Edward Bell - Commodity Analyst
Published Date: 09 January 2018
Further evidence of continued economic recovery in the Eurozone was revealed by a string of stronger than expected economic data on Monday. Eurozone aggregate retail sales data showed an increases of 1.5% m/m in November, beating market expectations for a 1.3% gain. This data helped y/y growth accelerate to 2.8% compared with 0.2% the previous month. In addition, the Sentix Investor Confidence reading rose to 32.9 in January, up from 31.1 with the survey showing that institutional and private investors remain optimistic going into 2018. European Commission surveys were also encouraging with consumer confidence confirmed at 0.5 in December, the highest levels since 2001, and economic confidence increasing to 116 in December, the highest level since December 2000. Equally constructive were the readings for services confidence which rose to 18.4 and the business climate Indicator which rose to 1.66.
In the Eurozone’s largest economy, data from Deutsche Bundesbank showed that German factory orders fell by 0.4% m/m in November compared with market expectations for no change while the increase in October was revised upwards from 0.5% to 0.7% m/m. On an annual basis however, orders were up 8.7% y/y in November and the Economy Ministry highlighted that the dynamic factory orders in H2 2017 lay the foundation for a strong start to 2018.
Following a disappointing consumer spending survey, the British Retail Consortium reported weak figures for the final quarter of 2017. The BRC estimated spending rose in the last three months by 1.1% compared with an average of 1.7% for 2017 as a whole. Non-food sales declined by 1.4% while food purchases were up more than 4%. Inflation in the UK is running above 3%, in part impacted by the relative decline in sterling against trading partners’ currencies.
Source: Bloomberg, Emirates NBD Research
US Treasuries started the week on a mixed note as yields on the short end of the curve declined but closed higher on the long end of the curve. However, moves were marginal and within 1 bps of last week’s close.
Regional bond markets continue to see increased activity. Yield on the Bloomberg Barclays GCC Credit and High Yield index rose 1 bps to 3.72% while credit spreads remained flat at 147 bps.
Drake & Scull said that the company has completed the refinancing of UAE debt of AED 566mn and is in advance talks with lenders in Saudi Arabia to do the same. The company also informed that it will initiate talks with sukukholders in H2 2018 for refinancing. The sukuk is scheduled to mature in November 2019.
Saudi Telecom received an Islamic loan of USD 378.5mn through STC Malaysia Holdings. The proceeds will be used to refinance debt used to acquire stake in Maxis.
AUD underperformed yesterday, losing ground against the other major currencies following a pull back in the Australian Industry Group Performance of Construction Index. AUD found itself under pressure after the index fell from 57.5 in November to 52.8 in December. However, despite these declines, the AUDUSD remains in a daily uptrend for the time being and remains bullish in the short term. We expect some support near 0.7806 (the 61.8% one year Fibonacci retracement) and stronger support at the 100 day moving average of 0.7775.
Developed market equities closed higher on the back of strength in technology stocks. The impact of tax cuts ahead of 2017 earnings announcement appears to be benefitting investor sentiment. The S&P 500 index and the Euro Stoxx 600 index added +0.2% and +0.3% respectively.
Qatari stocks continued their positive run with the Qatar Exchange index adding +2.6%. Importantly, there has been a pick-up in trading volumes across regional indices. In terms of stocks, Drake & Scull closed -0.5% lower even as the company announced debt refinancing plans. EFG Hermes dropped -5.1% amid speculation that the stock will be dropped from the MSCI EM index.
Oil prices remain in an upward trend, with both benchmark futures contracts gaining to start the week. WTI rose 0.47% while Brent added about 0.25%. Net long positions in Brent are now at record high levels and outnumber short positiosn by a factor of 10:1. A combination of OPEC supply restraint and geopolitical risk is helping to keep this rally stoked. However, refinery margins are starting to compress as a result of the high prices which could have a negative bearing on demand if elevated prices are passed onto consumers.
Global Sukuk: Relative Value
Italian political crisis deepened overnight