Fitch affirms strong UAE rating

Fitch affirmed their 'AA-' sovereign rating on the UAE with a stable outlook. The rating agency noted that UAE's "moderate" government debt and strong external asset position as motivation behind the rating. Fitch did note the uncertainty around regional geopolitics but that the country had large "fiscal and external buffers" to be able to absorb any shock.

Sharjah opened its largest solar energy plant yesterday. The Sana facility is intended to provide the Emirate’s oil and natural gas processing facilities with power, with production capacity of 60 megawatts. The project will contribute to the UAE’s goals of clean energy accounting for 30% of total production by 2030.

The US Federal Reserve announced a planned reduction to the enhanced supplementary leverage ratio, effectively reducing the capital requirement for large banks to a range of 3.5% - 4.5%, from 5%. Separately, Fed Chair Jerome Powell, during a second day of testimony before the Senate Committee on Housing and Banking, highlighted the uncertainty around who would bear the cost of tariffs, and to what extent they might reflect in measures of inflation.

At a NATO meeting in The Hague yesterday, leaders agreed to increase defense spending targets to 5% of their respective country’s GDP by 2035. The spending will be split with 3.5% going to core defense spending, with the remaining 1.5% available to be spent on other related goods and services, including infrastructure and cybersecurity. Spain secured an exemption to the requirement, although President Trump has threatened to double retaliatory tariffs in response.

European Commission officials have confirmed that the bloc would respond with retaliatory tariffs on the US, if at the conclusion of the US-EU trade negotiations the 10% baseline tariff remained. Trade negotiations are ongoing, with 50% tariffs potentially being reimposed on imports from the EU once a 90-day pause ends on the 9^th of July.

Consumer prices in Bahrain remained in deflation in May, dropping 1% y/y, following a 0.5% decline in April. The May print took the measure to its lowest level in two years, with a notable 9.0% y/y fall in food and beverage prices.

Today’s Economic Data and Events

16:30 US Durable goods orders. May (P): forecast 8.5% m/m

16:30 US initial jobless claims. w/e Jun 21: forecast 243k

Fixed Income

US Treasury yields moved a little lower on Wednesday. The yield on the 2yr treasury fell 4bps to reach 3.7807%, while the 10yr yield fell by less than 1bps to 4.2906%.

There was a broad-based rise in European bond yields on the day. The yield on the 10yr Gilt rose by just under 1bps, while the 10yr Bund gained 2bps to 2.563%.

GCC credit markets were broadly positive overnight with gains across all asset classes and geographies. An index of UAE bonds rose by marginally less than 0.1% overnight while an index of Qatari bonds was up by 0.15%. 

FX

The US dollar spot index saw its fourth consecutive day of declines on Wednesday, falling 0.2%. EURUSD rose 0.4% to 1.1659, GBPUSD gained 0.36% to 1.3664. USDJPY gained 0.2% to reach 145.24.

In emerging markets, USDINR gained 0.13% to reach 86.09 while USDTRY saw a bigger decline, falling 0.4% to 39.7599.

Equities

Moves in US equity markets were mixed on Wednesday. The Dow Jones fell 0.25%, the NASDAQ gained 0.3%, and the S&P 500 ended the day flat, after comments from Chair Powell suggested that tariff uncertainty was clouding the outlook for rates.

European stocks were lower on the day. The Euro Stoxx 50 index fell 0.9%, the DAX dropped 0.6%, the CAC 40 declined by 0.8%, and the FTSE 100 fell 0.5%.

Local markets saw the DFM gain 0.4%, while the ADX remained flat. The Tadawul gained just 0.1%.

Commodities

Oil prices edged higher on Wednesday, breaking a three-day slide. Brent futures gained 0.8% to USD 67.68/b, while WTI rose 0.9% to USD 64.92/b.