Demand for credit instruments remains strong in the UAE

Results from the quarterly UAE Central Bank credit sentiment survey point to robust demand for credit instruments in Q4 2022. The report highlights strong demand from corporates and small businesses across all emirates, with particularly robust demand coming from firms in the retail and wholesale space. There was also continued growth in demand for credit from individuals, though at a slower pace than mid-2022. Amongst consumers, demand was highest for credit cards and Islamic loans. 

A report in Gulf News, based on data from Network International, also suggests that there was solid consumer spending in the final quarter of the year, with the total value of payments processed for consumers domiciled in the region up 21% y/y. There was also a striking 28% y/y uptick in in the value of payments processed for international consumers, highlighting the UAE’s popularity as a travel destination.    

The December retail sales figures for the UK may point to a weakening in the economic outlook, which had until recently surprised on the upside with positive m/m GDP growth in November. Both the volume and value of UK retail sales (including auto fuel) fell in December. The volume of retail sales fell -1% m/m, significantly lower than the consensus expectations for a 0.5% m/m rise. This move means that the volume of retail sales remains below the pre-covid February 2020 level. The decline in volumes was broad-based, with the largest drop coming from “other” non-food stores, which fell -6.2% m/m.

Sales of previously owned US homes fell -1.5% m/m in December. Although that was better than consensus expectations of a -3.5% fall on the month, it still means that for the year there were only slightly more than 5 million existing homes sold, amounting to a -17.8% drop y/y from 2021. The US housing market has come under significant pressure as the Fed raised interest rates in 2022, with mortgage rates rising to their highest levels in nearly two decades.

Key data releases for the week ahead will include initial PMI readings for January for several major economies. Expectations are for a slight pick-up in the Eurozone PMI reading, which would see it close to the neutral-50 mark. This would be consistent with other recent data releases which have all pointed towards the possibility of a shallower slowdown in the bloc than had previously been anticipated.  

Today’s key economic data and events

• 19:00 US Conference Board Leading indicator (Dec) forecast -0.7% m/m
• 19:00 Eurozone consumer confidence (Jan) forecast -20

Fixed Income

• The rally in US Treasuries faded somewhat at the end of last week as a hawkish tone from ECB and Fed officials suggested that central banks weren’t prepared to turn more accommodative just yet. The 2yr UST yield added 4bps on Friday to close at 4.1702%, not enough to stop a weekly gain for the underlying, however. Yields on the 10yr closed up Friday by 9bps to 3.4787%.
• The selling in benchmark government bonds looks to have started in Europe where ECB officials have come out in favour of maintaining a hawkish stance—meaning 50bps hikes—at upcoming meetings. Bund yields closed up 12bps at the end of the week to 2.167% while Italian 10yr yields jumped 21bps to just shy of 4%. Gilt yields also moved higher, closing up 10bps on Friday at 3.37%.
• Bond markets generally closed Friday on offer with an index of high-yield bonds closing with a downward bias while emerging market USD-bonds also settled lower.
• South Africa will be the focus for emerging market central banks this week with a 50bps hike expected on January 26th.

FX

• The dollar dropped against most peer currencies last week even as some Fed officials continued to talk up the need for persistent aggressive action to be taken on inflation. The broad DXY index fell 0.19% to 102.012 with much of the losses owing to a decent bounce for GBPUSD, up 1.4% w/w to 1.2397. EURUSD also rallied, up 0.2% to 1.0856 as a chorus of hawkish ECB officials helped to boost the single currency. USDJPY though gained as the Bank of Japan kept its monetary stance accommodative after December’s shock move to increase the upper limit for its yield curve target.
• Commodity currencies closed mixed against the dollar last week. USDCAD fell 0.1% to 1.3381 to the favour of the loonie while AUD lost ground against the dollar, dropping 0.1% to 0.6963. NZDUSD was the best performer amongst the bloc, adding 1.2% last week to 0.6449.

Equities

• US equities rallied on Friday but aside from the NASDAQ, which ended Friday up 1.3% w/w, it was not sufficient to offset losses earlier in the week as the S&P 500 and the Dow Jones ended down 0.3% and 2.4% respectively. Pushback on the prospect of slowing rate hikes, alongside worsening macroeconomic indicators, have weighed on sentiment.
• European equity markets have been similarly under pressure from messaging from the ECB, and the trend was lower over the bulk of the week, with some losses recouped on Friday. The composite STOXX 600 ended down 0.1% w/w, with the CAC and the DAX both dropping 0.4% and the UK’s FTSE 100 1.0%.
• There was more positivity in Asian markets as the Chinese reopening continued to drive sentiment. The Hang Seng closed up 1.4% w/w and the Shanghai Composite 2.2%. Japan’s Nikkei added 1.7%, bolstered by no real change to the BoJ’s loose monetary policy stance.
• Locally, the DFM gained 0.9% w/w while the ADX lost 0.2%. Saudi Arabia’s Tadawul ended the week 0.6% lower while Egypt’s EGX 30 gained 3.3% and is now up 10.0% ytd in local currency terms.

Commodities

• Oil prices rallied a second week running with Brent futures up 2.8% to USD 87.63/b while WTI added 1.8% to USD 81.31/b. Positivity around China’s demand recovery, along with the IEA’s warning that even record oil supplies wouldn’t be enough to meet demand this year should help to underpin further gains in oil futures.
• The US and its allies have agreed to impose a price cap on exports of Russian refined products, similar to the cap imposed on crude exports. An EU embargo on importing Russian refined products goes into effect in February.

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