ADNOC pledges spending on decarbonisation projects

ADNOC will spend USD 15bn on decarbonization projects until 2030, according to a statement from the company. Included among the spending will be investments in carbon capture, electrification and hydrogen and renewables. According to ADNOC’s statement, the state-owned firm would partner with international firms as part of its projects. The UAE aims to be a net-zero economy by 2050 and ADNOC is aiming to reduce its carbon intensity by 25% by 2030.

The US ADP employment report of private sector firms rose by 235k in December, higher than market forecasts. The ADP report precedes the nonfarm payrolls report which is due out later this evening and it set to show still robust job market activity even amid a slowing economy and higher rates. Most of the gains in the ADP were in small business while larger firms cut jobs: tech firms in particular have been announcing substantial layoffs in anticipation of weaker activity ahead. In another sign of robust health for the labour market, initial jobless claims in the week ending December 30 2022 fell to 204k, their lowest level since September last year. The resilient labour market represents a key element in the Fed maintaining a hawkish stance on policy.

The House of Representatives in the US remains without a speaker as Kevin McCarthy, the Republican nominee, has failed to secure enough support from within the Republican party itself to be elected. McCarthy has so far failed on 11 separate votes with 20 Republican representatives of 221 continuing to block his selection. If he does eventually win he is likely going to have to make some political compromises which would set up an uncertain legislative agenda later this year. Decisions on government spending, shut-downs and even the debt ceiling could become hostage to internal Republican Party infighting and threaten financial stability just as the US endures a pending recession.

Today’s Economic Data and Events

• 11:00 GE Factory orders Nov m/m: forecast -0.5%
• 14:00 EC CPI Dec y/y: forecast 9.5%
• 14:00 EC Economic confidence Dec: forecast 94.5
• 17:30 US Nonfarm payrolls Dec: forecast 200k
• 19:00 US Factory orders Nov: forecast -1%

Fixed Income

• US Treasury yields spiked on the release of the ADP employment report and what it may mean for the nonfarm payrolls and FOMC decision in a few weeks time. Yields on the 2yr UST jumped to nearly 4.5% in response to the jobs data before fading some of those moves and ended the day up 10bps at 4.4576%. In the 10yr space, the move higher was more contained but still reflected with yields closing at 3.7181%, up about 4bps.
• James Bullard, the outspokenly hawkish president of the St Louis Federal Reserve bank, said that rates were getting close enough to a level to bring inflation lower. Bullard said that rates weren’t yet “sufficiently restrictive” but that they were “getting closer.” Market pricing for the February FOMC decision is currently split between a 25bps and 50bps hike.
• European bond markets fell after a few days of decent gains. Yields on 10yr bunds added 4bps to 2.307% while the 10yr gilt yield rose 6bps to 3.545%.

FX

• The strong ADP report helped to push the US dollar higher overnight with most peers falling against the greenback. EURUSD fell 0.8% to 1.0522 while GBPUSD dropped a more substantial 1.2% to 1.1908, its first close below 1.20 since the end of November. USDJPY added 0.6% to close at 133.41.
• Commodity currencies also weakened with USDCAD rising by 0.7% to 1.357 against the greenback while AUDUSD fell 1.3% to 0.6752 and NZDUSD fell almost 1% to close the day at 0.6234.

Equities

• The strong ADP report weighed on US equities yesterday as all three benchmark indices closed lower. The tech heavy NASDAQ was the biggest loser as it dropped 1.5%, followed by the S&P 500 which fell by 1.2% and the Dow Jones which fell 1.0%.
• In Europe, the UK’s FTSE 100 added 0.6%, aided by the weaker pound, while both the CAC (0.2%) and the DAX (0.4%) lost ground.
• Locally, the ADX lost 0.3% and the DFM 0.4%.

Commodities

• Oil prices had their first positive day for the new year with Brent futures up 1% at USD 78.69/b and WTI rising by the same amount to close at USD 73.67/b. Inventory released by the US showed a modest build in US crude oil inventories, offset by another draw in the SPR. Production was modestly higher, up by 100k b/d to 12.1m b/d.
• Saudi Arabia cut its official selling prices to Asian and European export markets, a sign of waning confidence in oil demand in the near term. China’s near term activity has weakened as the country deals with a rapid spread of Covid-19 after nearly all restrictions on the virus were dropped in December.

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