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Anita Yadav - Head of Fixed Income Research
Published Date: 07 March 2019
In the US, ADP employment report reflected addition of 183k new jobs in February vs expectation of 190k. This follows 300k new jobs in January that was the highest in three years. The unemployment rate is likely to remain below 4% as long as new jobs added remain above an average of 100k per month. Data also showed the US trade deficit increased 12.5% in 2018 to reach USD 621bn, its highest since 2008, with imports up 7.5% y/y to USD 3.1tn, faster than exports, up 6.3% y/y to USD 2.5trn.
The Fed’s Beige Book reported that 10 of the 12 districts are seeing only "slight-to-moderate" growth. While the Beige Book report is not significant, it does fuel expectations that the Fed's economic forecast and its dot plot are set to be revised down at the FOMC later this month.
The Organization for Economic Cooperation and Development on Wednesday said it downgraded almost every growth forecast for Group of 20 nations as weakness in the euro area and China are proving more persistent, trade growth has slowed sharply and uncertainty over Brexit has continued. Europe growth was downgraded to 1% from 1.8% and China growth was lowered to 6% from 6.2% previously. The UK’s 2019 forecast was cut to 0.8% from 1.4%.
In line with expectations, Bank of Canada left interest rates unchanged at 1.75% highlighting uncertainty around the timing of future hikes amid a deeper-than-expected slowdown. BoC dropped its assertion that rates will need to rise over time, while adding a reference that borrowing costs will remain below neutral for now.
Moody’s yesterday downgraded Oman’s credit rating to Ba1 with negative outlook citing lack of meaningful fiscal reforms to address ongoing budget deficits which will likely remain in 7-11% of GDP range over the next few years and one that will continue to weaken the sovereign’s balance sheet.
Source: Bloomberg, Emirates NBD Research.
US treasuries rose in response to rhetoric about slowing global growth impeding the Fed’s ability to raise rates. Yields on 2yr, 5yr, 10yr and 30yr USTs closed at 2.52% (-2bps), 2.50% (-3bps), 2.69% (-3bpsd) and 3.07% (-1bp) respectively. OECD downgrading its growth forecast for the Euro area saw sovereign yields in the region fall significantly with yields on 10yr Bunds and Gilts falling to 0.12% (-4bps) and 1.22% (-6bps) respectively.
Regionally, falling benchmark yields helped GCC bonds to close higher with average yield on Barclays GCC bond index falling 2bps to 4.30% yesterday as credit spreads remained unchanged at 173bps.
In the primary market, Qatar priced USD 2bn in 5yr bonds at T+90bps, USD 6bn in10yr bonds at T+135bps and USD 4bn in 30yr bonds at T+175bps against an order book of over USD 35bn
The dollar held relatively steady against major partners overnight, barely moving against either the Euro or sterling. Both the CAD and AUD weakened by 0.7% as a dovish tilt from the Bank of Canada and weak data from Australia weighed on the commodity currencies.
EM currencies saw more pronounced weakness against the greenback with TRY closing back up above 5.40 while there were losses across most Asian currencies. INR stood out as an exception, managing a third day in a row of gains.
Equity markets generally sagged overnight. The S&P 500 fell nearly 0.7% while in Europe the FTSE was the standout gainer among a sea of losses. Clearly no news on either trade wars of Brexit is being interpreted as negative for global growth and pushing risk assets lower.
Regional equity markets also dipped with the Tadawul and DFM down 0.3% and 0.4% respectively while the ADX fell sharply, by 2.2% overnight.
Crude futures were split overnight with Brent managing to gain for a third day running while WTI slipped by 0.6%. Both are pushing higher this morning with Brent back above USD 66/b and WTI around USD 56.40/b. EIA data overnight reported a build in crude stocks of more than 7m bbl while there were draws across the rest of the barrel. Total crude production stayed level at 12.1m b/d, up 1.7m b/d on the same level a year earlier.
The Brexit saga continues this week
Brexit deal defeated again
UAE residency framework approved
OPEC production: exposed