Monthly Insights May 2018

The synchronized global recovery is beginning to be challenged as fears of trade wars and geopolitical risks begin to show their impact.  While the US economy remains firm, growth seems to be slowing in other parts of the developed world. Also higher rates, a dearer dollar and rising energy prices are becoming major headwinds for the EM economies.

• Global macro: While the U.S. economy shows signs of rebounding after a soft start to the year, the data elsewhere have been less encouraging. And the positive impact of strong growth on U.S. interest rates and on the dollar are also conspiring to exert pressures on emerging market economies and markets.
• GCC macro: Revisions to our oil production estimates for 2018 have triggered GDP growth downgrades across the GCC.  However, higher oil prices have positive implications for budget deficits and current account balances.        
• MENA macro: The Iranian rial and the Turkish lira have sold off at an even more rapid rate than that seen in emerging markets in general over the past several months, owing to idiosyncratic political risks.
• Sector focus: An update on the UAE’s Happiness strategy.
• Interest rates: Divergence emerged between the rates market in the US where UST yields rose, and Europe, where subdued economic data and political uncertainty caused government yields to fall.
• Credit: Rising treasury yields and the strengthening dollar created a full blown bear market in EM risk assets. GCC bonds slipped lower despite improving oil prices and strengthening government financials.
• Currencies: The dollar has added to April’s gains as data continues to suggest U.S. growth accelerated following a slow down in the first quarter.
• Equities: Notwithstanding several headwinds, global equity markets held onto their gains over the last month. While the broader equity indices closed in positive territory, the differential performance among major markets stood out as investors adjusted to emerging themes of higher oil prices and tighter liquidity conditions
• Commodities: We have revised higher our oil price forecasts in light of the US withdrawing from the Iran nuclear deal. Market balances are likely to tighten substantially in H2 as we do not expect other OPEC producers to fully compensate for the loss of Iranian barrels.

Global activity readings dipped at the start of the year

Source: Bloomberg,Emirates NBD Research

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