US Q4 GDP growth revised lower

US GDP growth for Q4 2022 was revised slightly lower in the second reading to 2.7% from 2.9% previously. This was due to a significant downward revision to personal consumption growth to just 1.4% from 2.1% previously. However data for January indicates that consumer spending has rebounded at the start of this year.

Importantly, core PCE inflation – the Fed’s preferred measure – was revised higher to 4.3% in Q4 from 3.9% in the first estimate, underscoring the challenge facing the central bank to bring inflation back to the 2% target, particularly given the strength of the labour market. Initial jobless claims for the week to 18 Feb came in lower than expected at 192k, below forecasts and marking a three-week low. Continuing claims also fell in the week to 11 February. While there have been high profile announcements of layoffs in the tech sector in recent weeks, this sector accounts for a small proportion of overall employment in the US.   

Consumer inflation in Japan accelerated to 4.3% y/y in January from 4.0% previously, a new forty-year high. Core inflation (excluding both food and energy) rose to 3.2% y/y from 3.0% in December. Hotel prices and car insurance helped to push inflation higher last month but the outgoing BoJ governor Kuroda has been clear that policy makers need to see evidence of sustained wage growth before they move away from their stimulus program. New governor Kazuo Ueda is set to replace Kuroda in April. In comments to parliament following the inflation release, Ueda said the BoJ can move towards normalizing policy if inflation can be sustained at 2%.  

The Turkish central bank cut its benchmark one-week repo rate by 50bps to 8.50% yesterday, half the 100bps cut that had been projected by consensus forecasts. In the wake of the recent earthquakes, the bank stated that it has become ‘even more important to keep financial conditions supportive’ although a cut had been anticipated even before the recent disaster. In yesterday’s communique, the bank assessed that the ‘current monetary policy stance after the measured reduction is adequate to support the necessary recovery in the aftermath of the earthquake…’ and pledged that it would closely monitor the effects of the disaster. Inflation has been falling in Turkey, dropping to an 11-month low in January, but at 57.7% it remains high and the recent earthquake could prompt a slower disinflation rate than had been anticipated, especially in the context of loose monetary and fiscal policy.

The UAE has officially launched a new national rail network to connect four major ports and seven logistics hubs which will be able to transport 60mn tonnes of goods annually. The network could contribute AED 200bn to the UAE’s economy by 2050. Earlier this week Mubadala and the Oman Etihad Rail Company signed an agreement to build a 300km rail network between the UAE and Oman, including high speed passenger trains.

Key Economic Events and Data

11:00 Germany Q4 GDP (final) forecast 0.5% y/y

17:30 US personal income (Jan) forecast 1.0% m/m

17:30 US personal spending (Jan) forecast 1.4%  m/m

17:30 US new home sales (Jan) forecast 620k (0.7% m/m)

19:00 US University of Michigan sentiment (Feb final) forecast 66.4

Fixed Income

• US Treasuries rallied overnight even as the data flow continues to show robust health in the US economy. The 2yr UST yield closed at 4.6974%, essentially unchanged on the day after an early pop while 10yr UST yields fell about 4bps to 3.8768%.
• European bonds pulled higher overnight even as another round of fast inflation data for the Eurozone sets up for ECB rates to move higher. Yields on 10yr bunds fell 4bps to 2.473% while French 10yr yields dropped about 5bps to 2.949%. Gilt yields also edged lower, closing the day down 1bps at 3.583%.
• Turkish bonds settled stronger even after another cut to rates from the TCMB. Yields on 10yr Turkish bonds fell 8bps to 10.2%.     

FX

• Currency markets trended lower in somewhat choppy trade overnight. EURUSD had a lower bias throughout the day despite some brief upward pulls, ultimately closing at 1.0596, down by about 0.1%. GBPUSD was more resolute in its decline, falling by 0.3% to 1.2013 while USDJPY dropped by 0.1% to 134.70.
• Commodity currencies showed very modest gains with USDCAD closing essentially flat while AUDUSD rose by less than 0.1% to 0.6808 and NZDUSD gained 0.2% to 0.6228.

Equities

• Asian markets followed the US indices into the red yesterday as there were losses across the board on concerns around the higher for longer rates narrative. The Shanghai Composite ended down 0.1% while the Hang Seng dropped 0.4%. In Japan, the Nikkei lost 1.3% while the key Indian indices were down 0.2%.
• European equities caught a breath, buttressed by some robust corporate results data. The composite STOXX 600 closed 0.1% higher with the CAC adding 0.3% and the DAX 0.5%. In the UK the FTSE 100 lost 0.3%.
• In the US, the S&P 500 broke its fall as it added 0.5% on the day. The Dow Jones gained 0.3% and the NASDAQ 0.7%.
• Locally, the DFM dropped 0.3% and the ADX 0.4%. Saudi Arabia’s Tadawul ended down 1.1% while the Bist gained 0.3% and the EGX 30 closed 1.4% higher.

Commodities

• Oil prices snapped back overnight with both Brent and WTI rising by about 2%. Brent closed at USD 82.21/b while WTI settled at USD 75.39/b. US official inventory data recorded another large build in commercial crude stocks, up by almost 8m bbl last week while gasoline stockpiles fell and distillate inventories added about 2.7m bbl. Oil production held flat at 12.3m b/d.