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US and UK Conduct Strikes on Houthi Targets

Multiple strikes launched against Houthis targets by the US and UK, strongest monthly growth in four months for the UK, and focusing on US PPI figures releasing later today.

Middle East

Escalation in the Middle East is the big theme of today, as yesterday saw Iran seize an oil tanker and the US and UK launched multiple strikes against Houthis targets in Yemen.

Iran took control of the St Nikolas tanker, which has 19 crew and 145,000 tonnes of crude aboard. While Tehran claims that it is a US owned vessel, it is registered as Greek and flies under a Marshall Islands flag.

Interestingly, the same ship was seized by the US last year as it was violating sanctions by transporting Iranian oil, hence why Iran have said they are taking the cargo in retaliation for their loss last year.

The ship was boarded just outside the Strait of Hormuz, which is as much as a pinch point to oil and gas as the Suez canal is to global trade and the fear in the market is that this is not merely an isolated incident. This is of particular concern for European energy supply given that all of the liquefied natural gas that is imported from Qatar (the worlds biggest LNG exporter) flows through that strait.

Currently the market reaction appears muted, though oil has ticked higher, with investors presumably looking to see if this is indeed a one-off incident or the first of many.

Also in the Middle East, the UK and US took aim at more than 60 targets in 16 different locations in Yemen yesterday, making good on the thinly veiled threat made earlier in the week that there would be consequences if attacks on ships in the Red Sea continued.

Earlier in the day the UN Security Council passed a resolution condemning “in the strongest terms” the multiple attacks by Houthi rebels, with 11 members in supporting the resolution and China, Russia, Mozambique and Algeria abstaining from the vote, which allowed it to pass.

Whether the strike has done enough to convince Houthi’s to cease and desist is yet to be seen, but the act itself was another escalation in the region. According to Ian Bremmer of the Eurasia Group, none of the major powers in the region want an escalation into war but as minor events compound there is a risk that the eventual result is unavoidable. He also mentioned how little influence Biden has with Israel and that however this turns out, Biden’s reputation suffers.

UK Growth Exceeds Forecasts

This morning showed UK GDP come in at 0.3% growth on a month-on-month basis for November, surpassing market expectations of 0.2%. This marked the strongest monthly growth in four months and represented a considerable improvement from the previous month’s print, where output contracted 0.3%.

The rise in economic output was aided by strong growth in the services sector which saw 0.4% growth, while production rose 0.5%, marking the first rise in almost half a year as manufacturing rose 0.4%. The construction sector continued to face headwinds however as output contracted 0.2%, which itself followed a 0.4% contraction in the sector the previous month.

The stronger-than-expected print will make for positive reading for No.11, especially considering growth forecasts for the year ahead. Last Autumn for example, the IMF’s indicated that the UK is set to have weakest growth amongst the G7 in 2024. Here, the IMF stated that “the decline in growth reflects tighter monetary policies to curb still-high inflation and lingering impacts of the terms-of-trade shock from high energy prices”.

Attention is also turning to whether the UK will have avoided a technical recession over H2 2023. Given that the size of the UK economy shrank 10bps over Q3 2023, a further contraction over the last three months of the year would bring the UK into a technical recession. Hence, today’s figures bring some cautious optimism that the country may have been able to narrowly avoid such a recession.

 

Looking Ahead

Following the release of UK GDP figures this morning, attention will turn to US PPI figures released at 1330 this afternoon. Aside from that, markets will continue to keep a close eye on developments in the Middle East over the session, and its impact on global risk sentiment. As we looked at earlier this week, tomorrow will see Taiwan head to the polls to vote in the Presidential Elections. The election comes at a crucial time for the country and will influence the trajectory of Beijing-Taipei relations for years to come.

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