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Daniel Richards - MENA Economist
Published Date: 26 November 2019
Germany’s IFO business climate survey rose modestly in November, climbing to 95.0, from 94.6 in October, matching consensus expectations. While this represented a four-month high, it nevertheless remains weak and far off long-term trends. Indeed, the results do not provide much grounds for optimism that GDP growth in the European powerhouse will see any marked acceleration in the final quarter from the 0.1% q/q averaged over Q1-Q3.
Fed Chair Jerome Powell was talking in Rhode Island last night, where he struck an upbeat tone on the US economy, and reiterated that rates were on hold for now. He sad that he sees the ‘glass as much more than half full’, and that ‘the current stance of monetary policy as likely to remain appropriate as long as incoming information remains consistent with our outlook.’ According to Powell, the three 25 basis point cuts implemented over July-October are already having a positive effect on consumer and business sentiment ‘and boosting spending in interest-sensitve sectors, such as housing and consumer durable goods.’ Data out of the US was somewhat weak yesterday, as the October Chicago National Activity Index came in at -0.71, compared to estimates of -0.20, while the Dallas Fed Manufacturing Index was -1.3 in November, the second negative reading in a row.
Some more positive noise around trade negotiations between the US and China as senior representatives of the two sides, including Liu He and Robert Lighthizer, have discussed core concerns according to a Ministry of Commerce statement. The December 15 deadline to reach a phase one deal before US plans for 15% tariffs on USD 160bn of Chinese imports is approaching.
In Egypt, CBE governor Tarek Amer has had his tenancy renewed for a second four-year term, to 2023. Amer has overseen the monetary policy aspects of the economic reform programme implemented since late 2016, including the painful devaluation of the pound and the subsequent hiking of rates.
Source: Emirates NBD Research, Bloomberg
Treasuries closed marginally higher following comments from the Fed Chair Jerome Powell and renewed risk appetite. The Fed Chair made optimistic comments on the state of the US economy and reiterated that the current state of monetary policy remains enough to meet Fed’s goals. Yields on the 2y UST and 10y UST closed at 1.61% (-1 bps) and 1.75% (-2 bps).
Regional bonds drifted lower. The YTW on Bloomberg Barclays GCC Credit and High Yield index closed -1 bp lower to 3.26% while credit spreads remained flat at 154 bps.
NZD has gained on the other major currencies following stronger than expected retail sales data. Compared with expectations for growth of 0.5% q/q in Q3 2019, retail sales expanded by 1.6% q/q up from 0.2% q/q the previous quarter. As we go to print, NZDUSD is trading at 0.64204. Having tested the 100-day moving average earlier in the Asia session, the price needs to a daily close above this resistive level in order to advance further.
Developed market equities closed higher amid high optimism that US and China are close to an agreement on trade deal. The S&P 500 index and the Euro Stoxx 600 index added +0.8% and +1.0% respectively.
Regional markets had a positive day too with most indices closing higher following bullish cues from global markets. The DFM index and the KWSE PM index added +0.7% and +1.3% respectively.
Oil prices started the week on a positive footing with both Brent and WTI gaining around 0.4%. Brent futures are holding level this morning at around USD 63.64/b while WTI is down marginally at USD 57.95/b. Headline news on trade talks between China and the US are setting the short-term tone for prices until OPEC’s meeting at the end of next week.
Qatar announced plans to increase its LNG capacity by 64% through the addition of two new trains. LNG markets have been plagued by heavy amounts of new liquefaction capacity that has come online in Australia and the US and the news that Qatar would add to the market will complicate the outlook for gas prices in the medium term. Qatar’s total liquefaction capacity would top out at 110m tonnes/year of LNG, up from 77m tonnes/y currently.
Growth in US production slows
US inflation accelerated in August
Economic Calendar - 14 September 2020