Central banks are continuing the process of monetary policy normalization, with rising interest rates in some cases and preparation for tightening in others. This is consistent with the improving condition of the global economy, although trade tensions are beginning to cast a cloud over the longer term outlook.
- Global macro: The last month has been dominated by talk of protectionism and fears that the world may descend into a trade war having negative consequences for global growth.
- GCC macro: The growth in bank deposits and slowdown in lending in the region’s two largest economies have led to improved liquidity in their domestic banking sectors, contributing to the spread compression over short term USD rates.
- MENA macro: Monetary policy in Egypt, Tunisa and Turkey will diverge from the US-led trend of moderate hiking over 2018. Egypt has begun cutting rates from recent highs, Tunisia is being forced to hike aggressively to contain inflation, and Turkey is likely to hold rates despite above-target inflation.
- Sector focus: An update on Dubai’s real estate sector.
- Interest rates: Government yield curves flattened during the month as short term rates rose in response to strong economic data.
- Credit: Rising fears of trade wars and the risk of capital outflow from EM markets on the back of rising US rates caused credit spreads to widen during the month.
- Currencies: Despite the Fed hiking rates again this month, the dollar continues to be under pressure and looks vulnerable as trade concerns grow.
- Equities: The first quarter of 2018 has marked the transition of global equity markets from ‘low volatility & high total return’ phase to ‘increasing volatility and declining total return’ phase. While most factors supporting equity markets still remain in place, investors’ have been surprised at the speed with which some anticipated risks have manifested.
- Commodities: The US has imposed tariffs on imports of aluminium and steel but we hold that China’s policies related to curbing over-production and pollution will have more bearing on aluminium markets this year.
Fed funds target rate & USD Libor
Source: Bloomberg, Emirates NBD Research
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Emirates NBD Research