CBUAE approves Proactive Financial Institution Resilience Package

The Central Bank of the UAE has approved a ‘proactive financial institution resilience package’ backed by AED 1tn as the Iran war continues. The CBUAE board noted that the banking sector has shown resilience to the conflict so far and that there has been no material impact on the sector or its payment, but it has adopted a proactive approach to the testing time, with five key pillars to the support package. These include ‘Enhanced access to reserve balances up to 30% of the cash reserve requirement and availability of term liquidity facilities in both AED and USD’, temporary relief in liquidity and stable funding ratios, and the temporary release of the countercyclical capital buffer and the capital conservation buffer. The central bank also called for financial institutions to ‘continue to provide the required financing services to support their customers and the national economy.’ Despite the ongoing conflict, the CBUAE reiterated that the banking sector remained in a position of strength, with nearly AED 920bn (USD 250bn) in liquidity stock held by banks at the CBUAE, ‘of which banks’ reserve balances exceed AED 400 billion (USD 109 billion).’

Iraq and Kurdistan have agreed to resume oil exports through Turkey, thereby bypassing the Strait of Hormuz and the ongoing closure of the waterway to most shipping due to the war.

There was a sharp deterioration in Germany’s ZEW expectations survey, as it fell from 58.3 in February to -0.5 in March. This was also well short of the predicted 39.2, with uncertainty around the Iran conflict and the anticipated inflationary pass-through weighing on the outlook. The current situation survey was at -62.9, from -65.9 previously.

The US Fed is scheduled to announce its policy rate today, with zero chance of a cut being priced in currently. There is little more than one full cut priced in by year end at present, with the conflict expected to push back any monetary easing given that petrol prices have already seen a significant rise in the US. The revised dot plot will also be published, where any changes to growth and inflation expectations will be seen alongside rate predictions.

Today’s Economic Data and Events

17:45 Bank of Canada rate decision. Forecast: 2.25%

22:00 US FOMC rate decision. Forecast: 3.75%

Fixed Income

• Bond markets were fairly stable yesterday with the focus starting to turn to the Fed’s rate decision this evening. Yields on the 2yr were up by 0.3bps to 3.6736%, while the 10yr fell 2bps to 4.1985%.

Currencies

• The USD index fell for the second day in a row yesterday, closing 0.1% lower against its basket of currencies as risk sentiment improved. EUR and GBP both closed up 0.3%, to 1.1540 and 1.3356 respectively, while JPY was broadly flat at 159.0.
• There was some relief for regional energy importers, as EGP strengthened by 0.3% to 52.3700, while INR gained 0.1% to 92.3812.

Equities

• The risk-on sentiment carried global equity markets into a second day of gains. In the US, the Dow Jones, the S&P 500, and the NASDAQ added 0.1%, 0.3%, and 0.5% respectively.
• There were robust gains in local markets also, as the DFM closed up 4.1% on the day, snapping four days of losses. The ADX added 0.1%, while Saudi Arabia’s Tadawul closed 0.5% higher.

Commodities

• Oil prices closed higher once more yesterday, with Brent crude closing up 3.2% at USD 103.4/b and WTI adding 2.9% to USD 96.2/b. Prices eased off highs seen earlier in the day, however, and are heading lower in early trading this morning after news that Iraq had signed its deal with Türkiye.