Kuwait's Emir Sheikh Nawaaf succeeded by Crown Prince Sheikh Mishaal

Kuwait's Emir Sheikh Nawaf passed away over the weekend and was succeeded by crown prince Sheikh Mishaal Al Sabah (83). Sheikh Mishaal had been de facto ruler since November 2021. The Emir is expected to announce a new cabinet in the coming weeks.  

Preliminary PMI data for the Eurozone came in lower than expected in December, with the composite PMI slipping to 47.0 from 47.6 in November. While manufacturing appeared to hold steady - albeit at a very low level - the services PMI showed a deeper contraction in December than had been expected. In the UK however, the services sector showed growth in December with the flash services PMI rising to 52.7 from 50.9 in November, higher than forecast. This was enough to offset further weakness in UK manufacturing this month, with the composite UK PMI coming in at 51.7, up from 50.7 previously. 

A similar story was evident in the preliminary US PMI data, which also showed a modest expansion in services sector activity (51.3) offsetting a decline in the manufacturing sector (48.2). Separately, industrial production in the US rose by a smaller than forecast 0.2% m/m in November, and the Empire Manufacturing Index fell to -14.5 in December, well below expectations of a positive reading. 

Central banks are in focus again this week, with the Bank of Japan, Central Bank of Turkey and Central Bank of Egypt all due to meet. Japan and Egypt are expected to keep rates on hold this week, while the market is expecting the CBRT to raise rates by another 250bp to 42.5% even as the latest survey of inflation expectations showed an improvement in the 12-month inflation outlook to 41.23%, down from 43.94% in the November survey. 

Today’s Economic Data and Events

13:00 Germany IFO Business Climate (Dec) forecast 87.7

Fixed Income

• US Treasuries continued their gains on Friday, though at a slower pace than seen earlier in the week, with yields on the 10yr dropping just 1bps to 3.91%. Nevertheless, this was 31bps lower than the level the previous Friday.
• There were similar gains for European instruments, with the 10yr UK gilt yield falling 35bps over the week to 3.69% on Friday, while the 10yr German bund dropped 26bps to 2.01%.

FX

• The greenback lost ground against its peers last week, with the relatively dovish tone from the FOMC and a more hawkish one from the ECB and BoE contributing to the moves. The DXY index ended the week at 102.550, down 1.4% w/w and at levels last seen in August.
• The dollar got back some of its losses on Friday on the back of pushback from Fed officials, however, with the greenback closing up 0.7% on the day against sterling at 1.2681. Similarly EUR lost 0.9% against the dollar on Friday to close at 1.0895.

Equities

• Global equity markets had a strong week last week, with gains for many of the major indices as bets on the end of the hiking cycle heightened. In the US, the S&P 500 added 2.5% last week while the Dow Jones and the NASDAQ both closed 2.9% higher w/w. However, pushback by Fed officials around the prospect of rate cuts has dampened the ‘everything rally’; the gains in the US were tapering off by Friday, and Asian markets have started Monday in the red.
• There was similar pushback from central bank officials in Europe, where the STOXX 600 composite index ended the week 0.6% higher but Germany’s DAX was down 0.1% w/w by  Friday.

Commodities

• Oil prices picked up modestly last week, with Brent futures closing on Friday at USD 76.6/b, up 0.9% from the previous week’s close of USD 75.84/b. WTI also closed up, but by just 0.3% w/w, at USD 71.4/b. Oil prices have come off recent highs as concerns around a global slowdown and weak demand have risen, but attacks on vessels passing through the major shipping artery of the Red Sea over the past week have put some upwards pressure in recent trading sessions.