Monthly Insights May 2019

Renewed trade tensions between the US and China are  casting a shadow over growth prospects in most parts of the world. Indeed with the dispute morphing into a broader geoplitical stand-off markets are becoming concerned that  the impact could be prolongued.  

Global macro: If it was not for the deteriorating US-China trade relationship in the last fortnight, the economic backdrop might appear to be improving with an array of economic data points in the last month providing some grounds for optimism.

GCC macro: Survey data for April showed a rise in output and new work in the UAE and Saudi Arabia, albeit with further price discounting by firms.                       .                      

MENA macro: The Lebanese government hopes to implement an ambitious fiscal consolidation programme in 2019, but will face significant pushback in doing so.

Pakistan: Pakistan and the IMF have reached staff-level agreement for a new three-year extended fund facility to the tune of around USD 6bn, as Prime Minister Imran Khan seeks to turn the ailing economy around in the face of significant structural challenges.

Emerging Markets: India, currently, is facing a paradox. Investors are appreciating the prospect of another stable government (as per exit polls) even as they remain concerned about the economy which is showing signs of slowdown.

Interest Rates: Government bonds benefited from safe haven bid on the back of rising trade tensions. 

Credit Markets: Narrowing benchmark yields boosted credit bonds higher even though credits spreads widened amid rising geopolitical risks.

Currencies: The dollar has gained ground over the course of the month, benefiting from safe haven bids as trade tensions continue to escalate.

Equities: Over the past month, global equities lost momentum as expectations of a US-China trade deal shifted from ‘when’ to ‘if’. However, the losses were contained in most markets as central banks succeeded in recreating the ‘goldilocks’ environment similar to that in 2012-2017 and corporate earnings remained relatively strong.

Commodities: Oil prices are showing few signs of volatility and have settled into a narrow range. However, rather than reflecting market calm the absence of volatility is down to two significant and, for now, equally weighted forces of geopolitical risk and trade war.

US economy expands 3.2% in Q1 2019

Source: Bloomberg, Emirates NBD Research

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