Income

• USTs saw yields pick up on the long end yesterday after two days of falls previously, with the 10yr adding 5bps to 4.1495%. The 2yr closed up by less than a basis point to 4.5945%.
• Yields on Japan’s 10yr rose 11bps yesterday to 0.758% while the 2yr added 6bps to 0.101%. Comments by central bank officials raised expectations that the Bank of Japan was preparing to move away from the prevailing negative interest rate regime.

FX

• The dollar index ended its three day rally yesterday as it closed down 0.6%, losing ground against most of its peers.
• The JPY was the notable gainer against the USD yesterday, as it added 2.2% to close at 144.13, amid speculation that the BoJ was preparing to change its monetary policy stance at the upcoming December 19 MPC meeting.
• EUR added 0.3% to 1.0794 while GBP also gained 0.3%, closing at 1.2594.

Equities

• Asian equity markets closed down on Thursday, as the Hang Seng fell 0.7% and the Shanghai Composite 0.1%. In Japan, the Nikkei closed down 1.8% as the JPY gained.
• US equity markets snapped their losing streak yesterday as the S&P 500 closed up 0.8%. The Dow Jones added 0.2% while the NASDAQ ended the day 1.4% higher, bolstered by positivity around AI and tech stocks.
• Locally, the ADX dropped 0.1%, while the DFM closed down 0.3%. Saudi Arabia’s Tadawul added 0.5%.

Commodities

• Oil prices fell for a fifth straight day yesterday in the worst losing run since 2018. Brent futures dropped 3.8% on the day to close at USD 74.3/b, levels last seen in mid-2023. WTI fell by a lesser 0.1% to USD 69.3/b.