UAE and India pledge to double bilateral trade

Sheikh Mohamed bin Zayed al Nahyan, President of the UAE and Ruler of Abu Dhabi, is visiting India to discuss cooperation with Indian Prime Minister Narendra Modi. The UAE and India comprehensive economic partnership agreement took force in May 2022 with India representing the second largest trading partner for the UAE with total bilateral trade estimated at nearly USD 95bn in 2024. The UAE and India agreed to double bilateral trade to USD 200bn by 2032 and ADNOC Gas will provide 0.5 m tonnes of LNG per year to India.

CPI inflation in Dubai accelerated to 3.0% y/y in December, up from 2.7% the previous month. This put annual y/y inflation at an average of 2.8%, modestly higher than our predicted 2.6%, but still the slowest pace of annual average inflation since 2021. We forecast a slowdown to 2.5% this year, anticipating slower housing inflation and transport inflation that will be deflationary on average. An increase in fuel prices helped to push inflation to a faster pace in December but we expect it will be unwound for January. The largest component of Dubai’s CPI basket is housing & utilities, which makes up just over two fifths of the total. In December, housing inflation slowed to 5.1% y/y, a 33-month low for the measure, and we expect that it will continue to exert a moderating influence on headline inflation in Dubai this year.

The IMF revised its global growth forecast for 2026 higher to 3.3% for this year in its January World Economic Outlook update, up from 3.1% previously, thanks to faster growth expectations across both advanced and emerging economies. The US is forecast to grow by 2.4% while China’s economy is expected to expand by 4.5%. The Middle East and North Africa will see faster growth of 3.9% in 2026, up from 3.4% estimated for 2025 and ahead of the previous WEO estimate. Saudi Arabia is forecast to grow by 4.5% this year before decelerating to 3.6% in 2027.

Today’s Economic Data and Events

11:00 TU Home sales Dec y/y

11:00 UK ILO unemployment rate 3mths Nov: forecast 5.1%

14:00 GE ZEW survey expectations Jan: forecast 50

Fixed Income

US Treasury markets were closed at the start of the week for a public holiday in the US but have opened with a softer footing as markets continue to price in turbulence in relation to the threat of US tariffs on its European allies. The 10yr UST yield is about 3bps higher in early trade today at 4.253%. European bonds were relatively resilient overnight with modest drops in the UK and German markets.

The Central Bank of the UAE carried out its regular auction of m-bills at the start of the week. The CBUAE sold AED 2.75bn in 28-day m-bills at a yield of 3.875; AED 2.955bn in 70-day m-bills at a yield of 3.94%; AED 1.725bn in 126-day m-bills at a yield of 3.99%; and AED 5.45bn of 294-day m-bills at a yield of 3.95%.

FX

Markets responded to the emerging trans-Atlantic geopolitical riff by selling the US dollar. EURUSD managed to rise by 0.4% overnight to 1.1646 while GBPUSD added 0.3% to 1.3425. JPY closed near unchanged at 158.11 while Swiss Franc showed some haven support with USDCHF lower by 0.7% at 0.7975

In emerging markets the Indian rupee pushed lower again, though at a more moderate decline. USDINR closed at 90.915. Turkish lira closed near unchanged at 43.2659 while the Egyptian pound depreciated slightly to 47.4059.

Equities

European equity markets took the brunt of US President Donald Trump’s tariff threats with the Euro Stoxx index lower by 1.7% overnight. The FTSE 100 fell 0.4% while individual European markets were all much weaker. US markets were closed overnight.

Local markets were all stronger to start the week with the DFM up 0.4% while the ADX rallied 0.7% overnight. The Tadawul was near unchanged.

Commodities

Oil prices were lower to start the week with all focus on the geopolitical tension over Greenland. Brent futures fell 0.3% to USD 63.94/b while WTI markets didn’t report a settlement as a result of the US public holiday.

Precious metals prices continue to show more of the geopolitical unease with gold prices pushing higher once again, up1.6% to USD 4,670/oz while silver rallied 4.7% to USD 94.3855/oz.