Third FED rate hike in 2017 remains likely

• New York Fed President Bill Dudley speaking yesterday said that rate hikes haven't tightened financial conditions to significant degree, and suggested that a third rate increase this year remains likely.  Dudley said he was ‘very confident’ that there is ‘quite a long ways to go’ in the economic expansion. His comments caused bond yields to rise with the 2-year yield reaching 1.364%, compared with 1.319% on Friday, and the highest close since March 14. Chicago Fed President Charles Evans while being a little more cautious, and predicting several months of better inflation data, said that the Fed could wait until December before tightening policy further.   
• Provisional data released by the Federal Competitiveness and Statistics Authority shows that the UAE's economy grew 3.0% in real terms last year, in line with our forecast and slower than the 3.8% growth recorded in 2015.  Mining & quarrying, which includes crude oil and gas extraction, expanded 3.8% in 2016, while the non-oil sectors grew 2.7%. The slowdown in non-oil growth last year (from 3.2% in 2015) is consistent with the UAE PMI survey data. The fastest growing non-oil sector (and the biggest contributor to overall growth last year) was transport & storage which expanded 7.4% y/y, up from 5.7% in 2015. Manufacturing and construction were the other key drivers of growth up 6.0% y/y and 3.0% y/y respectively. We have revised down our 2017 UAE real GDP growth forecast to 2.0% from 3.4% previously on the back of extended OPEC production cuts. 
• UK Brexit negotiations kicked off yesterday, with hopes of a softer Brexit approach already receding as both of the negotiators from the UK and the EU acknowledged that Britain would be leaving the single market and the customs union. The UK appears to have acquiesced to the EU’s timetable that sees no discussion of trade related issues until other matters have been dealt with first including the financial settlement, the status of UK/EU citizens abroad, as well issues related to the border between Ireland and the UK. 

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