Abu Dhabi adds stimulus measures

Abu Dhabi has launched an extensive indirect stimulus programme meant to boost growth in the economy, particularly in the SME sector. Among the measures are instant business licenses, variable electricity tariffs for the industrial sector, credit guarantees for SMEs and support for ecotourism in the emirate. The reforms are likely to be welcomed by business and the market and should help to lubricate growth once there is a pickup from the underlying soft levels of growth in the non-oil sector of the UAE.

Egypt’s finance minister, Mohamed Maait, has said that Egypt is exploring a new non-monetary deal with the IMF to replace the USD 12bn package that expires later this year. The potential two-year deal would provide an important policy anchor to Egypt’s ongoing reform programme and would help to assure international portfolio and direct investors that there will be no roll-back on the efforts to correct Egypt’s economic imbalances and foster sustainable growth. The minister also said that Egypt would look to generate between USD 4bn-7bn of funding in the coming year.

US consumer confidence added to the string of soft data hitting markets this week with the Conference Board consumer index declining to 121.5 for June from 131.3 a month earlier. June’s print was the lowest level since September 2017. Consumers listed a tougher job market and higher inflation expectations (likely as a result of higher US tariffs) as part of the deterioration in overall confidence. Adding to the weak data, new home sales in the US fell by 7.8% month on month, far below market expectations for an increase of closer to 2%.

The chair of the US Federal Reserve, Jerome Powell, gave comments overnight that suggested the Fed was not moving as fast as markets in terms of cutting rates. Saying the Fed was “insulated from short-term” political issues and that the bank needed to “look through” near-term conditions, Powell’s commentary helped to sink markets which had been heavily pricing in rate cuts as early as July. The Fed will also want to reassure markets that it remains independent from the influence of President Donald Trump who has been openly critical of rate hikes and the withdrawal of monetary stimulus.

US consumer confidence since the Trump election

Source:EIKON,  Emirates NBD Research

Fixed Income

Treasuries closed marginally higher following comments from Bullard where he expressed support for an insurance rate cut. Yields on the 2y UST, 5y UST and 10y UST closed at 1.73% (flat), 1.72% (-2 bps) and 1.98% (-3 bps) respectively.

Regional bonds traded in a tight range. The YTW on Bloomberg Barclays GCC Credit and High Yield index remained flat at 3.62% while credit spreads widened 1 bp to 173 bps.

In terms of new issuance, Sharjah Islamic Bank raised USD 500 mn through a Tier 1 perpetual note which was priced at 5%.

FX

Despite a small rebound this morning, the dollar remains vulnerable as markets continue to expect easing of monetary policy from the Federal Reserve later this year. As we go to print, the Dollar Index (DXY) is trading 0.15% higher at 96.281, however this combined with yesterday’s minor gains are more likely a symptom of profit taking following the index’s fall from 97.773 last week.

Elsewhere the NZD is firmer in the aftermath of this morning’s RNBZ policy meeting. Policy makers left interest rates unchanged at their record low of 1.50% and communicated that lower interest rates may be needed in the future. Currently NZDUSD is trading at 0.22% higher at 0.66652, recovering from the daily lows of 0.6590 that was hit in the immediate aftermath of the RBNZ statement.

Equities

Developed market equities closed lower as investors turned their focus onto the G-20 meeting. The S&P 500 index and the Euro Stoxx 600 index dropped -1.0% and -0.1% respectively.

Regional equities closed mixed with the DFM index losing -0.6% and the Tadawul added +0.6%. DP World continued to remain weak as trade tensions remain. The stock closed -1.2%.

Commodities

Oil markets are up strongly in early trading in Asia as tensions in the Middle East continue to support markets, along with a decline in US inventories. WTI futures are up more than 1.8% at USD 58.88/b while Brent has gained more than 1% at USD 65.78/b. The API reported a drop in US stockpiles of over 7m bbl last week while official EIA data will be out later today.  Aramco’s CEO tried to reassure offtakers of Saudi crude that it will continue to meet demand and will be a reliable supplier even as tensions in the Gulf region remains higher. The Aramco commentary suggests to us that an increase in production from Saudi Arabia over the coming months.

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