19 January 2023
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US data points to further weakness in the economy

By Khatija Haque

US data was disappointing overnight and indicates further weakness in the economy over the last few weeks. Retail sales fell by -1.1% m/m in December, almost double the decline seen in November. Excluding autos and gas, retail sales fell -0.7% m/m as consumers cut back on goods spending. Easing prices likely also contributed to the nominal decline in sales. Industrial production fell -0.7% m/m in December with manufacturing output down -1.3% m/m. Weak demand and higher interest rates are weighing on output. Capacity utilization dropped to the lowest in a year at 78.8%. Producer price inflation declined by a greater than expected -0.5% m/m, with lower energy costs driving the decline. Core goods PPI rose 0.3% m/m, slower than in November, suggesting that pipeline inflationary pressures will continue to ease.

Despite the slew of weaker than expected economic data, Fed speakers struck a hawkish tone. James Bullard told the WSJ that he favoured another 100bp of hikes this year, taking the Fed Funds rate to 5.5%. Loretta Mester also expected rates to go above 5% even as inflation was moving in the right direction. While Bullard indicated he was open to another 50bp hike in the upcoming meeting, FOMC members Lorie Logan and Patrick Harker said they thought 25bp increments were more appropriate going forward, although both indicated that a terminal rate of over 5% was likely.       

CPI inflation in the UK decelerated to 10.5% y/y in December, down from 10.7% a month earlier and a peak of 11% hit in October. Lower fuel prices along with clothing was behind the slowdown at the end of the year. However, core CPI remained steady at 6.3% y/y, down only marginally from the 6.5% peak hit in September 2022. Following another strong wage print earlier in the week—wage growth in the three months to October rose to 6.4%—the persistence of high core CPI will keep the Bank of England on a hawkish tilt with market expectation of a 50bps hike at their early February MPC meeting.

Dubai’s hotel occupancy averaged 76.1% in December 2022, slightly lower than the 77.3% recorded in December 2021. Average hotel occupancy last year was 72.8% (65.8% in 2021). Revenue per available room rose 30% to AED 505 last year according to data from STR.

Saudi Arabia’s finance minister Mohammed alJadaan told the WEF that the kingdom is moving away from offering unconditional assistance to allies and is now working with “multilateral institutions” to link aid with reforms.  

Today’s key economic data and events

  • 15:00 Central Bank of Turkey rate decision forecast 9.0%
  • 17:30 US Housing starts (Dec) forecast 1358k
  • 17:30 US Initial jobless claims (14 Jan) 214k

Fixed Income

  • US Treasuries rallied sharply overnight as soft data, a dovish stance from the Bank of Japan as well as Fed speakers calling out for slower rate hikes helped to bring yields lower. Lorie Logan, of the Dallas Fed, and Patrick Harker, from the Richmond Fed both advocated for a slower pace of rate hikes though didn’t say they should necessarily be capped. Both are voting members of the FOMC. Yields on the 2yr UST dropped to 4.0825% overnight, a fall of 12bps, while the 10yr UST yield slumped as much as 18bps to 3.3698%.
  • Bond markets generally had a bid tone yesterday, spurred on by the persistently dovish stance from the Bank of Japan which didn’t shock markets two meetings in a row. The BoJ left their yield curve band unchanged and will continue to buy bonds in the market. Yields on 10yr JGBs bell 8bps overnight to 0.432%. In Europe, bund yields fell 7bps to 2.01% while the move in gilts was moderated by still hot, though slowing, inflation in the UK.
  • FAB priced a USD 600m 5yr bond at +105, tighter than initial interest. The bond was heavily oversubscribed with USD 1.45bn of orders.


  • Much of the action in currency markets was in USDJPY which initially spiked on the Bank of Japan’s maintenance of a dovish stance. The pair broke above 131 but then managed to pull back and end the day up 0.6% at 128.69, nearly in line with where USDJPY has been trading in recent days. EURUSD also spiked during the day, in favour of the single currency, as Francois de Galhau maintained that the ECB would continue to standby hiking rates by 50bps at upcoming meetings. However, the pair failed to hold its gains and closed the day more or less unchanged at 1.0794. GBPUSD closed steadily higher, up 0.5% at 1.2348.
  • Commodity currencies had a weaker bias among the major markets with USDCAD adding 0.8% to 1.3493 and AUDUSD dropping 0.6% to 0.6943. NZDUSD is catching up with some of the losses this morning though news that the prime minister has resigned hasn’t seemed to have much of an impact.


  • In Asian markets, the Nikkei was the notable gainer as the Bank of Japan’s decision to maintain its monetary policy unchanged prompted a fall in the currency and a surge in stock markets. The index ended the day 2.5% higher, while the Topix added 1.7%. Elsewhere in Asia, the Hang Seng closed up 0.5% and is now 9.6% higher than where it started the year as hopes for stronger Chinese growth embed.
  • Local markets closed lower yesterday as the DFM dropped 0.2% and the ADX 0.3%. Saudi Arabia’s Tadawul ended the day  0.2% lower while the EGX 30 was flat.
  • In the US, poor retail sales data and job layoffs at major firms weighed on equity markets. The NASDAQ, the S&P 500 and the Dow Jones dropped 1.2%, 1.6%, and 1.8% respectively. In Europe, equities were mixed with the DAX closing flat, the FTSE 100 losing 0.3% and the CAC adding 0.1%.


  • The recent rally in oil prices looks to have run out of steam, not helped by the slew of weaker data from the US. Brent futures fell 1% to USD 84.98/b while WTI gave up 0.9% to USD 79.48/b and both are edging lower in early trade today.
  • The IEA forecasts global oil consumption growth of 1.9m b/d in 2023, slightly faster than its last assessment, and a slowdown from growth of 2.2m b/d estimated for 2022. The bulk of growth will come from emerging economies with Asia’s demand to rise by 1.4m b/d alone as China’s economy reopens. The agency also cautioned that oil market balances will tighten quickly as new sanctions come into effect on Russia’s refined product exports.
  • The API reported a build in US commercial stockpiles of 7.6m bbl last week along with a build in gasoline inventories while distillates declined.

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Written By

Khatija Haque Head of Research & Chief Economist

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