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Khatija Haque - Head of MENA Research
Published Date: 22 January 2019
The IMF has modestly downgraded its forecast for global growth this year, in the latest update to its World Economic Outlook (WEO). The Fund now expects global growth of 3.5% in 2019, down -0.2pp since the October WEO. The revisions were lower across both developed (mainly Europe) and emerging markets. While this is still a solid growth rate, albeit the slowest in 3 years, the IMF cited a significant rise in downside risks, including increased trade tensions, tighter financial conditions, Brexit, and a prolonged US government shutdown. The MENA growth forecast was also revised down -0.3pp to 2.4% in 2019, with the Saudi Arabia GDP forecast cut to 1.8% from 2.4% previously. We have also revised down our Saudi growth forecast for 2019 to 2.0% (from 2.4%), on the back of weaker oil sector growth following OPEC’s decision to again curb output from the start of this year.
UK Prime Minister Theresa May had little new to offer in her statement to parliament yesterday, saying that her focus would be to try and gain concessions on the Irish border issue in further negotiations with the EU. Over the coming week, parliament will debate and then vote on a number of amendments to see if there is majority support for an alternative form of Brexit, or indeed a second referendum, which Labour leader Jeremy Corbyn indicated for the first time that he may support.
Following a visit by the Qatari Emir to Lebanon this week, Qatar has announced that it will buy USD 500mn of Lebanese government bonds. While not as sizeable as the rumoured USD 1bn to be deposited at the central bank reported earlier in the day – which was never confirmed - it should nevertheless help to reassure markets as questions over Lebanon’s macroeconomic stability have come to the fore in recent months, reflected in spiking CDS and Eurobond yields.
Consumer prices in Dubai declined -0.4% y/y in December, on lower food, housing and petrol prices. Average inflation for 2018 was 1.5%, down from 2.1% in 2017 despite the introduction of VAT at the start of last year. The transport component of the CPI declined -1.8% m/m in December but was still up 3.4% y/y. Looking ahead, continuing softness in rents should help to mitigate the impact of higher fuel costs in January. However, with VAT now in the base of the January reading, we expect the y/y inflation reading to remain muted the coming months.
Source: Haver Analytics,Emirates NBD Research
It was a subdued day of trading for regional bonds on account of holiday in the US. The YTW on the Bloomberg Barclays GCC Credit and High Yield index remained largely unchanged at 4.52% and credit spread was flat at 187 bps.
A resurgence is risk aversion has resulted in JPY gaining on the other majors during the Asia session, in a move fuelled by safe haven bids. As we go to print, USDJPY is trading 0.20% lower at 109.45 and has broken below the 50% one-year Fibonacci retracement (109.56) which acted as a support level on Monday. Should the price realize a daily close below this level, there could be a pull back towards 108.38 (38.2% one-year Fibonacci retracement), which would cancel out the gains of the previous week.
On the other side of the spectrum, AUD is the worst performing major currency and finds itself under pressure as Asian equity markets and equities endure negative performances. Currently AUDUSD is trading 0.31% lower at 0.71360 after finding resistance at the 50-day moving average on Monday (0.7181) and breaking below the formerly supportive 100-day moving average (0.7171).
It is also noteworthy that GBPUSD continues to loiter around the 100-day moving average (1.2890) which has provided resistance since the start of the week. While the cross is unable to overcome this level, the price remains vulnerable.
European equities closed marginally lower as optimism over trade faded away. The Euro Stoxx 600 index dropped -0.2%.
Regional equities, too, closed lower. The DFM index and the Qatar Exchange lost -0.6% and -0.4% respectively. Saudi Kayan dropped -5.4% after the company reported earnings that missed consensus estimates. Savola continued to drift lower with losses of -2.9%.
Brent futures closed roughly flat to start the week at USD 62.74/b and are lower this morning. WTI is also pushing lower in early trading at USD 53.49/b. Commodity markets generally shrugged off the widely expected slowdown in China’s GDP growth although most industrial metals did have a lower bias to start the week. An apparent military revolt in Venezuela was put down quickly by government forces but the threat of political risk there remains a supportive factor for oil prices. Refiners, particularly in the US, are anxiously waiting on whether the US will impose sanctions on the country directly targeting its crude exports.
The backwardation in Brent is hovering just below USD 0.2/b at the front end of the curve while similar spreads in WTI are holding in a contango of around USD 0.2/b.
Economic Calendar for the week
US CPI flat in January
UK GDP growth slows further in Q4 2018
Dollar benefits from recent events