Saudi Arabia GDP grew 6.8% in Q3

• Saudi Arabia’s GDP grew 6.8% y/y in Q3, the fastest rate of growth in almost a decade according to preliminary estimates.  However, the strong growth rate was calculated off a low base due to last year’s pandemic impact on the economy.  The oil sector grew 9.0% y/y as Saudi Arabia started to unwind covid-related production cuts while the non-oil sector grew 6.2% y/y, faster than we had expected.  Non-oil GDP grew 1.6% q/q (seasonally adjusted), the fastest rate since Q3 2020. We expect non-oil sector growth to average 5.0% in 2021, up from -2.3% in 2020, with headline GDP forecast at 2.5% this year. 
• The German ZEW survey showed investors were much more optimistic than expected in November even as the current situation index deteriorated sharply from October. The expectations index rose to 31.7 from 22.3 last month, the first improvement in six months, reflecting optimism that supply bottlenecks which have weighed on the economic recovery in recent months will ease, and that growth will accelerate in Q1 2022.
• US PPI came in in line with expectations at 0.6% m/m and 8.6% y/y in October, unchanged from the September reading.  Core PPI, excluding food and energy, was slightly slower than forecast at 0.4% m/m and 6.8% y/y.  Consumer inflation due today will be closely watched, with the headline number expected to accelerate to 5.9% y/y from 5.4% in September, which would be the fastest inflation since 1982. Core CPI is also expected to rise to 4.3% y/y in October. However, inflation is expected to moderate next year.
• China’s PPI came in higher than forecast in October at 13.5% y/y, up from 10.7% in September, a 26-year high.  The increase was due to higher commodity prices and energy constraints. CPI also accelerated from 0.7% y/y to 1.5% y/y, slightly ahead of the consensus estimate of 1.4%, as higher production costs are passed on to consumers. However, the PBOC is still expected to ease reserve requirements on banks in the coming weeks to support growth.  

Today’s economic data and events

11:00 GE CPI (Oct) forecast 0.5% m/m

16:00 US Initial jobless claims (Nov 6) forecast 260k

17:30 US CPI (Oct) forecast 0.6% m/m and 5.9% y/y

17:30 US Core CPI (Oct) forecast 0.4% m/m and 4.3% y/y

Fixed Income

• Yields on USTs fell yesterday despite further inflationary signals from data releases, with the longer end of the curve falling to the lowest level in months. The 10-yr dropped 5.4bps to 1.4358%, the lowest yield since September. The 2-yr fell 2.2bps to 0.4208%.
• Yields on 2-yr UK gilts picked up a little following the dramatic falls last week after the BoE surprised markets by its dovish tone. They rose by 3.9bps, but at 0.444% remain far off the 0.7% hit at the close of October. The 10-yr slipped 3.1bps to 0.823%.
• Romania’s central bank hiked the benchmark interest rate by 25bps yesterday, a smaller hike than the projected 50bps. In Serbia, the central bank held the benchmark steady at 1.0%.  The Central Bank of Thailand is due to announce its rate decision this morning, with consensus expectations predicting a hold at 0.5%.  

FX

• There was little in the way of decisive movement either way in FX markets yesterday. The dollar index weakened for a third consecutive day, dropping -0.1% to 93.955. Sterling closed little changed, losing -0.04% to close at 1.3557 yesterday, while EUR added 0.05% to 1.1593.
• The inflation data out of China is weighing on commodity currencies, with both the AUD (-0.6% ) and the NZD (-0.5%) falling against the greenback despite some positive local data, with further losses this morning.

Equities

• East Asian equities managed to stem some of the losses of the past two weeks yesterday, as the Hang Seng and the Shanghai Composite both closed up 0.2%. However, the concerns around the Evergrande issue and the potential fallout thereof leaves both indices lower than they were one month previous. There were losses elsewhere in Asia as Japan’s Nikkei lost -0.8% and India’s Sensex closed -0.2% lower. There are losses across the board in morning trading today as Chinese data indicate inflationary pressures.
• US equity indices gave back some of the gains seen last week, with all three major indices dropping off recent record highs. The Dow Jones, the S&P 500 and the NASDAQ lost -0.3%, -0.4% and -0.6% respectively. In Europe there was a similar story, with the FTSE 100’s -0.4% the biggest drop amongst the majors.
• Within the region, the DFM added 0.5% and the ADX 0.2%, while the Tadawul dropped -0.8% and the EGX 30 added 0.8%.  

Commodities

• Both major oil benchmarks headed higher yesterday, with WTI gaining 2.7% to USD 84.3/b and Brent futures adding 1.6% to USD 84.8/b. Both pricings are heading higher still this morning. The Biden administration is seemingly not pressing ahead with releasing volumes from the Strategic Petroleum Reserve, as had been anticipated, as EIA US government projections hold that prices will fall at the start of next year as the global market becomes oversupplied. The EIA projects an average Brent price of USD 72/b.
• API reported that US stockpiles declined by 2.5mn bbl last week; the official EIA figures will be released today.
• The fact that Russia has still not boosted gas supplies to Europe is another factor behind the elevated oil prices. President Putin had announced plans to boost supply from Monday, but this has still not materialised, contributing to the ongoing energy crunch in the region.

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