UK GDP shrank in October

The UK started the fourth quarter on the back foot as it recorded a real GDP contraction of 0.1% m/m in October. This missed the predicted 0.1% expansion, matching instead the September growth pace and meaning that growth has been above zero for just one of the past five readings. The three-month over three-month measure remained positive, just, at 0.1%. Services were flat m/m in October, while industrial production was down 0.6% m/m (and 0.7% y/y) and manufacturing dropped 0.6% m/m and was flat on last year.

Retail sales in China came in weaker than expected in November, growing by just 3.0% y/y, down from 4.8% in October and missing the predicted 5.0%. Sales are up 3.5% ytd. The November print was the weakest in several months, suggesting that the effect of government stimulus on household consumption is already beginning to fade. Industrial production was up 5.4% y/y, in line with expectations.

Industrial production in the Eurozone was flat m/m in October, leaving it 1.2% lower than a year previous. Nine out of the 20 economies in the bloc saw higher output, but there were declines in eight with the two largest economies, France and Germany, registering lower production levels. German production has been a major drag in recent months, and was down 1.1% m/m and 4.9% y/y. The outlook for the rest of the year is equally downbeat with strikes at major German automakers through the quarter.

Today’s Economic Data and Events

12:15 France manufacturing PMI, December

12:30 Germany manufacturing PMI, December

13:00 Eurozone manufacturing PMI, December. Forecast: 45.6

Fixed Income

• USTs continue to lose ground, with yields rising across the curve and more steeply on the long end for the worst week in several months. The 10yr closed at 4.3967% on Friday, up 24bps on the week, while the 2yr added 14bps to 4.2448%.
• The Federal Reserve is set to make its final interest rate announcement of the year on Wednesday night, with a 25bps cut to the fed funds rate anticipated. This would take the upper bound to 4.50%. The Bank of England is expected to hold rates at 4.75% on Thursday. The Bank of Japan also meets on Thursday and is expected to hold at 0.25%.

FX

• The dollar index marked its sixth straight run of gains on Friday, with USD closing up 0.9% w/w against its basket of peer currencies.
• JPY was particularly weak as it lost 2.4% against the dollar to 153.65, while GBP was also soft, with sterling closing down 1.0% on the week to a Friday close of 1.2619, with the surprise m/m GDP contraction in October contributing to the fall. EUR ended down 0.6% w/w at 1.0501.

Equities

• Chinese equities were underwhelmed by the outcome of the Central Economic Work Conference in Beijing, and the Shanghai Composite closed 2.0% lower on Friday, leading to a 0.4% decline w/w. The Hang Seng managed to record a weekly gain of 0.8% despite a 2.1% drop on Friday, while in Japan the Nikkei ended the week up 1.0% w/w, despite a 1.0% fall on Friday.
• Some of the momentum behind the recent rally in the US petered out last week, with only the NASDAQ notching a w/w gain out of the three benchmark indices. It added 0.3% while the S&P 500 ended the week down 0.6% and the Dow Jones lost 1.8%.

Commodities

• Global oil prices notched their first w/w gain in three weeks last week, with Brent futures ending Friday at USD 74.5/USD, up 4.7% w/w while WTI added 6.1% to end the week at USD 71.3/b.
• The gains were driven by geopolitical developments rather than any uptick in the demand outlook – President-elect Donald Trump’s incoming national security advisor Mike Waltz is advocating a return to ‘maximum pressure’ on Iran, while outgoing President Joe Biden may impose new sanctions on Russia’s oil exports before his term ends.