Preliminary figures show strong Q3 growth in Saudi Arabia

• Preliminary Q3 GDP figures from Saudi Arabia show a y/y expansion of 8.6%. Oil sector growth was 14.5% while non-oil expanded 5.6%. This marked a slowdown from the second quarter (22.9% and 8.2% respectively) and we anticipate that growth will continue to slow through the next several quarters. We forecast growth of 7.7% this year before slowing to 3.5% in 2023.
• The IMF launched its MENA and Central Asia report yesterday. The Fund notes the different dynamics between the oil exporting and the oil importing countries of MENA but warned that all were facing headwinds from volatile global prices and mounting headwinds. It forecasts real GDP growth of 5.0% this year, slowing to 3.6% in 2024. It also expects regional energy exporters to enjoy a cumulative windfall  of USD 1tn over 2022-2026, and expects GCC states to save around a third of theirs as they move away from the ‘pro-cyclical fiscal policies of the past.’ We forecast a weighted budget surplus of 7.9% this year and 7.8% next year for the GCC.
• Petrol prices in the UAE are set to rise around 9.5% m/m in November after the new prices were set last night. Prices track global dynamics more closely since being liberalized, and oil took a leg higher in October after the moves to curb supply once more by OPEC+. Transport makes up nearly 10% of the Dubai CPI basket, so the disinflation seen over the past two months could be reversed once more as this takes effect.
• The Eurozone grew 2.1% y/y and 0.2% q/q in Q3, beating estimates – the previous week the consensus projection had been for a modest q/q contraction, but upside surprises from Germany in particular last week pointed towards a modest gain. Nevertheless, this was slower than the 0.8% growth in Q2, and q/q growth is likely to turn negative in the fourth quarter as the challenges around energy supply mount going into winter and inflation strangles demand. CPI inflation was at 10.7% y/y in October in other data released yesterday, higher than the consensus projection of 10.3% and up from 10.0% in September. With inflation still trending higher but growth under pressure, the ECB will have an increasingly difficult task in setting policy, and the dovish language around last week’s large 75bps hike were reflective of the challenge.
• China’s Caixin manufacturing PMI rose to 49.2 in October, an improvement from September’s 48.1, and better than the consensus projection of 48.5, but still resolutely below the neutral 50 mark. The measure has a focus on smaller firms and shows the ongoing deleterious effect the zero-Covid strategy is having on economic output in China.

Today’s Economic Data and Events

• 18:00 US ISM manufacturing, October. Forecast: 50.0

Fixed Income

• US Treasuries slipped at the start of the week and in the lead up to the November FOMC meeting. Yields on the 2yr UST added almost 7bps to close at 4.4824% overnight while the 10yr yield gained 3bps to 4.0478%. A 75bps hike looks a near certainty as to the outcome of this week’s meeting.
• European bonds drifted lower after eurozone inflation came in hotter than expected for October. The 10yr bund yield added 4bps to 2.136% while the similar maturity French 10yr added 6bps to 2.67% and Italian yields added nearly 13bps to 4.286%. Several ECB officials gave competing views overnight in terms of next steps for the bank with Iganizo Visco, head of the Italian central bank, saying that the rate hiking cycle “can’t be predetermined” while Paolo de Cos from Spain’s central bank said “decisive action” will help support the economy in the medium term.
• Credit markets generally settled lower overnight with emerging market bonds largely sinking. A broad index of USD-denominated bonds fell 0.3% overnight though spreads did come in marginally.

FX

• The dollar strengthened ahead of the start of this week’s FOMC, abetted by a move higher in yields. Losses against the dollar were consistent with EURUSD off by 0.8% to 0.9882 and GBPUSD giving up more than 1.2% to settle at 1.1469. USDJPY also moved higher for a second day running, adding 0.75% to 148.71.
• Commodity currencies fared a little better. USDCAD still moved against the loonie though by just 0.2% to 1.3624. AUDUSD also fell, down 0.19% to 0.6399 while NZDUSD edged slightly higher.

Equities

• Weak PMI readings weighed on Chinese equities to start the week. The Hang Seng dropped -1.2% and the Shanghai Composite -0.8%. The rest of East Asia saw gains through, as the Nikkei added 1.8% and the KOSPI 1.1%.
• In Europe, the CAC closed down -0.1% while the DAX added 0.1%. There were losses in the US as the Dow Jones, the S&P 500 and the NASDAQ lost -0.4%, -0.8% and -1.0% respectively.
• Locally, the DFM lost -0.5% yesterday while the ADX added 1.2%. In Saudi Arabia the Tadawul ended the day up 0.3%.
• Taaleem Holdings, a private school operator in Dubai, has announced plans for an IPO, looking to raise AED 750mn. The subscription period opens November 10 with trading in Dubai scheduled to start on November 29.

Commodities

• Oil prices dropped overnight with no substantial catalyst to shift markets. Brent futures settled at USD 94.83/b, down 0.98% while WTI gave up 1.6% at USD 86.53/b. Comments from ADIPEC will continue to hit the headlines in coming days with OPEC’s secretary-general saying that a “surplus” in oil markets was responsible for the group’s decision to cut output for November onward.

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