Saudi Arabia Q3 GDP growth rate exceeds expectations

Saudi Arabia’s General Authority for Statistics has released its Q3 GDP data, with the final y/y growth rate of 8.8% exceeding the preliminary rate of 8.6% given at the end of October. The economy was up 2.1% q/q. The oil sector remained the primary driver of growth as it expanded 14.2% y/y, while non-oil growth was at 6.0% and government activities at 2.5%. The final quarter of the year is also likely to have seen a strong performance from the non-oil sector given the high PMI readings in recent months – November’s print was the strongest in seven years. Next year we anticipate that the non-oil sector will be the primary growth driver as the gains seen in oil production this year are not set to be repeated.

US PPI inflation data for November came in a little hotter than anticipated at the close of last week, with the m/m measure staying flat at 0.3%, rather than the predicted 0.2%. Core inflation was especially higher, rising from 0.1% in October to 0.4%, exceeding consensus expectations of 0.2% growth. The annual measure was 7.4% on the headline, down from 8.1% but again higher than expectations of 7.4%, while core was 6.2%. Services were a key driver of inflation, indicating that the Fed’s battles with price growth are likely not over yet in a key week for the central bank. CPI inflation is due on Tuesday while the December FOMC decision will be announced on Wednesday, with a 50bps hike the likely outcome. The revised projections by the Fed will also be released this week.

Despite the rapid tightening that has already played out this year, the US consumer has remained resilient, as evidenced by the upside surprise in the University of Michigan consumer sentiment index for December released on Friday. The index came in at 59.1, up from 56.8 in December and beating consensus predictions of 57.0. Meanwhile, long-term inflation expectations remained stable at 3.0%, which is likely to keep pressure on the Fed.

Chinese President Xi Jinping concluded his three-day visit to Saudi Arabia on Friday, during which time he attended the first GCC/China conference. The partners released a four-year plan of action at the conference’s conclusion which will see the GCC and China cooperate on a number of economic efforts including ensuring ‘flexibility on supply chains, food security and green energy.’

Today’s Economic Data and Events

• 11:00 UK industrial production, % m/m, October. Forecast: 0.1%
• 16:00 India industrial production, % y/y, October. Forecast: -0.6%

Fixed Income

• Rates markets flagged recession warnings this week with the 2s10s inversion widening to levels not seen in decades. The 10y ended the week at 3.578%, up 9bps, while the 2y added 7bps to 4.3443%. Fed officials have been silent owing to the blackout period prior to this week’s FOMC decision.
• In the UK, 10y yields closed up 2bps at 3.181% and the 2y 8bps to 3.426%. German bunds gained 8bps on the 10y to 1.928% and 5bps on the 2y to 2.141%.
• The week ahead holds key decisions from the major central banks. The Fed, BoE, and ECB are all expected to slow the pace of their rate hikes from 75bps to 50bps for their last meetings of the year which would take their benchmark rates to 4.5%, 3.5%, and 2.5% respectively. Mexico, Philippines, Switzerland, Colombia, Taiwan, Russia, and Norway’s central banks are also holding their MPC meetings this week.

FX

• While some of the haven play seen at the start of the week tapered off through the back end, the dollar index still ended the week higher than it had closed the previous Friday, gaining 0.3% against its basket of currencies. Nevertheless, while it has still gained 9.6% ytd it is now some 8% off its September peak.
• Of the majors, CAD was the notable loser against the greenback as it dropped 1.1% over the week to 1.3645. The indication by the central bank that it would slow its pace of hiking after its latest MPC meeting weighed on the loonie.
• GBP ended the week down 0.2% at 1.2259 while EUR gained 0.1% to 1.0540.

Equities

• Chinese equity markets enjoyed a significant boost last week from the signposted easing around stringent zero-Covid restrictions. The Hang Seng ended Friday up 5.9% w/w, while the Shanghai Composite gained 1.4%. Other Asian markets were more mixed as the global recession fears were the more dominant driver through the middle of the week. Gains on Friday saw the Nikkei end the week 0.5% higher while the Kospi ended the week down -2.2% despite gains at the close of the week.
• In Europe the recession worries were also the key driver as all the major indices ended the week lower despite some upside data surprises from Germany in particular. The composite STOXX 600 ended down 0.9% w/w and the CAC 1.0%, while the FTSE 100 and the DAX both lost 1.1%.
• With oil prices tumbling this week, the Tadawul was under pressure as the index ended the week 5.3% lower. Locally, the ADX also fell, ending the week down 1.1%, but the DFM closed up 0.3% w/w.
• In the US, all three benchmark indices closed lower on Friday, pushing the weekly loss to 2.8% for the Dow Jones, 3.4% for the S&P 500, and 4.0% for the NASDAQ.

Commodities

• Both benchmarks closed down over 11% w/w last week despite a key North American pipeline declaring force majeure. For Brent this was the biggest weekly drop since August, while for WTI since April. Concerns over a looming recession and the implications of this for oil demand was the primary driver over the week which saw Brent futures close at USD 76.1/b and WTI at USD 71.0/b.
• The supply fears around the Keystone oil pipeline and the tankers clogged around Turkey have eased, with the pipeline expected to be running as usual again soon and indications that the issues around shipping insurance at the Bosporus are being resolved. Talk by President Putin around the possibility of cutting supply did little to put a floor under prices.

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