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Daniel Marc Richards - MENA Economist
Published Date: 15 May 2019
Eurozone industrial production declined -0.3% m/m in March, in line with expectations and the previous month’s figure. On an annualised basis the decline was a better-than-expected -0.6%. The outlook for European production remains weak as trade war concerns come to the fore again, and this was reflected in the German ZEW investor expectations index released yesterday. The May reading fell to -2.1, compared to April’s 3.1 and consensus forecasts of 5.0. German Q1 GDP data is released today, expected to match the initial Eurozone figure of 0.4% q/q.
UK unemployment fell to 3.8% in March, down from 3.9% the previous month. This was the lowest reading since 1974. However, other labour data were not so positive, as employment rose by only 99,000 compared to expectations of 140,000 and average weekly earnings expanded 3.2% (3mma y/y), compared to 3.5% in February. Further, the positive labour market data could be a reflection of an ongoing reluctance by firms to invest in more costly capital expenditure while Brexit uncertainty rages on, rather than indicative of a more positive growth story. The latest on Brexit is that Prime Minister Theresa May plans to put the withdrawal agreement bill before parliament in the week of June 3, hoping for it to pass before summer recess.
In Turkey, industrial production surprised to the upside in March, expanding 2.1% m/m, compared to expectations of 0.9%. This increases the likelihood that Turkey posted positive q/q real GDP growth in Q1 following two consecutive contractions in Q3 and Q4 2018. However, renewed tensions since the municipal elections held at the end of March, which have contributed to a renewed lira sell-off and economic uncertainty, could see this recovery reversed.
Source: Bloomberg, Emirates NBD Research
Treasuries closed lower amid a rebound in risk assets. The yields on the 2y UST, 5y UST and 10y UST closing at 2.19% (+1 bp), 2.19% (+1 bp) and 2.41% (+1 bp) respectively.
Regional bonds continued to lose some of its recent gains amid renewed focus on geopolitical tensions. The YTW on Bloomberg Barclays GCC Credit and High Yield index rose 2 bps to 4.0% and credit spreads widened 1 bp to 169 bps.
This morning AUD has underperformed against the other major currencies, AUDUSD falling by 0.18% to trade at 0.6928. Already suffering from Chinese retaliation in their trade dispute with the U.S., the AUD found itself under further pressure following a much slower increase in Chinese industrial production in April (5.4% y/y vs 8.5% y/y). Should Australian employment data, expected for release on Thursday, be weaker than expected, the AUD may find itself under further pressure trading well below the 0.69 level.
Elsewhere USDJPY has remained close to the 109.60 levels of 24 hours ago despite the raft of disappointing economic data. Later today, markets will be eyeing U.S. retail sales data for further guidance on the price direction, with a constructive report likely to result in a retest of the 110 level, while a softer than expected report will put the price under pressure.
Developed market equities closed higher as the US President exuded confidence that a deal will be reached. The S&P 500 index and the Euro Stoxx 600 index added +0.8% and +1.0% respectively.
Regional equities closed mixed. Trading flows were dominated by MSCI index review. The DFM index rallied +3.5% on the back of strength in all Emaar-related names as they retained their place in the index. In fact, the weighting of Emaar Malls increased slightly. On the other hand, FAB dropped after there was no change in its weight in the index.
Oil prices continue to be buffeted by price-negative high US inventories and trade war-driven concerns over demand on the one hand, and price-positive geopolitical risks in the Gulf on the other. The American Petroleum Institute yesterday reported an 8.6mn barrel build in inventories for last week, confounding expectations of a 1.2mn barrel decline. However, Saudi Arabia shut its biggest pipeline yesterday as drones attacked two pumping stations, and in the end Brent futures closed up 1.4% at USD 71.2/b, while WTI gained 1.2% to USD 61.8/b.
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