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Khatija Haque - Head of Research & Chief Economist
Edward Bell - Senior Director, Market Economics
Shady Elborno - Head of Macro Strategy
Daniel Richards - MENA Economist
Jamal Mattar - Research Analyst
Published Date: 11 August 2020
Lebanon’s prime minister, Hassan Diab, announced his government's resignation on Monday, blaming the huge explosion that devastated Beirut and triggered public outrage on endemic corruption. While the move came as a response to popular anger over the explosion, it plunged Lebanese politics into further turmoil and may slowdown already-mired discussions with the International Monetary Fund on a financial rescue plan. Launched in May, those discussions remained on hold due to inaction on reforms and a row between the government, banks and politicians over the size of financial losses. President Michel Aoun accepted the resignation and asked Prime Minister Diab's government to remain as a caretaker until a new cabinet is formed. The Lebanese system of government requires President Aoun to consult with parliamentary blocs on choosing the next prime minister, selecting the candidate with the highest support among parliamentarians.
US Treasury Secretary Steven Mnuchin said yesterday that the Trump administration and Congress could reach a coronavirus aid deal as soon as this week, but Democrats said the two sides have not spoken since talks collapsed last Friday. With negotiations frozen and President Donald Trump taking steps at the weekend to try to sidestep Congress, it remains to be seen whether Democrats and Republicans would be able to bridge the divide over providing relief to workers, businesses and local governments that have been impacted by the pandemic. Eviction protections and enhanced unemployment assistance both expired at the end of July, taking away aid for more than 30mn people. On Saturday President Trump signed executive orders on expired unemployment benefits, suspend evictions, student loan payments and payroll taxes.
The US Labor Department said in its monthly Job Openings and Labor Turnover Survey (JOLTS) that job openings, increased by 518,000 to 5.9mn on the last day of June compared with around 7mn in February. The report showed the economy added 198,000 job openings in the accommodation and food services industry. Vacancies also increased in both health care and social assistance sector. The overall job openings rate rose to 4.1% from 3.9% in May. The number of people voluntarily quitting their jobs increased 531,000 to 2.6mn. Those quitting their jobs in the healthcare and social assistance industry went up-to 106,000, while accommodation and food services sector was 104,000 people quit. The retail sector saw the number of people quitting reach 99,000. The quits rate, a measure of job market confidence increased to 1.9% from 1.6% in May.
Source: Bloomberg, Emirates NBD Research
To start the week markets looked past persistent US-China tensions and over whether a new fiscal support plan will emerge in the US. US treasuries were weaker across the curve, albeit marginally. Yields on the 2yr UST closed at 0.131% while on the 10yr yields settled at 0.5755%, a gain of slightly more than 1bps. European bond markets were more buoyant with yields falling in the UK, Germany and France.
In line with some risk on positioning, EM USD bonds gained at the start of the week, up 0.13% while the yield over USTs continues to compress (falling to 360bps overnight). Domestic UAE USD bonds also pushed higher to start the week, albeit only moderately.
Lebanese bond markets showed little apparent reaction to the news that country’s government has resigned. Until a more substantive deal with the IMF is reached prices for the country’s debt will remain at wide distressed levels. Lebanon’s 2030 bond currently trades around 16 cents to the dollar with a yield of 44.35%.
The dollar was largely unchanged on Monday. The DXY index recorded movement between 93.300 - 93.700 and currently trades at 93.560, marking a very minor increase on last week's closing price. After reaching a low of 92.521 last Thursday, the dollar has experienced a slow state of recovery with the 94 handle being the next major test for the currency. USDJPY recorded minor gains overnight and is pushing higher to around 106.10 today.
The euro looked like it was going to recover from the decline it experienced last week to test the 1.18 handle but slipped in the evening by just over -0.40% to close at 1.1738 before some stabilization in early trade today. Sterling experienced minimal movement and remains comfortable around 1.3080 for now. All eyes will be on official GDP figures to be released this week for the UK, which are expected to be very negative. The AUD fell sharply last Friday but has been able to make up ground this morning to trade around 0.7170. The Kiwi is stronger this morning—up by 0.27%--in anticipation of tomorrow’s RBNZ meeting.
Equities shrugged off conerns that the US administration and Congress had still not reached a new fiscal support plan as well as tit-for-tat sanctions by China and the US on officials from both countries. The S&P 500 added 0.27% while the Dow was up by 1.3%. European markets were also broadly higher with the FTSE, Dax and CAC all ending the day in the green.
Asian markets are off to a strong start today with the Nikkei up by 1.7% and the Hang Seng adding more than 2%. Local markets closed in the green overnight with the ADX up by 0.5% while the DFM was biased to the upside.
Oil prices moved higher to start the week with Brent futures up 1.3% to settle just shy of USD 45/b—which they have moved above in early trade today—while WTI was up by 1.75% at USD 41.94/b. A positive assessment of oil demand from Aramco’s leadership—despite the company and Adnoc cutting their official selling prices—appear to have been the catalyst for prices to move higher.
The EIA will release its latest Short-Term Energy Outlook today with the market likely to fixate on whether US oil production will stabilize at around current levels of 11m b/d of be tempted by the improvement in prices to add investment and increase production.
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