07 May 2020
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Economic data points to a sharp contraction in global growth

The last few days have seen a number of updated activity readings around the world for the month of April, all of them signaling very sharp contractions.


By Emirates NBD Research


The IHS Markit PMI for India’s service sector came in at 5.4 for April compared to 49.3 in March. The extreme reading was understandable given that the entire country was in complete lockdown for the whole month. The historical comparison with GDP data suggests that India’s economy contracted at an annual rate of 15% in April. Given that manufacturing PMI earlier in the week came in at 27.4, the overall composite index dropped to 7.2 in April compared to 50.6 in March. While restrictions have been partially eased since the start of May 2020, one needs to bear in mind that the services sector is likely to see a much slower revival compared to the manufacturing one. Data released from China earlier today confirmed the same with Caixin Services PMI rising only marginally to 44.4 in April compared to expectations of 50.1 and previous month’s reading of 43.0.

The last few days have seen a number of updated activity readings around the world for the month of April, all of them signaling very sharp contractions. While the US ISM non-manufacturing index fell from 52.5 in March to ‘only’ 41.8 in April, this was on account of an artificial boost from a surge in supplier delivery times, a phenomenon not dissimilar to many of the PMI readings seen recently including for this region which have flattered the headline result. As we pointed out earlier in the week normally longer lead times denote strong demand, but in current circumstances they reflect company and border restrictions related to coronavirus. The fall in the ISM’s business activity index to a record low of 26.0, from 48.0, probably better reflects the reality of what happened to the non-manufacturing sector last month, with similar scale of declines seen in the new orders and the employment indices.

Of course the main economic release awaited this week is the US employment report which is due tomorrow. The scale of the drop in non-farm payrolls expected is of historic proportions, given that we already know that over 30 million people have claimed unemployment benefits over the last few weeks. The consensus expectation is for payrolls to fall in excess of 20 million, with the 20,236,000 decline in the ADP private sector jobs report released yesterday seemingly corroborating this likelihood.

The value of Dubai’s foreign trade declined -4% y/y in Q1 2020 to AED 323bn.  While the value of exports rose 2% y/y, the value of both imports and re-exports contracted on an annual basis.  This is consistent with the declining volume of world trade, due to the disruption of supply chains and weaker global demand on the back of the restrictions imposed to contain the spread of the coronavirus. 

Iraqi lawmakers have appointed a new prime minister yesterday, some six months after Adel Abdul Mahdi resigned in the midst of regional protests which began in October in Iraq and elsewhere. The new PM, Mustafa al-Kadhimi, is reportedly acceptable to both Iran and the US. The delay to forming a new government was owing to the usual squabbling between parties over cabinet appointees, and the final line up is still not finalised after several candidates were rejected.

India's composite PMI drops to single digits

Source: Bloomberg, Emirates NBD Research

Fixed Income

Treasuries closed mixed as the long-end of the curve traded lower following Treasury Department’s quarterly refunding announcement which unexpectedly increased longer-tenor auction sizes. The curve steepened with yields on the 2y UST and 10y UST ending the day at 0.17% (-1 bp) and 0.70% (+4 bps) respectively.

Regional bonds closed flat amid mixed global cues. The YTW on Bloomberg Barclays GCC Credit and High Yield index remained at 3.85% while credit spreads tightened marginally to 318 bps.

Bahrain has hired banks for a potential offering of a dual-tranche dollar bond issuance, consisting of 4-1/2-year sukuk and 10-year conventional bonds. The issuances, if followed through, will come as Bahrain faces mounting pressures on its budget, which is one of the least diversified in the region with oil & gas revenues making up over 70% of total revenue last year.  While Bahrain plans to lower spending this year, a sharply lower oil price as well as lower non-oil revenues will likely outweigh any reduction in operating expenses.  


The Euro and the Pound experienced losses on Wednesday following poor PMI data, with the EU facing its worst economic downturn in history. The European Commission said that the region's economy is set to shrink 7.7% this year after the drastic measures put in place to limit the spread of the coronavirus. The Euro dropped to its lowest level since April 24th, now trading at 1.0800, whilst the Pound fell for a fourth day, its longest losing streak since March 19th, trading at 1.2320.

 The DXY index saw the dollar make some gains to breach the 100.00 level at 100.150 whilst the JPY made gains for the 10th time in 11 days to reach 106.20. Meanwhile the AUD and NZD experienced modest declines, dropping by 0.20% and 0.45% respectively. 


Developed markets closed lower as investors took into account mixed corporate earnings and weak economic data. The S&P 500 index and the Euro Stoxx 600 index lost -0.7% and -0.4% respectively. Technology stocks continue to outperform broader markets. The Nasdaq gained +0.5% to trim its ytd losses to -1.3%.

Regional equities continue to track moves in broader markets and changes in oil prices. The DFM index and the Tadawul lost -0.7% and -0.8% respectively. Market heavyweights led the losses across markets.


Oil prices snapped their recent winning streak although both WTI and Brent futures recorded relatively modest declines for the current conditions. Brent closed back below USD 30/b, down 4% overnight, and is holding relatively flat this morning while WTI was off by 2.3% to settle at USD 23.99/b and is likewise treading water in early trade today.

EIA data showed another build in crude stocks of 4.6m bbl, the smallest weekly gain since the end of March. However, there were large builds in distillates (more than 9.5m bbl) and total product and crude stocks rose by almost 18m bbl last week. Production in the US slipped sharply last week, down by 200k b/d to 11.9m b/d while implied demand slipped again by around 400k b/d. However, as some states experiment with ending their lockdowns gasoline demand actually improved by 800k b/d whereas most ‘industrial’ or commercial fuel demand remains poor.

Aramco has again delayed the issuing of its official selling prices for June as it calibrates pricing levels to the new oil supply conditions. An aggressive cut to capture more of a constrained market share may rub up against other OPEC+ producers negatively so the pricing levels may be as much political as commercial going forward.

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Written By


Emirates NBD Research Research Analyst

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