Q2 Saudi growth revised upwards

Saudi Arabia’s non-oil sector grew at 5.2% y/y in Q2 2023, faster than the flash estimate of 4.9%. Private sector GDP growth was particularly strong at 6.1% y/y last quarter, up from 5.4% y/y in Q1. Headline GDP growth slowed to 1.2% y/y however, as oil and gas GDP contracted on oil production cuts. The sector breakdown showed strong growth in transport, storage and communications (12.9% y/y) in Q2 2023, along with trade and hospitality (9.8% y/y). Financial services GDP grew 2.5% y/y while government services growth slowed to 2.3% y/y. We expect non-oil sector growth of 5% for the full year 2023, but headline GDP growth is likely to come in slightly negative as the hydrocarbons sector is forecast to contract -8.5% y/y.

Turkey recorded a current account deficit of USD 5.5bn in July after a surplus of USD 650m recorded a month earlier. The trade deficit widened substantially to USD 10.5bn after recording a relatively narrow USD 3.8bn shortfall in June. There were USD 392m of FDI inflows in July along with USD 1.16bn of portfolio investment.

Today’s Economic Data and Events

• 10:00 UK ILO unemployment rate Jul: 4.3%
• 13:00 GE ZEW survey expectations Sept: forecast -15
• 16:00 IN industrial production Jul: 5.3%
• 16:00 IN CPI y/y Aug: forecast 7.1%

Fixed Income

• US Treasuries were relatively quiet with few economic catalysts to push markets in either direction. Yields on the 2yr UST closed flat at 4.9905% while the 10yr UST yield added about 2bps to 4.288%. European bonds drifted lower ahead of the ECB rate decision later this week with 10yr bund yields adding about 3bps to 2.635%.
• The UAE has mandated banks for a bond issue this month with plans to reportedly raise USD 1bn. The government of Sharjah is also set to come to the market with a USD 10.5yr sukuk.
• Bank of China Dubai priced a USD 500m 3yr green bond at SOFR+60, much tighter than initial guidance.
• Energy Development Oman is also in the market for a USD benchmark 10yr sukuk.

FX

• The US dollar tumbled yesterday after intervention from Japan and China to support their currencies. The governor of the Bank of Japan had previously cautioned that it could end its negative yield policy and tighten conditions which helped to lift Japanese yen overnight. USDJPY dropped 0.8% to 146.59, the largest one-day drop for the pair since July. EURUSD also received a boost from the dollar selling with EURUSD up 0.5% at 1.075 and GBPUSD gained 0.3% to 1.2509.
• Commodity currencies also rallied with USDCAD down 0.5% at 1.3573 while AUDUSD jumped 0.9% to 0.6431 and NZDUSD rose 0.6% at 0.5919.

Equities

• The Shanghai Composite closed up 0.8% on Monday, with a higher-than-expected jump in credit in August contributing to the positivity. The Hang Seng closed down 0.6%, however, while Japan’s Nikkei dropped 0.4% as the yen strengthened.
• European equity markets started the week on the front foot as the STOXX 600 added 0.3%. The DAX gained 0.4% and the CAC closed 0.5% higher. The UK’s FTSE 100 ended up 0.3%.
• In the US, the NASDAQ was the biggest gainer as it closed up 1.2%, while the S&P 500 added 0.7% and the Dow Jones 0.3%.
• There were modest gains in local markets as the DFM ended Monday 0.1% higher and the ADX gained 0.2%.

Commodities

• Oil prices ended the day slightly lower, fading a mid-day spike higher. Brent futures closed out at UDS 90.64/b while WTI dropped by about 0.3% to USD 87.29/b. Markets will get some direction from the OPEC monthly oil market report released later today.
• Metals prices were higher across the board overnight with copper up nearly 2% and iron ore adding 2.7%.