UAE looks for trade talks with the US

The UAE and US have agreed to start trade negotiations according to reports in Reuters. The negotiations which could lead to a trade deal were proposed during the visit of US President Donald Trump to the UAE earlier in May. Exports from the UAE to the US are currently subject to a baseline 10% tariff rate while exports of aluminium and steel are subject to the recently revised higher tariff level of 50%. The UAE is the second largest source market for the US’ aluminium imports after Canada, delivering nearly USD 1bn of aluminium products in 2024 and almost USD 600m year-to-date in 2025.

Inflation in Egypt accelerated in May to 16.8% year/year, up from 13.9% a month earlier. On a sequential basis the pace of inflation picked up to almost 2% from 1.3% m/m in April. Core inflation also accelerated, rising to 13.1% year/year from 10.4% in April. Food prices, which are the largest component in Egypt’s inflation index, rose by 11% in May, substantially faster than the 6% recorded a month earlier. Inflation has moderated in Egypt after hitting a peak of 38% in September 2023 and the Central Bank of Egypt has begun to cautiously move rates lower.

The Central Bank of Egypt reported that net international reserves rose to USD 48.5bn in May, up slightly month/month. The CBE also reported a meaningful rise in worker remittances to Egypt to the Jan – Mar 2025 period to USD 9.4bn, up from USD 5bn in the same period a year earlier. March remittances alone increased to USD 3.4bn from USD 2.1bn.

Nonfarm payrolls in the US rose by 139k in May, ahead of market expectations and cooler than the revised downward 147k added for April. Nearly all the jobs growth was in services with manufacturing showing a drop in employment. Healthcare and education and leisure and hospitality provided the bulk of the private sector job gains. Data from the household survey showed that the unemployment rate held steady at 4.2% though there was a decline in both the labour force and participation rate. Average hourly earnings picked up to 0.4% m/m in May from 0.2% a month earlier. Overall the labour market data for May was fairly neutral and is likely to rule out entirely a rate cut from the Federal Reserve at its June 18 meeting.

The European Central Bank cut policy rates by 25bps at its June 5 meeting of the governing council. The cut takes the deposit facility to 2% and follows inflation slipping to target levels of around 2% as of May. The ECB also revised its projections for inflation lower in 2025-26 thanks to weaker energy prices and a stronger Euro against many peer currencies. The bank left its growth projections unchanged. Speaking after the decision, many ECB policymakers have suggested the bank is close to finished with its rate cutting cycle as inflation dynamics are under control.

The Reserve Bank of India cut its key policy rate by 50bps, taking the repo rate to 5.5%. The scale of the cut was wider than market expectations and was supported 5-1 by the monetary policy committee. The larger expected cut helps to bring policy rates closer to neutral for India’s economy where inflation has been moderating while economic growth has been cooling. In its statement justifying the decision, the RBI said it was “imperative to continue to stimulate domestic private consumption” through a frontloading of interest rate cuts.

Today’s Economic Data and Events

05:30 CH CPI y/y May: -0.1% y/y

10:00 KSA GDP Q1 F

Fixed Income

A better than expected nonfarm payrolls print for May helped to sink US Treasuries at the end of last week. Yields on the 2yr UST jumped nearly 12bps by the close to settle at 4.0365% while the 10yr UST added slightly more than 11bps to 4.5056%. Markets are now pricing in fewer than two 25bps rate cuts by the end of the year with the June 18 meeting at 0% probability.

Bond markets generally sank on Friday in line with the move in Treasuries. Emerging market bonds were weaker including across all sectors of the GCC markets. Investment-grade bonds took the biggest battering while Qatari bonds showed the largest single-day drop.

Currencies

The US jobs market data helped to lift the US dollar against peers at the end of last week. EURUSD was lower by 0.4% on Friday to 1.1397 though still managed a weekly gain. Sterling fell by 0.3% to close out at 1.3528 on Friday but with a gain of 0.5% w/w while USDJPY added more than 0.9% on Friday to close at 144.85, with the Japanese yen moderately weaker over the five days.

The Indian rupee pulled stronger in the final two sessions of the week with USDINR down 0.2% on Friday to 85.6375. Turkish lira also pulled modestly strong on Friday with a dip of 0.1% in USDTRY to 39.228. Egyptian pound held steady for the week as a whole, closing at 49.6249.

Equities

Benchmark equity markets surged on Friday in response to the jobs data that ruled out any near-term rate cuts from the Fed. The Dow Jones added 1.1% on Friday while the S&P 500 gained 1% and the NASDAQ rallied 1.2%. European markets were also higher with a 0.4% rise in Euro Stoxx while the FTSE 100 added 0.3%.

Regional markets are closed for Eid holidays.

Commodities

Oil prices ended Friday higher thanks to near-term optimism spurred on by the US jobs data while news that the presidents of both China and the US have held discussions helped to push optimism that a trade deal could be reached. Brent futures added 1.7% to USD 66.47/b while WTI added 1.7% to USD 64.58/b.

Industrial metals were broadly weaker on the LME at the end of last week with a drop of 0.5% in copper forwards to USD 9,693/tonne. Gold dipped by 1.3% to USD 3,310/troy oz.