World Bank downgrades outlook

The World Bank has downgraded its 2023 global growth forecast to 1.7%, almost half the 3.0% growth the bank had projected six months ago. This compares to the IMF’s present forecast of 2.7% (although that too is likely to be revised lower this month) and if realised would be below the 2.0% level by which economists gauge a global recession given population growth for poorer countries especially. The Global Economic Prospects publication cautions that the slowdown will be broad based, with nearly all regions of the world experiencing slower per capita income growth than enjoyed prior to the Covid-19 pandemic. Poor economies will be under especial strain as they cope with the fallout of currency depreciations and high inflation. Other 2023 growth forecasts include 0.5% in the US, 0.0% in the Eurozone, 4.3% in China and 1.0% in Japan.

Jerome Powell spoke in Stockholm yesterday but gave little away in terms of current Fed policy, focusing his speech on longer-term structural issues around independence, lack of responsibility for promoting a green economy, and ‘sticking to our knitting’ rather than pursuing ‘perceived social benefits that are not tightly linked to our statutory goals and authorities.’

French industrial production surprised to the upside in November as it grew by 2.0% m/m, confounding expectations of 0.8% growth. Production was 0.7% higher than a year earlier. Manufacturing grew 2.4% m/m and 4.2% y/y.

Egypt’s CPI inflation accelerated to 21.3% y/y in December, up from 18.7% in November. This marked the fastest pace of price growth since December 2017, following which the sharp depreciation of the pound in late 2016 passed through the base. Now as then, the acceleration in inflation from 5.9% last January has in large part been driven by sharp moves lower by the EGP over the past year, and in particular since the end of October when a new IMF deal was agreed. Food prices were the key driver of headline price growth as they increased by 37.2% y/y, up from 30.0% in November and compared with non-food inflation which was at 14.3% in December. Headline prices were up 2.1% m/m, marginally slower than November’s 2.3%.

Today’s Economic Data and Events

• 11:00 Turkey current account balance, November, USD bn. Forecast: -4.0

Fixed Income

• US Treasuries settled weaker overnight, following a decline in European bond markets. The 2yr UST yield closed up 4bps at 4.2472% while the 10yr yield added 9bps to 3.6188%. Fed chair Jerome Powell spoke overnight but his comments were directed toward climate change and whether the Fed should have a role in determining climate policy.
• European bond markets gave back some recent gains with bund yields adding almost 8bps to 2.299% and French bond yields gaining 7bps to 2.795%. In the UK, gilt yields also moved higher, up by 3bps to 3.553%.
• Saudi Arabia set off the first large Eurobond issuance from a sovereign overnight, pricing a three-tranche USD 10bn deal. A 5yr 3.25bn tranche priced at +110, a 10.5yr USD 3.5bn priced at +140 and a 30yr USD 3.25bn priced at a yield of 5.5%. The order book was reportedly around USD 35bn.

FX

• The dollar closed mixed against peers, showing little direction ahead of the release of US CPI later this week that will give a better sense of the near-term direction in Fed policy. EURUSD closed marginally higher, at 1.0733 while GBPUSD dropped 0.3% to 1.2154 and USDJPY added 0.3% to 132.26. Commodity currencies also settled weaker by about 0.3% in either direction for USDCAD and AUDUSD, settling at 1.3426 and 0.6889 respectively.

Equities

• Some of the recent exuberance in equity markets eased off yesterday as concerns over Covid-19 case numbers in China and comments from top Fed officials pared expectations. In Asia, the Hang Seng and the Shanghai Composite both closed lower, dropping 0.3% and 0.2% respectively. Japan’s Nikkei ended the day up 0.8% however.
• Locally, the DFM dropped 0.3% while the ADX added 0.4%. Saudi Arabia’s Tadawul fell 0.1%.
• In Europe, the composite STOXX 600 fell 0.6%, as did the CAC. The DAX lost 0.1% and the FTSE 100 closed 0.1% lower.
• In the US the mood was more upbeat and equities closed higher as the Dow Jones, the S&P 500 and the NASDAQ added 0.6%, 0.7% and 1.0%.

Commodities

• Oil prices managed to gain a second day running with Brent and WTI futures up 0.6% each at USD 80.10/b and WTI at USD 75.12/b. Data from the API showed a near 15m bbl build in crude inventories last week along with gains in gasoline and distillates. Official numbers will be released from the EIA later this evening.

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