Global markets remain under pressure

• With no major economic data to act as a catalyst, financial markets continue to whipsaw in evaluating the contrasting impacts of high inflation and rising rates, a substantial slowdown in China’s economy and no apparent imminent resolution of the war in Ukraine. Currencies swung between sharp losses against the dollar to settling higher while equity markets and commodities pummeled lower. Markets will likely remain volatile until the US CPI numbers for April are released later this week which may help to give a signal for the next move.
• The Eurozone’s Sentix consumer confidence index released yesterday illustrated the worsening economic environment as it fell to -22.6, from -18.0 in April. This was lower than predicted and marked the weakest reading since June 2020 at the peak of the pandemic crisis.
• Oman recorded a budget surplus of OMR 357m in Q1 this year as oil prices have surged to well above USD 100/b. After several years of deficits, we expect that Oman will record an annual budget surplus of around 7% of GDP this year amid high oil prices and increasing oil production. That would present the first annual surplus since 2008 even as Oman has slowed the pace of expenditure over the last several years.

Today’s Economic Data and Events

• 13:00 GE ZEW Survey expectations May: forecast -43.5

Fixed Income

• The US yield curve continued to bull steepen although caused this time by strengthening US Treasuries. Yields on the 2yr UST fell almost 14bps overnight to 2.5938% while the 10yr UST yield dropped 9bps to close at 3.0338%. The 2s10s spread moved up to as high as 50bps at one point before settling back to around 40bps, still its highest level since February.
• Stronger government bonds was the theme in Europe as well, albeit by a lesser degree. Yields on the 10yr bund dropped more than 3bps to 1.091% while the 10yr gilt yield fell 4bps to 1.953%.

FX

• After starting the day sharply negative against the dollar, EURUSD reversed course mid-day and actually managed to settle the day slightly stronger, up just under 0.1% at 1.0561. Japanese yen showed a similar move, getting up close to 131.50 before ending the day at 130.29, down 0.2% in favour of the yen.
• Elsewhere though currencies more linked to risk fell uniformly. GBPUSD managed to stem its losses to just 0.1% to 1.2332 after having dipped to as low at 1.2260. Commodity currencies were routed: USDCAD rose 1% to 1.3011 while AUDUSD fell 1.7% to 0.6952 and NZDUSD dropped more than 1.3% to 0.6324.

Equities

• There were more losses for global equity markets yesterday following the sharp sell-offs seen last week. The day started with a -2.5% loss for Japan’s Nikkei index, followed by losses across the board in Europe. The DAX, the FTSE 100 and the CAC lost -2.2%, -2.3% and -2.8% respectively.
• In the US all three major indices closed down again. The NASDAQ continues to be the most affected by the shift in monetary policy, dropping 4.3% on the day. The index is now down -25.7% ytd. The Dow Jones dropped -2.0% and the S&P 500 -3.2%.
• Locally, the Tadawul closed almost flat while the ADX lost -0.7% and the DFM -2.0%.

Commodities

• Oil prices came off heavily at the start of the week, down by 5.7% in the Brent market to USD 105.94/b while WTI dropped by more than 6% to USD 103.09/b. The broad sell off in financial markets will have contributed to the weakness in oil while the EU also looks to be moderating some of it planned restrictions on trading in Russian oil.

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