Economic data takes second place to geopolitcal risk

Economic data is to some extent taking second place to event risk as the main driver of market sentiment at the moment.

By Emirates NBD Research

Economic data is to some extent taking second place to event risk as the main driver of market sentiment at the moment. Although the outlook for growth remains encouraging the frequent question is whether geopolitical risks could still derail it.

Global macro: The last month has seen event risk begin to crowd out economic data as the main driver of market sentiment. But even as far as the US economy is concerned there have also been hints that all is not what it seems, with weaker ‘hard’ data starting to contrast with the relative resilience of surveys.
GCC macro: PMI data indicate a solid recovery in non-oil sectors in the UAE and Saudi Arabia in Q1 2017, which should help to offset lower hydrocarbon growth.
Non-GCC macro: The Egyptian economy’s rebalancing process following last year’s devaluation appears to be proceeding in an almost textbook fashion.
Emerging Market Focus: India is one of the bright spots in emerging markets at the moment following the success of the government in rolling out key reforms and stability in terms of growth.

Interest Rates: Yield curves shifted downwards across the developed world as exuberance for the Trump trade faded and safe haven bids escalated amid rising geopolitical risks even though economic data remained robust.
Credit Markets: Bond investors had a constructive month as benchmark yields diminished and credit spreads remained range-bound.
Currencies: The FX markets spent the last month largely driven by rising event risk stemming from deteriorating relations between the US and Russia over Syria, the ratcheting up of risk aversion over North Korea, and more recently the surprise announcement of a UK general election.
Equities: Over the last one month, global equity markets have shown greater resilience to negative surprises compared to other asset classes. This can be put down to continued momentum in growth across economies accompanied by better than expected corporate earnings.
Commodities: Three months into OPEC's production cut agreement market signals are still mixed on how effective it has been in balancing markets. Prices appear to have found a floor thanks to OPEC action but have yet to rally significantly to levels to support OPEC economies.