IMF revises global growth outlook upwards

The IMF revised its outlook for global growth upward to 2.9% for 2023, up from 2.7% previously. The fund still expects a slowdown in inflation in 2023 to 6.6% from 8.8% last year. For developed economies, the IMF expects growth of 1.2% this year, slightly higher than previously while for emerging economies, they expect growth of 4%, an upward revision thanks to higher expectations for Russia’s economy and for China. The IMF expects growth in the Middle East and Central Asia region of 3.2% this year, down from 5.3% previously. A full breakdown of regional growth estimates will be forthcoming.

Germany’s economy contracted by 0.2% q/q in the final three months of 2022, worse than markets had been expecting. On an annual basis, the economy expanded by 1.1% in Q4, affirming the slowdown in place from Q2 last year. Should Germany’s economy record another quarter of contract in Q1 2023 it would confirm that the country has moved into recession though the drop off in natural gas prices so far this year may make the pain of slower activity bite less. Investor sentiment had actually improved for January according to market survey, likely helped by lower wholesale power costs.

China showed a sharp recovery in activity for January according to the country’s official PMI indicators. The manufacturing PMI rose to 50.1 from 47 a month earlier while the non-manufacturing spiked to 54.4 from 41.6. The improvement comes as China has reopened the economy and was better than expected given the high level of Covid-19 cases in the country earlier in the year. The lunar new year celebrations also normally contribute to slower activity levels so the January print is all the more surprising on the upside.

Today’s Economic Data and Events

• 10:30 FR GDP y/y Q4 2022: forecast 0.5%
• 11:00 TU Trade balance Dec: forecast -10.4bn
• 14:00 EC GDP y/y Q4 2022: forecast 1.7%
• 17:00 GE CPI y/y Dec 2022: forecast 9.4%
• 17:30 US Employment cost index Q4: 1.1%
• 19:00 US Conf. Board consumer confidence Jan: forecast 109

Fixed Income

• US Treasuries slipped to start the week with all eyes on the FOMC meeting later this week. Yields on the 2yr UST added about 4bps to 4.2341% while the 10yr added 3bps to 3.5366%. The curve is holding relatively at around -70bps where it has been for much of 2023.
• European bond markets also fell with yields on 10yr bunds up 8bps at 2.312% while 10yr French bonds showed a similar jump in yields. Gilts managed to contain the sell-off somewhat to just a 1bps move in yields to 3.332%.
• The UAE issued AED 550m of 2yr T-bonds and AED 550m of 5yr bond, raising AED 1.1bn in a deal that was heavily oversubscribed.
• S&P revised their outlook on Sharjah’s sovereign rating to stable from negative, citing a better than expected fiscal position for 2022. Elsewhere, Fitch affirmed their rating on National Bank of Kuwait at ‘A+’ with a stable outlook.

FX

• The dollar rallied as mood shifted toward risk-off at the start of the trading week and in anticipation that central bank meetings later this week could deliver more hawkish messages. EURUSD fell 0.2% to 1.0851 while USDJPY added 0.4% to 130.39. GBPUSD dropped by 0.2% to 1.2352.
• Commodity currencies showed wider sell-offs with USDCAD up by 0.6% at 1.3387 and AUDUSD falling by the same amount at 0.706. NZDUSD dropped by 0.4% to 0.6469.

Equities

• Recent optimism in global equity markets dampened somewhat on Monday ahead of a run of major central bank meetings later in the week where the expectation is that further rate hikes are coming, and potentially still with a hawkish bias in the commentary despite hopes of a pivot. Nevertheless, global equity indices have seen strong gains over the first month of the year.
• Earnings season has also weighed on the NASDAQ ahead of some major tech firm results and the index ended the day down 2.0%. The Dow Jones (0.8%) and the S&P 500 (1.3%) also lost ground. Despite the losses, the three indices are ytd at the close of January, adding 8.9%, 1.7%, and 4.6% respectively.
• In Europe, weaker-than-expected German data compounded the turn in sentiment, and the DAX closed down 0.2% after recouping some losses later in the session. The CAC also lost 0.2% but the FTSE 100 ended the day 0.3% higher. The three indices have added 8.6%, 9.4%, and 4.5% ytd.
• In Asian markets, the Shanghai Composite closed up 0.1% on its first day back trading after the new year holiday, while the Hang Seng, which reopened last week, ended the day down 2.7%. Japan’s Nikkei closed up 0.2%.
• Locally, the DFM ended the day down 0.8% while the ADX added 0.7%. Saudi Arabia’s Tadawul lost 0.3% and the EGX 30 dropped 2.2%.

Commodities

• Oil prices fell by 2% each to begin the trading week. Brent futures settled just below USD 85/b while WTI closed at USD 77.90/b. the broad risk-off tone played into a wider commodity sell off. Russia’s president, Vladimir Putin, and the crown prince of Saudi Arabia, Mohammed bin Salman, discussed OPEC+ in a bilateral phone call yesterday. The OPEC+ joint ministerial monitoring committee meets this week and we expect them to advise no change in production plans.