Daily Economic Update

Oil: Renewed US sanctions on Russia push Brent to a 3-month high. Brent futures closed Friday up 4.2% w/w to settle at a three-month high of $79.8/bbl after the US imposed even more stringent and sweeping sanctions on Russia for its invasion of Ukraine almost three years ago. Colder northern hemisphere weather, which has raised demand for heating oil, lower Russian oil flows and a third consecutive week of commercial crude inventory drawdowns in the US (-958 kb to 414.6 mb in the w/e 3 January) were also factors in oil’s gains so far in 2025 (+6.9%), a performance that has largely surprised the markets attuned to expect downward price pressure amid weakening fundamentals. This latest round of sanctions sees the US Treasury targeting Russian oil and gas producers, tankers, intermediaries, traders and ports. Among those affected are major oil producer Gazprom Neft, state-owned shipping company and fleet operator Sovcomflot and Rosnefteflot, the marine transportation subsidiary of Rosneft. The newly sanctioned tankers ship 42% of Russia’s total seaborne crude exports (530 mb), according to data firm Kpler. News of the sanctions package circulated earlier in the week and prompted buyers of Russian crude in India and China to scramble to replace supplies. China’s state-owned Shandong port group announced a ban on vessels identified in the sanctions list. With Trump’s inauguration nearing, the latest measures are expected to remain in place and act as a prelude to potentially tougher and more strictly-enforced sanctions on Iran’s crude exports. There could be more short-term price strength on the cards.

Chart 1: Brent oil prices ($/bbl) Source: Haver

China: December trade data exceeds market expectations as trade risks loom. Exports rose 10.7% y/y in December, improving on November’s rise of 6.7% and topping market expectations (7.3%). At the same time, imports rose 1.0% y/y, reversing a drop of 3.9% in the previous month and beating market forecasts of a 1.5% decline. This also marks the first time imports have increased since September (and by the most since July), suggesting some improvement in demand towards the end of 2024. China’s faltering economy has been largely dependent on exports to offset a prolonged property downturn and subdued demand, and the December data suggests that the economy might be showing signs of stabilization following the string of policy support measures rolled out since September. Combined, the figures leave China with a $992 billion trade surplus at end-2024, a record. Adjusted for inflation it is the largest trade surplus that the world has seen over the last century. Going forward, it may be difficult for China to top, though, given the looming threat of President-elect Trump’s tariffs, which could rise even further to as much as 60% on goods made in China.

Global: US/UK inflation, China Q4 GDP and December house prices key data points this week. In the US, an important December CPI inflation print is due on Wednesday, with the consensus seeing a continued acceleration in the headline rate to 2.8% y/y from November’s 2.7% but a sticky core rate of 3.3% for the fourth straight month. Growth in retail sales (due on Thursday) is seen slowing to 0.5% m/m in December from 0.7% in November. In the UK, December inflation data is due on Wednesday, with the consensus forecast indicating a further increase in the headline rate to 2.7% y/y from 2.6% but an easing core rate to 3.4% from 3.5%. Meanwhile, GDP (Thursday) is seen rebounding by 0.2% m/m in November after dropping by 0.1% in October. In China, a highly anticipated GDP print for Q4 is due on Friday and estimates point to growth at 5.1% y/y, up from 4.6% in Q3. Also due on Friday will be December’s industrial production (5.4% y/y estimate), retail sales (3.5%), and the house price indices. Finally in Japan, the market will be looking for clues on the BoJ’s thinking on Tuesday from a speech by the Bank of Japan’s Deputy Governor Himinio ahead of the policy meeting on January 24. On the data front, producer prices for December will be released on Thursday and are expected to climb to 3.8% y/y from November’s reading of 3.7% amid increasing inflationary pressures partly stoked by the yen’s depreciation.

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