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Aditya Pugalia - Director, Financial Markets Research
Published Date: 10 October 2018
Ahead of the key European Union summit on 17 October 2018, Michel Barnier, later today, will present the draft political declaration on the future EU-U.K. relationship to EU commissioners and the ambassadors of the 27 remaining members. This is expected to throw some light on how much progress has been made on the issue of Irish border in light of this technically being the deadline for a final proposal from the UK.
Pakistan’s finance minister Asad Umar confirmed that the government would seek a bailout from the International Monetary Fund. The need for such a request stems from the fact that the country’s foreign-exchange reserve have dropped to the lowest level in almost four years and that the government is running both current and fiscal account deficit in excess of 5% of GDP. While the new government is seeking to initiate structural reforms, an IMF bailout will provide it with room to implement those reforms in earnest. The Pakistani rupee, a managed float, was reportedly devalued by c.7.5% by authorities following the confirmation of the request to the IMF.
Data released by Association of Mutual Funds in India showed an interesting trend. According to the data, equity funds received INR 111bn in September even as the correction deepened; India’s Nifty index dropped -6.4% in September 2018. This was the largest monthly inflow since May 2018 and in contrast to outflows INR 96.2bn by global investors. Balanced funds received INR 7.3bn while Debt funds saw an outflow of INR 335bn.
Turkish Treasury & Finance Minister Berat Albayrak yesterday announced the government’s plan to stem the rapidly accelerating inflation seen over the past several months, following the lira’s sharp depreciation since May. According to the minister, companies have agreed to cut prices by 10% or more across a range of goods in the Turkish CPI basket. Further, some banks will cut rates on high interest rate loans by 10%, while electricity and gas prices will be kept at current levels through the end of the year.
Source: Bloomberg, Emirates NBD Research
Treasuries clawed back some of the recent losses as the curve flattened. Yields on the 2y UST, 5y UST and 10y UST closed at 2.88% (flat), 3.05% (-1 bp) and 3.20% (-3 bps).
Regional bonds closed lower as they broke out of the recent tight trading range. The YTW on the Bloomberg Barclays GCC Credit and High Yield index rose +5 bps to 4.59% while credit spreads widened 6 bps to 158 bps.
EA Partners asked creditors to approve sale of claims. At least 75% of holders of each bond need to approve the resolution with more than 50% voting. The bondholders have to vote by 29 October 2018 with a meeting scheduled on 31 October 2018.
According to Reuters, Bahrain does not plan a new USD-denominated bond issue this year.
The dollar eased off October highs on Tuesday to close the day lower in the aftermath of comments from President Trump that the Federal Reserve was moving too fast with rate hikes. Over the course of the day the Dollar Index fell from highs of 96.155, to finish 0.10% lower at 95.668. As we go to print, the index is currently trading at 95.581. We anticipate the next level of support coming in at 95.231, the 50-day moving average.
Developed market equities closed mixed with the S&P 500 index losing -0.1% and the Euro Stoxx 600 index adding +0.2%. Technology stocks rebounded from the recent losses while material sector stocks closed lower on profit warnings.
Regional stocks closed mixed with the ADX index adding +0.3% and the Tadawul dropping -0.4%. Volumes were considerably lower relative to the 1-month average trading volume with only USD 27mn worth of shares trading on the DFM. Aldar Properties (+1.2%) and First Abu Dhabi Bank (+0.4%) were notable gainers on the ADX.
Oil markets ended the day higher even in the wake of the IMF lowering its forecasts for global growth. Brent futures closed at USD 85/b, up 1.3% while WTI added 0.9% to close the day at just under USD 75/b. There were few other fundamental catalysts to affect markets although the Hurricane Michael is bearing down on the Gulf of Mexico and will threaten as much as 40% of the region’s production.
Fatih Birol, the executive director of the IEA appealed to OPEC countries to raise production, indicating that oil markets had entered the ‘red zone’. Barring any increase in output in Q4 Birol said the next few months could be “very, very challenging”, implying that prices could have further to run from their current level.
IMF lowers global growth forecasts
Italy continues to weigh on European markets
Daily Outlook: US manufacturing disappoints
The Federal Reserve raised interest rates
Metals tentatively look forward to 2019