Timothy Fox - Head of Research & Chief Economist
Published Date: 29 November 2017
There was more positive news from the U.S. overnight with the U.S. Senate Budget Committee voting to send the tax bill to the full Senate for a vote, after a vote largely along party lines. So momentum seems to be building behind the tax bill which could be passed before the end of the year, with formerly dissenting Republicans apparently falling into line. At the same time consumer confidence is also continuing to surge, rising to 129.5 from 126.2 in October to set a new 17-year high. Expectations rose to 113.3 from 109.0, while current conditions fell to 153.9 from 152.0 in October.
Meanwhile Fed Chair nominee Jerome Powell's Senate Banking Committee ended without any great surprises, and with nothing to suggest he would not be confirmed to succeed Janet Yellen. Powell said that the case for raising rates in December "is coming together," more or less confirming that a rate hike is December is likely, and indicating that policy would proceed beyond that point on a gradual course as laid out by his predecessor, with the data being the key determinant. On a more concerning note overnight however, North Korea announced that it had launched another ICBM which will raise questions about whether the Trump approach to pressuring that country is working and may raise regional tensions..
Egyptian press reported on Tuesday that the Central Bank plans to lift limits on access to FX for companies importing non-essential goods next week, suggesting it perceives the dollar crunch to have waned. The float of the local currency in November 2016, and very high interest rates, have encouraged greater inflows of remittances, a pick-up in foreign direct investment, and a considerable uptick in foreign investment into equities and local debt over the course of 2017. The trade balance has also improved owing to the cheaper pound, all of which factors have eased dollar shortages which had previously plagued the economy. This latest easing of capital controls follows the removal of a USD100,000 cap on FX transfers in June.
Source: Bloomberg, Emirates NBD Research
Treasuries closed slightly mixed as reports that North Korea fired another missile offset the progress made on the US Tax Bill. Yields on the 2y UST and 10y USTs remained flat at 1.74% and 2.32% respectively and rose 1 bps on 5y USTs to 2.05%.
Regional bonds continued to drift higher with YTW on the Bloomberg Barclays GCC Credit and High Yield index dropping 1bps to 3.66% and credit spreads tightened by 2 bps to 157 bps.
Saudi Arabia raised SAR 6.68bn from the sale of a domestic sukuk. The tap received bids of nearly SAR 20bn.
The dollar is firmer this morning following the passage of the U.S. tax bill through the Senate Banking Committee and on the back of the strong rise in U.S. consumer confidence. The pound, however, was immune to the dollar’s recovery as reports of a Brexit deal with the EU over the financial settlement helped sterling to rally. The yen also proved a little more resistant to dollar gains as North Korean tensions resurfaced, with the North Korea launching another ICBM yesterday.
Developed market equities closed higher after the tax bill in the US inched closer to getting passed. Strong economic data also helped investor sentiment. The S&P 500 index added +1.0% while the Euro Stoxx 50 index gained +0.6%.
Egyptian equities outperformed regional equities after the central bank removed the cap on FX for importers. The EGX 30 index added +2.2%. Elsewhere, the Tadawul drifted higher for a fifth consecutive day with gains of +0.4%.
In terms of stocks, Drake & Scull added 2.8% after the stock was included in the MSCI GCC index.
Oil prices declined ahead of the OPEC meeting amid speculation about the length of the extension cuts and whether Russia would participate or not. Reports that US crude inventories rose last week also dampened prices. The WTI and Brent price dropped -0.2% and -0.4% respectively.
Brexit negotiations break down