Despite geopolitical tensions, markets remain relatively calm

Despite a recent rise in geopolitical tensions between in Asia the markets reacted relatively calmly with the summer lull still largely upon us.

By Emirates NBD Research

Despite a recent rise in geopolitical tensions in Asia, the markets reacted relatively calmly with the summer lull still largely upon us. This is because investors have taken a relatively benign view of the risks, and are being reassured by the recent pattern of encouraging economic data.

Global macro: The summer months are passing by with optimism about the global economy being maintained. If anything the signs are that growth momentum is picking up, with the US, the Eurozone and Japan all posting strong Q2 GDP readings.
GCC macro: At the half year mark, we review developments in the banking sectors of the largest GCC economies. While total bank deposits in the banking systems increased in H1 2017, this has been largely due to increased public sector deposits and masks some underlying trends.
Emerging Market Focus: India
Rates: Weaker than expected inflation data in the developed world caused widespread declines in sovereign yields during the month. In addition, the risk-off tone triggered by increased tension between the US and North Korea led to a mini rally in safe haven assets.
Credit: Falling benchmark sovereign yields boosted corporate bond prices despite slight increase in credit spreads. GCC bond investors benefited from positive sentiment arising from improvement in oil prices and minimal new supply in the summer months.
Currencies: After a summer spent in the doldrums, the dollar has begun August with a little more promise as the latest economic data has provided some reassurance about growth. Although we still remain bullish on the dollar through the rest of the year, we have moderated its profile as contrasting economic and political forces could keep it trading skittishly for a while to come.
Equities: Global equities have taken the negative political risks in their stride and continued their positive run. They appear to be drawing their strength from upbeat corporate earnings, a widening base to economic growth and a benign inflation outlook.
Commodities: Industrial metals have rallied strongly in Q3, outperforming gold and oil. Specific causes are discrete to each metal but prices may be brought down to earth as rallies have outpaced fundamentals.