18 July 2022
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Biden visits the region

By Edward Bell

  • US President Joe Biden visited the region over the last week, including a stop in Saudi Arabia where he also attended a summit with GCC leaders as well as Egypt’s president. Biden’s visit to Saudi Arabia was under scrutiny as to whether the US president could secure a pledge for additional supplies of oil to help offset high energy inflation affecting nearly all major economies. Saudi officials noted that any decision on oil production would need to be taken collectively with OPEC+ and not made as a unilateral move by Saudi Arabia alone. There were few material takeaways from Biden’s visit to the Middle East though Saudi Arabia will now open its airspace to overflights from Israel-bound aircraft. The US also agreed to further bilateral support for Jordan’s economy and also reached an agreement on a regionwide support scheme to offset high food costs.
  • The IMF will downgrade its expectations for global growth this year when they publish their next economic review. The fund’s head of strategy, Ceyla Pazarbasioglu, noted that high inflation, China’s Covid response and tighter monetary policy make it “more challenging” for governments and central bankers to respond to support their economies. The IMF currently expects growth of 3.6% this year which was already cut from 4.4% at the start of the year.
  • Retail sales in the US came in better than expected for June, helping to firm up expectations for another large hike by the Federal Reserve later this month. Total retail purchases rose by 1%, slightly better than market forecasts. The June data print was likely flattered by a pick-up in purchases at petrol stations as the aggregate number is nominal and thus not inflation-adjusted. At the same time, however, manufacturing activity ebbed with a 0.5% drop in manufacturing output in June. Industrial production, which includes mining and utilities, fell by 0.2% month/month.

Today’s Economic Data and Events

  • Nil

Fixed Income

  • Markets continue to oscillate between fears of a recession and the necessity of central banks to respond to inflation. Over the course of last week it appears that near-term US Treasuries were focused on the inflation outlook with yields edging higher over the course of the week. Yields on the 2yr UST ended last week up marginally at 3.1201% while the longer end of the curve appeared to be much more focused on diminishing growth prospects with yields down by almost 17bps at 2.9152%.
  • As of the end of last week a 75bps hike from the Fed at its FOMC meeting later this month is entirely priced in as some better-than-expected data suggests that the economy should still be able to withstand higher rates.
  • For European markets, the first potential rise in rates since 2011 is on the cards this week with a 25bps hike priced in. Bond markets managed to rally on recession fears last week though, with 2yr yields on German bonds down 7bps at 0.44% while the 10yr bund yield fell 21bps to 1.129%. In the UK, yields on the front end of the curve oscillated but ultimately closed little changed at 1.9050% while the 10yr gilt yield fell by 14bps to 2.088%.
  • In the region, S&P revised their outlook on Kuwait’s sovereign rating to stable from negative as high oil prices help to shore up the country’s finances.
  • In central banks this week the ECB takes pole position on the 21st with a 25bps hike expected. Turkey also sets policy with rates expected to be held at 14% while the Bank of Japan also meets on the 21st with no change expected. The SARB is anticipated to hike by 50bps on July 21st to 5.25% while Bank Indonesia meets the same day with no change in policy forecast.


  • The US dollar pulled back somewhat on Friday after some sharp gains against peer currencies. The market will be wholly focused on the tone of central banks in the coming weeks and whether the ECB can actually commit to a hawkish hike or if they will temper their language about the future direction of policy. EURUSD ended last week down 1% at 1.008 after moving below parity several times. USDJPY added 1.8% last week to close at 138.57 with a test of 140 looking increasingly likely, particularly if the Bank of Japan maintains its accommodative stance.
  • In the UK, the ongoing Conservative leadership election will determine the near-term economic trajectory for the country, and what kind of tax burden or relationship with the EU markets can expect. GBPUSD fell by 1.5% last week to 1.1855.
  • Commodity currencies weren’t spared the sell off with USDCAD up by 0.7% last week to 1.3032 even in the wake of the Bank of Canada hiking policy rates by 100bps. AUDUSD fell almost 1% to 0.6793 while NZDUSD dropped by 0.4% to 0.6165.


  • Equity markets resumed their downward swing with the S&P 500 off by 0.9% last week and the Down falling by 0.16%. The NASDAQ sank nearly 1.6% the worst of the American indices. In Europe, the FTSE fell by 0.5% while the EuroStoxx broad index dropped by 0.8%.


  • Oil prices endured a weak of heavy selling with Brent futures down by 5.5% to USD 101.16/b while WTI fell nearly 7% to USD 97.59/b, both managing a gain on Friday. Joe Biden’s visit to the Middle East was the main focus of oil markets last week with little in the offering in terms of pledges to boost oil production. Mohammed bin Salman, the crown prince of Saudi Arabia, reiterated the new capacity target of 13m b/d to be hit by 2027, saying that after that the “kingdom will have no further capacity” to increase output.

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Written By

Edward Bell Head of Market Economics

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