Saudi economy contracts -4.1% in 2020

• Saudi Arabia’s GDP grew 2.8% q/q but contracted -3.8% y/y in Q4 2020 according to flash estimates.  This brings full year GDP growth to -4.1% in 2020, worse than the government’s preliminary estimate of -3.7% published in the 2021 budget statement and also slightly lower than our forecast of -4.0%.  Detailed sector GDP will be released in the coming weeks. We expect GDP growth to recover to 2.5% in 2021.
• UAE bank deposits grew 0.4% m/m and 0.8% y/y in December, while gross lending growth slowed to -0.9% m/m and 1.2% y/y by end 2020. Broad money supply (M2) slowed to 4.6% y/y from 5.0% in November, the slowest annual growth in money supply since July 2019.  The slower M2 growth rate was partly due to a high annual base, as on a m/m basis, money supply grew 2.0% in December.
• Turkish Central Bank governor Naci Agbal told economists in Istanbul that the Turkish economy may have expanded by as much as 2.5% in 2020, boosted by an 8% y/y expansion in the fourth quarter. This would exceed Bloomberg consensus estimates of 0.7% growth last year. Consensus forecast for 2021 is for growth of 3.8%. Headline unemployment in Turkey rose to 12.9% in November, from 12.7% the previous month. Despite the rise, this remained off year-previous levels, when the headline jobless rate was 13.2%. Youth unemployment rose from 24.9% in October to 25.4% in November, which was higher than the 24.5% recorded in November 2019.
• Egypt’s CPI inflation fell to 4.3% y/y in January, down from 5.4% in December. As with the previous month, lower food prices contributed to the slowdown in price growth (inflation was 5.7% in November). Having held rates steady at the February MPC meeting, the January deceleration builds the case that the CBE will implement a cut at its March 18 meeting, provided there is no significant ramp-up in inflationary pressures in the interim. While oil has pushed higher still since being cited in the MPC’s communique last week, we do not expect that this will outweigh what are likely still fairly sluggish demand-side drivers.
• Inflation in the US came in slower than expected with headline inflation for January rising by 1.4% y/y, unchanged from December’s level and lower than market expectations of 1.5%. Month/month gains were limited to 0.3% thanks to higher fuel prices. However, core inflation slowed to 1.4% y/y from 1.6% a month earlier and was unchanged m/m. Base effects are likely to help support headline inflation moving higher over the next few months—CPI inflation recorded an average of just 0.25% in Q2 2020—but a public debate among current and past Fed officials is playing out as to when price gains will be substantial and sustained enough to push rates higher.

Today’s Economic Data and Events

• South Africa manufacturing production y/y (Dec): 15:00 forecast -1.2%
• US initial jobless claims (Feb 6): 17:30 forecast 760k
• Mexico overnight rate: 23:00 forecast -25bps cut

Fixed Income

• US Treasuries moved higher on the softer than expected inflation print for January with yields on the 2yr UST sliding back below 0.11% and the 10yr moving from an intraday high of more than 1.17% to settle at 0.1225%. Fed chair Jerome Powell said the US labour markets was still far from being “strong” nor were its benefits currently “widely shared” and that improving labour market conditions will require “more than supportive monetary policy.” This appeared to be another request from the central bank for more government spending to accompany the accommodative monetary stance.
• Bond markets in general were higher overnight with an index of US corporate debt gaining 0.2% while high yield and emerging market bonds also pushed higher.
• Ahli Bank priced a USD 300m perp at 4%, tighter than initial guidance.

FX

• Despite some choppy movement throughout the day the DXY index is virtually unchanged from Tuesday’s closing price this morning at 90.420. The same applies to the EUR and JPY.
• Sterling earned modest gains and currently trades at 1.3830, down from its daily high of 1.3866. Commodity currencies were among the biggest movers, both the AUD and NZD fell by 0.2% and 0.4% to reach 0.7225 and 0.7210 respectively.

Equities

• The weaker than expected inflation figures from the US weighed on the equity indices later in the day, after all three benchmarks hit new record highs earlier in the session. At the close, the S&P 500 and the NASDAQ were both down marginally (-0.0% and -0.3% respectively) while the Dow Jones clung on to gains of 0.2%.
• In Europe, sterling’s gains weighed on the FTSE 100 as it closed -0.1% lower. The CAC (-0.4%) and the DAX (-0.6%) also ended the day lower.
• Within the region the DFM lost -0.6%, while the Tadawul closed 0.1% higher and the EGX 30 gained 0.9%.

Commodities

• Oil prices extended their gains overnight with Brent rising 0.6% to close at USD 61.47/b while WTI rose 0.6% to settle at USD 58.68/b. Both contracts have recorded their longest stretch of daily gains in the last two years. Prices are off a little in early trade today but markets will be fixated on reports out from the IEA and OPEC at the end of this week to get a clearer near-term direction.
• Crude inventories in the US fell by 6.6m bbl last week, substantially more than the API estimated. Gasoline stocks did rise—up by 4.3m bbl—but draws across much of the rest of the barrel helped to bring total petroleum stocks down by more than 11m bbl. Production in the US rose modestly by 100k b/d to 11m b/d while product supplied added 1.7m b/d to move above 20m b/d in total.

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