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Edward Bell - Commodity Analyst
Published Date: 26 March 2019
The UK’s parliament will take control of the Brexit agenda on Wednesday and will hold indicative votes on the way forward for alternative Brexit strategies to the government’s withdrawal deal. Possible outcomes include a no-deal exit, revocation of Article 50, a general election or a second referendum among others. Prime minister Theresa May warned on Monday that parliament may propose an option that the EU will reject, running the risk of a no-deal exit as a result as the April 12th deadline approaches. Pressure in the Conservative party is growing for May to resign as the cost of passing her deal although the PM apparently has not come to that conclusion herself yet. Markets remain on edge over parliament’s activity this week with sterling oscillating sharply on either side of 1.32.
German business sentiment improved in March, its first rise in seven months. The IFO survey indicated that the business climate index rose to 99.6 from 98.7 a month earlier and had beaten market expectations. The outperformance in business confidence is all the more surprising considering how weak manufacturing surveys in Germany had been for the same month. Bund yields did attempt to recover some of Friday’s drop but ultimately the uncertainty around Brexit is weighing on markets generally and yields on 10yr Bunds closed the day slightly negative.
Market reaction to the outcome of the Mueller investigation into Donald Trump’s 2016 election campaign appears to have been relatively muted. We would expect Democrats to continue to push the Attorney General for a full release of the investigation’s findings and to maintain a confrontational attitude toward the administration ahead of the 2020 election.
Source: Eikon, Emirates NBD Research
US treasury yields continued to push lower as the market responded to shaky data from the US and Eurozone, even if there was some outperformance in German business confidence as reported by the March IFO survey. Yields on 10yr USTs fell nearly 4bps overnight while yields on 2yr paper USTs fell more than 7bps. The 2yr10yr spread actually widened to over 16bps to start the week after hitting less than 13bps at the end of last week but time spreads toward the front of the curve continue to push deeper into inversion. The 2yr5yr yield spread is at -6bps this morning; a month ago it was roughly flat while it was positive at the end of last year.
GCC bonds were largely stable with yield on Bloomberg Barclays GCC bond index closing unchanged at 4.08% as benchmark yield tightening was counterbalanced by 4bps widening in credit spreads to 176bps.
Fitch affirmed Commercial Bank of Qatar’s rating at A/stable citing the bank’s improved profitability. In the primary market, Sharjah is on the road with a 5yr Reg S offering and National Bank of Ras Al Khaimah has mandated banks for a benchmark USD deal.
The dollar index is trading 0.1% lower this morning and currently stands at 96.025. The price remains above the 200-day movig average (95.850) and the 200-week moving average(95.889), levels which are likely to provide support in the short term. Should these levels falter, stronger support may be expected at the 76.2% one-year Fibonacci retracement.
Elsewhere USDJPY has climbed above the 110 handle after the Bank of Japan Summary of Opinions reinforced that monetary policy is likely to continue to remain ultra-loose.
Equity markets remained offered to begin the week with European indexes down 0.4% for the FTSE and almost 0.5% in the Stoxx 600. In North America, the S&P managed to keep its losses relatively muted, falling less than 0.1%.
Regional equities were more positive with gains across the DFM, ADX and Tadawul.
Crude markets were split overnight with WTI falling 0.37% and Brent gaining 0.27%. there were few fundamental catalysts to push markets one way or the other and commodities fell into a general risk-off trade for most of the day.
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