Monthly Insights September 2019

Trade disputes, geopolitical tensions and Brexit are all contributing to rising political risk premiums, with market volatility evident across all asset classes over the past month. With little end in sight to these underlying issues, the chances are that such volatility will continue into the end of the year, and arguably stretch into 2020 as well.

 Global macro: The U.S. Federal Reserve cut interest rates this month for a second time this year and in this cycle. While the market is expecting further easing of monetary policy this year, mixed messages from the FOMC muddied the outlook.

GCC macro: PMI survey data showed a marked slowdown in non-oil sector activity in the UAE in August, while in Saudi Arabia the PMI has been broadly unchanged over the summer.                                             

MENA macro: As Egypt’s three-year IMF-sponsored reform agenda draws to a close, it is pertinent to assess how far the economy has come since November 2016, and whether the gains seen thus far are likely to be maintained even once the reform process falls out of the purview of the current programme.

EM Focus: India’s economy is currently caught between visible headwinds and potential tailwinds. While headwinds of continued weak consumption and lack of private investment are obvious, government reform measures such as reduction in corporate taxes are likely to have a greater impact over the medium term.

Fixed Income: Repricing of monetary policy expectations in developed markets has resulted in higher benchmark yields which in turn has put pressure on corporate bonds. However, the continued hunt for yield has helped the high yield and emerging market space.

Currencies: The dollar has benefitted from a less dovish FOMC cut and haven bids related to trade and other tensions.

Equities: Notwithstanding a multitude of unresolved issues, global equity markets have remained surprisingly resilient. If anything, they have built on the gains from the start of the year to trade near all-time highs.

Commodities: The attacks on critical oil infrastructure in Saudi Arabia have highlighted how dependent the global economy remains on flows of crude from the Middle East. But importers of crude from the region are seeking new ways to diversify their sources of crude to minimize disruptions.

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