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Mohammed Al Tajir - Manager, FX Analytics and Product Development
Published Date: 08 August 2018
The U.S. JOLTS job openings data showed that openings edged up 3k to 6,662k in June after falling 181k to 6,659k in May from a record high 6,840k in April. The job openings rate was unchanged at 4.3% close to the highest level in the survey’s history, and signalling a tight job market as the number of unemployed per job opening was close to a record low.
According to data released by the German Federal Statics office, Germany’s trade balance widened to EUR 21.8Bn in June 2018, from EUR 19.Bn the previous month. The same report showed that exports from the Eurozone’s largest economy grew to EUR 115.5Bn from EUR 109.1Bn while imports also rose from EUR 89.5bn to EUR 93.7Bn. German industrial production also fell 0.9% m/m in June, slowing year on year growth to 2.5% from 3.0% the previous month. This is consistent with data released on Monday that showed German factory orders falling 4.0% m/m amidst rising U.S. trade threats.
Chinese trade data released earlier also revealed a pattern of rising imports and exports, although the overall Chinese surplus narrowed from USD41bn in June to USD28bn in July. The data is clearly sensitive in the context of the ongoing U.S. trade dispute, with the U.S. announcing yesterday that it will start imposing 25% duties on an additional USD16bn of Chinese imports on 23rd August. The U.S. is still reviewing imposing 10% tariffs on a further USD200bn of Chinese products, and maybe even raising these to 25%, having previously levied 25% duties on USD34bn of Chinese goods on July 6th.
Meanwhile China’s foreign exchange reserves grew by USD5.82bn in July taking them to USD3.118Tr. This increase means that the PBOC did not use reserves to halt the yuan’s decline last month and instead only moved to discourage selling at the start of this month by making yuan shorts more expensive for speculators. Although this action, taken on Friday, resulted in the yuan recovering some ground, the currency has still weakened by 7.44% against the dollar since March of this year.
Source: Bloomberg, Emirates NBD Research
Receding safe haven bid caused US treasuries to fall with yield on 2yr and 10yr USTs closing up at 2.67% (+3bps) and 2.97% (+3bps) respectively. Strong corporate earnings supported stable credit spreads with CDS levels on US IG and Euro Main closing a tad tighter at 58bps and 64bps respectively.
Lacking any material catalyst, GCC bond market had an uneventful day with attention remaining focused on Bahrain. Despite rising benchmark yields, yield on Barclays GCC bond index closed a bp lower at 4.45% as credit spreads tightened 3bps to 165bps on the back of rising oil prices and limited new supply. 5yr CDS spreads on Bahrain increased a bp to 357bps overnight.
On the ratings front, Fitch affirmed Saudi British Bank’s rating at A- with stable outlook.
NZD is trading firmer this morning, gaining on all the other major currencies. As we go to print, NZDUSD is trading 0.26% higher at 0.67530, well below the 50-day moving average (currently 0.6851), which was breached on April 19th 2018 and below the 23.6% one-year Fibonacci retracement (0.6865) which was breached on 26th June 2018. While the price remains below this retracement, a retest of the 2018 lows (0.6688) cannot be ruled out.
The having fallen 0.18% yesterday, the Dollar Index is currently trading 0.14% lower this morning at 95.053. We anticipate initial support at the 50-day moving average of 94.541.
Global equities had a constructive day yesterday with most bourses closing in the green. Strong corporate earnings and gain in technology stocks fuelled S&P 500 up by 0.3% and FTSE 100 closed higher by 0.7%. Positive sentiment remains abundant in Asia with Nikkei and Hang Seng both edging up by 0.5% and 0.3% respectively in early morning trades.
GCC equity markets were mostly in the positive territory barring the Dubai DFM which closed lower by 0.9% under pressure from falling DIB and Emaar shares. In contrast, Abu Dhabi exchange gained 0.6% as banking shares continued to rise. In the region, Tadawul, Qatar and Muscat bourses closed up by +0.15%, +0.41% and +0.62% respectively.
Oil prices edged higher as the market reorients itself ahead of US sanctions on Iran coming into effect later this year. Non-energy sanctions were added yesterday and the US State Department is sending messages that it will seek to minimize any waivers offered to importers of Iranian crude oil. Brent futures settled up 1.2% at USD 74.65/b while WTI gains were more muted, closing up at USD 69.17/b.
The EIA has cut its projection for oil supply growth in the USD this year to 1.3m b/d from more than 1.4m b/d previously. They expect average US production of 10.68m b/d and for the country to break above 11m b/d by October. A recent topping out of the drilling rig count and logistical challenges related to pipelines will temper the pace of growth in the upstream sector in the US. For 2019, the EIA expects production growth of closer to 1m b/d.
March Monthly Insights 2019
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Trade talks back in the spotlight
Economic Calendar for the week
OPEC production: exposed