25 January 2021
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Daily Outlook: ECB and CBRT keep rates on hold

The European and Turkish central banks kept policy unchanged last week as expected.

By Daniel Richards

  • The European Central Bank kept policy unchanged last week as expected, changing neither rates nor its target for asset purchases. However, Olli Rehn, a governing council member, downplayed the prospect of the ECB using an explicit yield curve control strategy. The flash Eurozone PMIs came in largely in line with expectations, with the composite PMI declining to 47.5 in January from 49.1 in December, reflecting the contractionary impact of tighter restrictions on the services sector in particular.  ECB President Lagarde noted the ECB’s forecasts already assumed a weak Q1 due to tigher restrictions to combat the spread of Covid.
  • The UK services PMI fell to 38.8 in January, well below consensus forecasts of 45.0, and down from 49.4 in December as tighter coronavirus restrictions had a negative impact on activity.  However, the manufacturing sector remained in expansion territory although here too, the PMI declined to 52.9 from 57.5 in December.  Lockdown rules look increasingly likely to be extended into March, as infection rates remain high even as vaccines continue to be rolled out. Retail sales in December were lower than expected at 0.4% m/m and 6.4% y/y excluding autos and fuel, and weakness in the sector is expected to continue at the start of 2021.     
  • In the US, President Biden signed a number of executive orders to boost food aid to low income households and ensure that millions of people who have not yet received last year’s stimulus cheques receive their funds.  He also instructed all federal contractors to pay a minimum wage of USD15/hr.  Executive orders are limited in what they can achieve, and the focus this week will be on building bipartisan support for a bigger fiscal package, although several republican senators have said they do not see the need for more support so soon after the last USD 900bn package was approved. Recent data would appear to support this view, as the US composite PMI rose to 58.0 in January from 55.3 in December, as both services and manufacturing activity accelerated. Initial jobless claims fell to 900k in the week to January 16 from 965k prior, while continuing claims also eased to 5.05mn from 5.27mn. Existing home sales in December were higher than forecast and up 0.7% m/m from November at 6.76mn.
  • The Turkish central bank held the benchmark one-week repo rate at 17.0% on Thursday. Reassuringly for markets, the bank’s communique indicated that the bank remained committed to the tight monetary policy which was instated by Governor Naci Agbal in October, in contrast to the cutting under the previous incumbent which had left real rates in negative territory and contributed to a lira sell-off. The text stated that the tight monetary policy would be maintained  for an ‘extended period until strong indicators point to a permanent fall in inflation and price stability.’
  • Saudi Arabia replaced Ahmed Alkholifey as central bank governor with Fahad Al Mubarak, who headed the central bank from 2011 to 2016.  Alkholifey was appointed an advisor to the royal court. In a separate announcement, Crown Prince Mohammed said the Public Investment Fund aimed to double in size to manage over USD1tn in assets by 2025, and confirmed it would invest USD 40bn per year in the domestic economy to support growth and create jobs over the next five years. 
  • The Saudi unemployment among nationals declined to 14.9% in Q3 2020 from a peak of 15.4% in Q2.  However, the rate remains above the 11.8% pre-pandemic level in Q1 2020.  Saudi employment in the private sector increased by 81.4k in Q3 2020, while expatriates employed in the private sector declined by almost 237k.  Overall employment in the private sector fell by around 155k in Q3, while public sector employment increased by 6.2k.  
  • The UAE cabinet has approved a strategy to develop the country’s local debt market, although there was no detail on the strategy. Dubai has introduced tighter restrictions on social gatherings and stricter rules for restaurants as the UAE faces increasing coronavirus infections. It has also rescheduled first doses of the Pfizer vaccines as the pharmaceutical company has restricted supply globally due to production issues.
  • Global FDI flows declined by 42% in 2020 as the coronavirus closed economies and disrupted trade and investment flows.  However, China saw FDI rise by 4% to USD 163bn, becoming the world’s largest FDI recipient.  High-tech industries in China benefitted from an 11% increase in FDI.  FDI into the US fell by 49%, while Europe saw FDI inflows decline by two-thirds.  The UK had no FDI in 2020 according to the UN Conference on Trade and Development.
  • There is plenty for the market to digest this week including company results for the December quarter, but the focus will likely be the FOMC meeting on Wednesday.  The Fed is expected to keep policy unchanged but the market will be looking for reassurance that the FOMC will not look to taper asset purchases this year. Preliminary estimates of US GDP in Q4 2020, and personal income and spending is also due later this week. The World Economic Forum also kicks off today, with Chinese President Xi Jinping scheduled to address the conference.

Fixed Income

  • US Treasuries oscillated in a holiday-shortened week but held within a 4bps range on the 10yr UST, moving between around 1.12% at the top end and 1.08% at the bottom. Markets ended the week essentially unchanged, however, at 1.0855% on the 10yr and 0.1209% on the 2yr.
  • Attention will focus this week on the FOMC meeting and what language, if any, Fed Chair Jerome Powell uses to describe the outlook for the US economy and whether the Fed is considering any pull back in monetary support. So far Powell has not endorsed any kind of view that would see the Fed's asset purchases tapered in the near term.
  • A general risk-on tone to markets last week, particularly in the US and Asia, helped to lift emerging market and high-yield bonds.
  • S&P affirmed its rating on Turkey at 'B+' with a stable outlook, noting the central bank was returning to a "more conventional policy rulebook."


  • The inauguration of US President Joe Biden had little effect on currency markets all things considered. Attention has now turned to rising coronavirus cases and the escalating restrictions placed in several countries. USD weakness remains entrenched across the board. The DXY index fell by -0.6% and closed at 90.212 with a break below the 90 handle looking increasingly likely. The JPY failed to establish any real momentum in either direction, ending the week only slightly worse off at 103.76.
  • Intraday movement among european currencies was wide.The EUR traded from lows of 1.2054 to highs of 1.2190 and closed at 1.2172, while sterling climbed to a fresh multi-year high of 1.3746 before settling at 1.3686, both currencies up by over 0.7%. Similarly the NZD also finished up by around 0.7% and sits just under the 0.72 figure, while the AUD closed the week just slightly better off at 0.7716. 


  • Global equity indices slid on Friday, weighed down by resurgent worries over lockdowns and the pace of the first half recovery. Nevertheless, the Friday sell-off was for most part not large enough to eradicate gains made in the preceding days on the back of optimism around the newly inaugurated President Joe Biden and his policies.
  • In the US, the NASDAQ was the biggest gainer, bolstered by strong reports from some of its largest constituent tech firms. It closed up 3.3% w/w, compared to a flat 0.02% for the Dow Jones and 1.2% for the S&P 500.
  • In Europe things were a little more mixed, as the DAX gained 0.6%, but the FTSE 100 and the CAC lost -0.6% and -0.9% respectively as there was speculation in both the UK and France that current restrictions on movement and activity might be deepened and/or extended.
  • Within the region, the DFM gained 0.5% w/w while the Tadawul closed -0.3% lower. In Egypt, the EGX30 gained 1.8% w/w..


  • Oil prices closed mixed last week with Brent futures adding 0.6% to settle at USD 55.41/b while WTI fell by 0.2% over the week and ended at USD 52.27/b. Markets seemed to discount the impact of US President Joe Biden’s initial moves on energy issues, at least for the short term.
  • Inventories in the US expanded last week, up 4.3m bbl, and the first weekly build since early December. Production was unchanged at 11m b/d while product supplied held flat at around 19.6m b/d.
  • Iran’s deputy oil minister has claimed the country is increasing its oil production and will hit pre-sanctions levels within two months. Market estimates pin Iranian production at around 2m b/d compared with levels of around 3.8m b/d when the country was freer to export under the terms of the JCPOA.

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Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics


Emirates NBD Research Research Analyst

Khatija Haque Head of Research & Chief Economist

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