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Anita Yadav - Head of Fixed Income Research
Published Date: 22 May 2019
The UAE announced a permanent residency framework called the ‘Gold Card’ scheme for investors and “exceptionally skilled” foreigners. Beside people with investments above a certain amount, the status would also be made available to eligible competent individuals in the field of medicine, engineering, science and art. As per official tweets, the first batch of eligible people is 6,800 investors with total investment of around AED 100 billion. More details about the schemes will become known in due course. This follows a similar announcement by the Saudi Arabian government recently. While the scheme is certainly positive for the UAE economy, the benefits may take time to show as the current beneficiaries are mostly people whose investments are already inside the country. As certainty and clarity around long term stay improves, people may begin to invest more locally into real estate, insurances, education etc. Foreign residents will likely feel more incentivised to invest locally instead of repatriating retirement funds back to their home countries.
While the stalemate on the US-China trade talks continued, the US decided to grant limited relief for consumers and carriers that do business with Huawei. On the data front, US existing home sales came in softer than expected. Sales of previously owned homes fell 0.4% in April to a 5.19 million annual rate, significantly below expectations of 5.35 million. The result follows a weak reading in March (-4.9%). Taken with soft retail sales and industrial production data released earlier, soft home sales data alludes to a significant slowdown in the pace of economic growth.
Minutes of the May FOMC meetings will be released today. So far, FOMC has attributed muted inflation to transitory factors with officials continuing to expect inflation to reach near the committee’s target over the next few months. Any change in the committee’s view on inflation will probably be the most critical factor for us to review our rates forecast going forward.
In the Eurozone, consumer confidence rose to a seven month high in May reaching to -6.5 from a revised -7.3 in April and highest since -5.9 touched in October 2018.
Source: Bloomberg, Emirates NBD Research
Notwithstanding the weak home sales data, UST yields increased a tad, reflecting the positive sentiment arising from the limited relief granted to Huawei consumers. Yields on 2yr, 5yr, 10yr and 30yrs USTs closed higher at 2.25% (+3bps), 2.23% (+3bps), 2.43% (+1bps) and 2.84% (+1bp) respectively. Sovereign bonds in the Europe charted a similar path with yield on 10yr Gilts and Bunds closing higher at 1.08% (+3bps) and -0.06% (+3bps) respectively. Credit protection costs reduced as risk appetite revived with CDS spread on US IG and Euro Main each tightening by 1 bp to 63bps and 65bps respectively.
GCC Bonds were largely stable with yield on Bloomberg Barclays GCC index closing unchanged at 3.99% even though credit spreads tightened 3bps to 167bps.
In the primary market, Oman is preparing to tap the market soon and Kuwait International Bank announced mandate for a Tier 1 security.
The NZD is trading softer in the aftermath of the diary auction at which prices fell to $3180 from $3249. As we go to print, NZDUSD is trading 0.13% lower at 0.64985, a new 2019 low and the lowest level since November 2018. While the 14-day Relative Strength Index (RSI) is bearish in momentum but at 29.08 showing that the cross may be oversold and may experience some relief as investors lock in their profits on shorts. However despite this relief rally, a retest on the one year low of 0.6425 remains a risk.
Developed market equities closed higher amid investor relief following a decision by the US government to delay Huawei sanctions by 90 days. The S&P 500 index and the Euro Stoxx 600 index added +0.9% and +0.5% respectively.
Regional equities closed higher. The DFM index added +1.0%. The rally gathered pace late in the day after the UAE announced a permanent residency program for some of its residents. Elsewhere, the Tadawul gained +1.7% as flows on account of index inclusion continued.
Oil markets experienced another lingering day overnight as there have been few fundamental catalysts to push prices firmly in either direction. Brent recovered Monday’s losses but is now down by 0.5% in early Asia trading at USD 71.79/b while WTI is off by 0.6% this morning at USD 62.60/b. The API reported a build in US crude inventories of 2.4m bbl last week while official EIA data is expected later today.
Commentary from the Saudi cabinet referred to the Kingdom wanting “balance in the oil market” which it will try to achieve on a “sustainable basis.” The implication here is likely that Saudi Arabia will continue to intervene in markets via production levels, raising and lowering to match its assessment of demand conditions.
G20 meeting dominates markets
US manufacturing weakens