PBOC trims seven-day reverse repurchase

China's central bank unexpectedly trimmed the closely watched seven-day reverse repurchase rate to 2.50% from 2.55% on Monday. This marks the first such cut in more than four years and sends a signal to markets that the PBOC is ready to take measures to counter slowing growth. The move comes just two weeks after the PBOC cut the borrowing cost on its medium-term lending facility (used by banks for longer-dated funding needs) by the same margin. Both cuts increase the likelihood that the PBOC will trim its new benchmark loan prime rate (LPR) that lenders base their mortgage rates on.  Growth in China has eased to its slowest in nearly three decades and recent data such as industrial output and credit growth reflecting a cooling economy.

The Reserve Bank of Australia have released what markets are digesting as a very dovish set of minutes. Australia’s central bank “agreed a case could be made” for another cut in the 0.75% cash rate at its November meeting given weakness in wages growth and inflation. The RBA decided to hold steady in the last meeting, in part because of worries that further easing would harm savers and confidence.The minutes stated that the “board agreed "case could be made" for a rate cut at the November meeting and the board recognized "negative effects" of lower rates on savers and confidence”. The central bank has already cut rates three times since June to an historic low.

The UAE Cabinet has passed a federal law to decriminaling  insolvency and protecting those who are unable to pay their debts from going bankrupt. The new law, to be implemented at the start of next year, will allows those with financial difficulties to reschedule their debts, protecting them from legal prosecution. The law is a move int right direction as it will allow for a prope and proactive framework for dealing with insolvency cases that in the long run will benefit not only debtors but also creditors. 

Saudi Arabia has cut back plans to market Aramco shares outside the kingdom and the GCC, as roadshows outside the region where called off. This comes on the back of divergent views about the company’s valuation with international investors, who have been keen to see the company priced at the lower end of the valuation spectrum. Saudi Arabia announced a valuation range of USD 1.6trn to USD  1.7trn, based on share value of 30-32 riyals. Saudi Arabia plans to sell 0.5 % of Aramco to local retail shareholders, with a bonus share scheme as long as they hold the stock for a fixed amount of time. The remaining 1 % of the company being sold is expected to be taken up by Saudi institutions, funds in the region and potential Chinese and Russian state backed funds.

China's real GDP (% y/y)

Source: Emirates NBD Research, Bloomberg

Fixed Income

Treasuries gained as mixed signals emerged on a potential trade deal between the US and China. The curve shifted lower with yields on the 2y UST, 5y UST and 10y UST closing at 1.59%, 1.63% and 1.81% respectively.

The meeting between the Fed Chairman Jerome Powell and US President Donald Trump had little impact on treasuries as both of them described it as a cordial and routine.

Regional bonds remained in a tight range. The YTW on Bloomberg Barclays GCC Credit and High Yield index closed at 3.28% while credit spreads hovered around 154 bps.

FX

The AUD is trading softer against the other major currencies this morning following the release of the RBA minutes from November’s meeting. The minutes revealed that policy makers had discussed the case for a further rate cut but held back amid concerns of negative impact on savers confidence. As we go to print, AUDUSD is trading 0.22% lower at 0.6796. While the price remains below the 50-day moving average (0.6815) and area that has provided resistance for the last three days, further declines cannot be ruled out.

Equities

Developed market equities closed mixed amid contradicting signals on the trade front. The S&P 500 index closed flat while the DAX index dropped -0.3%.

Regional equities closed mixed. The Tadawul was a notable outperformer with gains of +0.9%. Banking sector stocks continued their positive run with Al Rajhi Bank and National Commercial Bank adding +1.1% and +1.3% respectively. Elsewhere, Egyptian equities closed sharply lower amid reports of potential sanctions from the US. The EGX 30 index dropped -1.2% with all but two stocks closing lower.

Commodities

Oil prices sank overnight on doubts that a trade deal was imminent between China and the US. The refusal of the US to remove tariffs on Chinese goods is the latest roadblock to negotiations and helped both Brent and WTI prices decline by more than 1%. Brent futures are pushing lower in early trade today at USD 62.32/b while WTI is down around 0.25% at USD 59.91/b.

The EIA projects production from shale basins will reach 9.1m b/d in December, a monthly gain of over 48k b/d and annual increase of 888k b/d. Supply growth from the shale patch is slowing: production rose by an average of 1.3m b/d in the first 10 months of the year according to the EIA. Projections for supply have grown more downbeat in the last few months although even a tempered level of growth from current levels would still see the US contributing enormous levels of supply in 2020.

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