UAE announces plans to build AI cluster

OpenAI, Nvidia, Cisco, SoftBank, Oracle and G42 yesterday announced a partnership to build an AI cluster in Abu Dhabi, known as Stargate UAE. The first phase of the project, with an expected capacity of 200 megawatts, is anticipated to be ready by 2026. The deal brokered during President Trump’s visit to the country last week is consistent with the UAE’s vision of becoming a leading nation in the field of artificial intelligence.

The fourth installment of the “Make it in the Emirates” forum came to a close in Abu Dhabi on Thursday. The event saw over 58,000 visitors in the first two days alone, as well as numerous announcements throughout the 4-day event. These included the establishments of a AED1bn investment fund for SMEs, plans to provide over AED40bn in competitive financing to industrial firms over the next 5 years, and the announcement of a Dubai in-country value programme.

The provisional US flash composite PMI rose in May, increasing to a value of 52.1 from 50.1 in April. There were improvements in the manufacturing and services sub-components, both rising to 52.3. The rise in the composite measure marked a three-month high after dipping sharply in April on the back of President Trump’s tariff announcement. Both the input and output price measures rose at their fastest pace since 2022.

US initial jobless claims drifted marginally lower in the week ending 17 May, dipping to 227k from 229k the week prior, as companies potentially adopt a wait-and-see approach until there is further clarity on tariffs. Continuing claims, in contrast, rose by 36k to just over 1.9mn in the week ending 10 May.

The HCOB Eurozone flash composite PMI fell in May, dropping below the neutral-50 mark for the first time since the end of 2024, to a value of 49.5. The decline was driven by an unexpected fall in the services sub-component, which dropped to a value of 48.9 from 50.1 in April. Manufacturing activity may have been supported by front running of tariffs in May, with the sub-component rising to 49.4 from 49.0 the month in April.

The German IFO business survey saw a marginal increase in May, rising to a value of 87.5 from 86.9 in April. The index remains well below its long-run average. There was a further small fall in the current conditions sub-component, while in contrast respondents became more optimistic about the future outlook.

There was an improvement in the UK flash composite PMI for May, rising to 49.4 from 48.5. The increase was entirely due to a pick-up in the services sub-component, which rose to 50.2 after dipping to a low of 49 in April. Manufacturing activity continued to contract, with the sub-component falling to a value of 45.1 from 45.4.

The Central Bank of Egypt cut its primary interest rates by 100bps yesterday, taking the benchmark overnight deposit rate to 24.0%. This followed the initial 225bps cut made at the previous meeting, with the central bank able to ease from the very restrictive monetary policy of the past several years following a halving in the annual inflation rate. Nevertheless, the CBE is proceeding more cautiously than had been anticipated with both our own and consensus projections expecting a 200bps cut from the bank yesterday. In its statement the CBE noted the sharp slowdown in inflation but drew attention to upside risks stemming from ‘global trade protectionism, possible escalation of regional conflicts and higher-than-anticipated pass-through of fiscal consolidation to domestic prices.’ We still expect significant rate cuts to follow this year given the very high real interest rate – over 10.0% - but these may be back loaded to later in the year once the effect of ongoing subsidy adjustments has manifested in the inflation data.

Today’s Economic Data and Events

10:00 UK retail sales (Apr): forecast 0.3% m/m

18:00 US new home sales (Apr): forecast 695k

Fixed Income

US Treasury yields unwound some of the previous day’s move higher following weak demand of 20yr bonds at auction. The 2yr UST fell 3bps to 3.99%, while the 10yr yield dropped 7bps to 4.5287%.

Moves in major European bond yields were mixed on Thursday. Both the 10yr Gilt and 10yr Bund yield saw muted declines, dropping by less than 1bps to 4.7495% and 2.642%, respectively.

FX

The dollar strengthened on Thursday, rebounding after three days of declines, with the spot index increasing 0.4%. EURUSD fell 0.4% to 1.1281, while GBPUSD was broadly flat at 1.3419. USDJPY rose 0.2% to 144.01.

Moves in commodity currencies were more mixed against the dollar on the day. AUDUSD fell 0.38% to 0.6411, and NZDUSD dropped 0.67% to 0.5899. USDCAD fell marginally, dropping 0.2% to 1.3857.

Equities

Moves in US equity markets were mixed on Thursday. The S&P 500 saw a third consecutive day of loses, declining 0.04%, while the NASDAQ gained 0.3%.

European equity markets ended the day lower, on the back of bond market concerns and a weaker outlook for renewables following proposals to unwind tax credits in President Trump’s tax bill. The Eurostoxx 50 fell 0.55%, the FTSE 100 declined by 0.54%, the CAC 40 dropped 0.58% and the DAX ended 0.51% lower.

Local markets were mixed on the day. The DFM gained 0.26% and the ADX declined 0.08%. The Saudi Tadawul declined by 1%.

Commodities

Oil prices declined for a third consecutive day on Thursday, with reports suggesting that OPEC+ is considering making another large increase to production at their June 1 meeting. Brent futures fell 0.7% to reach USD 64.44/b, while WTI declined by 0.6% to USD 61.2/b.