Saudi Arabia records SAR 12.4bn budget deficit in Q1 2024

Saudi Arabia recorded a deficit of -SAR12.4bn (around 1% of estimated GDP) in Q1 2024. Oil revenues rose almost 2% y/y while non-oil revenues grew 9% y/y in Q1. However, expenditure increased 7.7% as capex grew 33% y/y to SAR 34.5bn. Current spending on wages, interest, subsidies and general purchases rose 5.2% y/y. The deficit was entirely financed through debt issuance of SAR 73.2bn, of which two-thirds was external debt. We expect a full year budget deficit of -4.2% of GDP in 2024, wider than the -2.1% of GDP deficit recorded in 2023.

The Reserve Bank of Australia kept its benchmark cash rate unchanged at 4.35% as expected. However, the Bank retained a neutral policy stance, rather than turning more hawkish as the market had expected after higher than forecast Q1 inflation data. While the RBA’s near-term inflation forecasts were revised higher, the forecasts assumed no change in the policy rate until mid-2025. Governor Bullock said that policymakers should remain “vigilant” about the risk of high inflation, and that the RBA was trying to bring inflation down without triggering a recession. She said that while she “hoped” rates would not need to be raised again, the RBA was ready to do so if it became necessary.

German factory orders were much weaker than forecast in March, declining -0.4% m/m against a median forecast for a 0.4% increase. The February reading was also revised lower, and the data points to subdued demand in the manufacturing sector as high interest rates weigh on investment. On an annual basis, factory orders declined -1.9% in March.

China’s official foreign reserves declined by USD 44.8bn in April to USD 3.2tn. Gold reserves increased by 6mn troy ounces last month and have a total value of USD 168bn.

Today’s Economic Data and Events

10:00 Germany industrial production (Mar) forecast -0.7% m/m and -3.6% y/y

Fixed Income

• Minneapolis Fed President Neel Kashkari struck a relatively hawkish tone in an essay published yesterday, where he appeared to question whether monetary policy is restrictive enough to return inflation to the 2% target, citing the resilience of the housing market which historically has been a key channel of transmission for monetary policy in the US. While he noted that the bar for further rate hikes was quite high, he said the “most likely” scenario was no change in policy rates for an extended period of time. 2y treasury yields were broadly unchanged yesterday at 4.83% while the 10y yield declined -3bp to 4.457%.
• Benchmark 10y bonds continued to rally in other major markets, with yields in the UK declining almost 10bp to 4.12% as the market “caught up” following the May Day bank holiday. 10 yields in Germany and France fell -5bp to 2.42% and 2.90% respectively on Tuesday.

FX

• The USD index rose 0.3% on Tuesday as most major currencies lost ground against the dollar. JPY lost 0.4% to 154.48/USD and is trading weaker again this morning. GBP weakened -0.3% to 1.2542 USD while EUR was largely unchanged at 1.0769. The commodity currencies lost ground with AUD down 0.3% yesterday and another 0.4% this morning to trade at 0.657 USD as of this writing, after the RBA struck a more neutral tone than had been expected by markets at yesterday’s meeting.

Equities

• Saudi Aramco announced net income of USD27.3bn in Q1 2024, down -14.4% y/y. The company maintained its dividend payout of USD 31bn this quarter and expects a total dividend payout of USD 124.3bn for the full year 2024. Aramco shares closed unchanged at SAR29.95 yesterday. The Saudi Tadawul closed slightly lower, down -0.1% on Tuesday while the ADXGI rose 0.4% and DFM was largely unchanged.
• US equity markets also took a breather after several days of gains, with the Nasdaq100 closing down a fraction and the S&P500 gaining slightly. European stocks performed better with the FTSE100 up 1.2% on Tuesday and the Eurostoxx50 also gaining 1.2% yesterday.

Commodities

• Both Brent and WTI prices closed lower on Tuesday, down -0.2% and -0.1% respectively. Oil prices have declined another -0.4% in Asian trade this morning (Brent is trading at USD 82.83/b as of this writing) after the AEI reported crude stockpiles at Cushing, Oklahoma rose by more than 1m barrels last week, as well as higher inventories of gasoline and distillates. Official data is due later today.