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Khatija Haque - Head of MENA Research
Published Date: 28 November 2018
US consumer confidence remains near an 18 year high, notwithstanding a 2.2pt decline in the conference board consumer confidence index in November. The strength in consumer confidence, despite the recent stock market selloff, has been attributed to the strength of the labour market. In contrast, Eurozone consumers are less upbeat: French consumer confidence declined to its lowest level since February 2015, coming in below market forecasts at 92. Italian consumer confidence was also lower than expected in November, dropping to 114.8.
With little other economic data to digest, market attention has shifted to the G20 meetings this weekend, with the potential for a truce, or even the broad outline of a trade deal between the US and China. Presidents Trump and Xi will meet over dinner on Saturday evening to discuss the issue. If no progress is made, Trump has indicated he will move ahead with additional tariffs in January.
Fed Chairman Powell is due to speak at the Economic Club of New York later today. Most comments by FOMC speakers yesterday were consistent with the official line of continued gradual rate hikes. Fed Vice-Chair Clarida noted that US economic fundamentals were robust and that risks to the outlook have “become more symmetric and less skewed downside” than when the Fed started tightening three years ago.
In the UK, the debate around the Brexit deal continues. Parliament is expected to start the official debates on the legislation on 4 December, and several amendments may be proposed and voted on before the final vote on 11 December. The European Court of Justice had its first hearing on whether the UK can unilaterally withdraw Article 50, and will rule in the coming weeks. Today the Bank of England will release its Brexit analysis and financial stability report, with Governor Mark Carney due to speak as well.
Source: Bloomberg,Emirates NBD Research
Treasuries closed lower following comments from Fed Vice Chair Richard Clarida where he backed gradual rate hikes and called risks ‘less skewed to the downside’. The Fed Chair Powell is scheduled to speak later today. Yields on the 2y UST, 5y UST and 10y UST closed at 2.83%, 2.89% and 3.06% respectively.
Regional bonds traded in a tight range. The YTW on the Bloomberg Barclays GCC Credit and High Yield index remained flat at 4.80% as did credit spreads at 190 bps.
Senaat Holdings raised USD 300mn in a 7-year sukuk which was priced at MS+170 bps..
The USD is trading firmer gaining against the EUR and JPY, while staying supported against a weak pound. Markets are awaiting the G20 meeting and Fed Chair Powell’s speech as well as the minutes of the Fed’s last meeting. GBP weakness yesterday was partly on account of comments from Trump about the UK not being able to negotiate a trade deal with the U.S. under the Brexit deal, which has some truth as the backstop arrangement for Irish border means that the UK will remain in the customs union indefinitely.
Developed market equities closed mixed amid cautious optimism over G-20 meeting. The S&P 500 index and the Euro Stoxx 50 index closed +0.3% and -0.2% respectively.
UAE bourses were an exception in what was a fairly positive day of trading for regional equities. The DFM index dropped -1.0% on the back of weakness in real estate stocks. Emaar Properties lost -3.2% even as the company confirmed an agreement to sell 5 hotels to Abu Dhabi National Hotels for an undisclosed amount.
Oil prices continued to recover yesterday on optimism about a trade deal between the US and China, as well as data showing strong US gasoline demand. US gasoline inventories declined by -2.6mn barrels last week (ending 23 November) according to API data. Analysts had predicted a rise in gasoline inventories for the period. However, API data showed a rise in crude oil inventories last week. US EIA data is due later today.
Fed meeting kicks off
Brexit outcome remains uncertain
The Brexit saga continues
Metals tentatively look forward to 2019