Market sell-off gathers pace as recession fears grow

Markets are flashing red as anxiety grows that the US economy could tip into recession as a result of the uncertain policies of the Trump administration. Equity markets in the US led the dive and the S&P 500 has erased all of its post-election gains while European and Asian markets have likewise slumped. President Trump said earlier in the week that the US economy would be in “a period of transition” and didn’t rule out the risk of a recession. Rates expectations have ticked higher to pricing in more than three 25bps from the Fed by the end of this year.

The cabinet of the UAE approved a National Investment Strategy with the aim of increasing foreign investment to AED 240bn by 2031 from AED 112bn in 2023. The strategy also aims to increase the stock of FDI in the UAE to AED 2.2trn from AED 800bn

Headline CPI inflation in Egypt fell to just 12.8% y/y in February, down from 24.0% the previous month. Prices were 1.4% higher than in January, a slightly slower pace of price gains than the 1.5% m/m inflation seen at the start of the year. The annual print was the lowest since March 2022 as currency moves and issues around FX availability that had driven inflation to record highs passed through the base. The Central Bank of Egypt struck a relatively cautious note at its first rate-setting meeting of the year as fiscal adjustments had slowed the disinflation trend and it warned about potential fallout from global geopolitical developments. Nevertheless, the sharp fall in headline inflation last month paves the way for some fairly aggressive rate cutting from the CBE over the course of this year given that with the benchmark overnight deposit rate at the present 27.25% there is significant scope to lower it while maintaining positive real rates.

Industrial production in Turkey dropped 2.3% m/m in January, mainly caused by a slide in manufacturing activity. Mining and utilities output was higher m/m. On an annual basis industrial output in January eased to growth of just 1.2% y/y from 7% in December.

Today’s Economic Data and Events

• 11:00 TU retail trade y/y Jan
• 18:00 US JOLTS job openings Jan: forecast 7,665k

Fixed Income

• US Treasuries had a very strong start to the week as markets seek out havens. Yields on the 2yr UST dropped nearly 12bps to 3.8833% while the 10yr UST yield fell 9bps. The Fed is currently in its blackout period ahead of the March FOMC so markets won’t get any colour on the Fed’s view about the market sell off. However, the uncertainty around growth is likely to play into their decision and commentary.
• Local credit markets held up well with GCC bonds gaining 0.5% overnight with positive moves across all geographies and subsectors.

FX

• Despite the wider market sell-offs, FX markets held up overnight. EURUSD was little changed at 1.0834, withstanding the risk that Germany’s planned spending package could be derailed by opposition within the country’s parliament. GBPUSD closed softer, down 0.3% at 1.2879 while USDJPY moved in favour of the yen to 147.27, down 0.5%.
• Commodity currencies closed weaker overnight with USDCAD added almost 0.5% to 1.444 while AUDUSD fell 0.4% to 0.6278 and NZDUSD closed lower by 0.2% at 0.5699.

Equities

• Equity markets have been the primary express of market’s recession anxieties with the Dow Jones lower by 2.1% overnight, the S&P 500 sliding by 2.7% and the NASDAQ crashing by 4% in a single day’s trading. The prospect of lower rates is doing little to cushion equity markets for now as P/E ratios have collapsed.
• There were broad sell-offs in European equities overnight while Asian markets have also opened weaker in early trade today.
• Regional markets weren’t spared the selling pressure with the DFM lower by 1.7%, the ADX down 0.6% and the Tadawul falling by 0.8%.

Commodities

• Energy markets were caught up in the market downdraft with Brent futures lower by 1.5% and closing below USD 70/b again while WTI fell by 1.5% to USD 66.03/b.
• Gold failed to live up to its haven image, dropping three days in a row to USD 2,888.71/troy oz while the rest of the precious metals complex also closed weaker. Industrial metals generally settled weaker.