Athanasios Tsetsonis - Sector Economist
Published Date: 11 October 2017
The markets breathed a sigh of relief overnight as Catalonia’s leaders pulled back from the brink of declaring unilateral independence. The leaders of the Spanish region said that they will seek talks with national government before embarking on the independence track. Although the issue is not resolved, the situation appears to be evolving whereby Catalonia will probably receive a greater degree of autonomy from the Spanish state.
German exports surged in August, posting their biggest rise in 12 months. Exports rose by 3.1% on the month while imports were up 1.2%, widening Germany’s trade surplus and adding to evidence that the economy is firing on all cylinders. The reading eased concerns that a stronger euro might dent demand for German goods and services abroad. Furthermore the figures add to evidence that the Europe’s largest economy had a robust performance in Q3, despite political headwinds.
UK consumers increased their spending at the fastest pace so far in 2017, as they spent more to meet higher food and clothing prices. The British Retail Consortium (BRC) figures showed retail sales grew by an annual 1.9% in September on a like for like basis vs. 1.6% in August, signalling consumers are adapting to a rise in inflation caused by the fall in the value of the pound. The BRC said spending was focused on essential items like winter clothing and back to school items, and shied away from big ticket spending like furniture purchases. The data comes as the Bank of England signalled it is close to its first rate hike in a decade.
China has said is on track to meet its 2017 growth target of 6.5% this year, and could even beat it. The statements by the head of the Statistics Bureau, said steps to cool down the property market have been effective and will remain in place. As fears of a hard landing in the Chinese economy subside, policymakers are now focusing on tackling high levels of debt and undertaking difficult structural reforms. Last year China’s economy grew at 6.7%, the lowest in twenty six years.
Source: Emirates NBD Research
US Treasuries gave up their intra-day gains in line with the moves in bunds after the announcement from Catalan President that he is holding off from announcing independence. Yields on the 2y USTs rose 1 bps to 1.51%, on the 5y USTs it remained flat at 1.95% while on the 10y USTs it rose 1 bps to 2.36%. Yields on the 10y Bunds reversed intra-day gains to close flat.
Regional bonds continue to track benchmarks yields. The YTW on the Bloomberg Barclays GCC Credit and High Yield index rose 1 bps to 3.54% while credit spreads widened 3 bps to 154 bps.
Investment Corporation of Dubai tapped 2024 to raise additional USD 200mn at 4.0%. The order book for the tap was in excess of USD 435mn.
Abu Dhabi National Oil Co (ADNOC) hired banks to help arrange the sale of project bonds that may raise as much as USD 3bn. The bonds, which would be backed by revenue from assets such as pipeline or oil storage projects, will be sold by one of Adnoc’s subsidiaries and not the parent.
Additionally, Qatar International Investment Bank is preparing to issue its first from the USD 2bn sukuk program.
Omantel is looking to raise a facility of USD 1.5bn to fund the purchase of a stake in Zain Kuwait. The company is seeking a bridge loan and likely to issue a bond early next year.
The dollar underperformed yesterday, losing ground against the other G10 currencies, the dollar index falling for a third consecutive day to close at 93.29. Should we see a daily close below the supporting 50 day MA (92.89), it could catalyse further declines and a retest of the index’s one year low of 91.011.
Euro gained on all the other majors (except SEK) following the speech by Catalan President Carles Puigdemont. EURUSD rose for a third consecutive day to finish 0.58% higher at 1.1808, having hit highs of 1.1826 in the US session. The next level of resistance is likely to be the 50 day moving average (1.1845), a break of which could see a retest of 1.20. On the downside, a failure to breach this level creates the risk of further declines towards 1.1680, close to the 76.4% one year retracement.
Developed market equities closed higher as tensions around Catalan eased after the Catalan President announced that he will hold off a declaration on independence. The S&P 500 index added +0.2% while the Euro Stoxx 600 index closed flat.
For a second consecutive trading session, the Tadawul (-1.0%) led regional equities lower. The KWSE index dropped -0.5% and the EGX 30 index declined -1.0%.
Bank Al Jazira closed limit down as the bank announced that it has decided to proceed with the SAR 3bn rights offering which was first proposed in January 2016. Flows on the DFM (-0.1%) and the ADX (+0.5%) continued to be dominated by actively traded mid-cap names. Drake & Scull (+2.1%) and Gulf Finance House (+1.8%) accounted for 50% of total value traded on the DFM.
Oil prices ended the day higher despite few fundamental drivers to send prices upward. Most of the market is now fixated on how 2018 will play out rather than remainder of 2017, with most agencies expecting another rise in US production and a slightly slower demand picture. The responsibility to keep markets in balance will fall heavily on the shoulders of OPEC and its partners to maintain production cut discipline for all of 2018.