IMF cuts growth outlook

• The International Monetary Fund  slashed its forecast for global economic growth, downgrading its forecasts for the second time this year, now projecting global growth of 3.6% in both 2022 and 2023, a drop of 0.8pp and 0.2pp , respectively, from its January forecast due to the war's direct impacts on Russia and Ukraine and global spillover. The war is expected to further increase inflation, the IMF said in its latest World Economic Outlook, warning that a further tightening of Western sanctions on Russia to target energy exports would cause another major drop in global output. The fund said other risks to the outlook include a sharper-than-expected deceleration in China prompted by a flare-up of Covid-19 lockdowns. They now expect medium-term global growth to decline to about 3.3%, compared to an average of 4.1% in the period from 2004 to 2013, and growth of 6.1% in 2021.
• The IMF has estimated that Ukraine's GDP will collapse by 35% this year, while Russia's output will shrink by 8.5% in 2022, while emerging and developing Europe, including both countries, will contract by 2.9%. They warned however, that further tightening of sanctions against Russia to include restrictions on energy exports could double Russia's GDP decline to 17% by 2023. The IMF said it had revised downward its medium-term outlook for all groups, except commodity exporters who benefit from the surge in energy and food prices. For 2022, it forecast inflation of 5.7% in advanced economies and 8.7% in emerging market and developing economies, a jump of 1.8pp and 2.8pp from January's forecast.
• Chicago Federal Reserve Bank President Charles Evans said the Fed could raise its policy target range to 2.25%-2.5% by year end and then take stock of the state of the economy, but if inflation remains high will likely need to hike rates further. Speaking at the Economic Club of New York, Evans noted some "positive" developments in the most recent US inflation report, which showed consumer prices rose 8.5% in March, but a slowdown in some goods inflation, including for used cars. If that continues, it could help push broader inflation down.  However, he added, the data could also go the other way, with Russia's invasion of Ukraine and the COVID-19 lockdowns in Shanghai adding to the supply chain problems that have been pushing inflation higher. 
• A report from the Commerce Department on Tuesday showed US single-family homebuilding and permits tumbled in March as soaring mortgage rates increased costs, but residential construction remains underpinned by a severe shortage of houses. Permits for future single-family homebuilding dropped 4.8% to a rate of 1.147mn units. However, building permits for housing projects with five units or more accelerated 10.9% to a rate of 672,000. That lifted overall building permits 0.4% to a rate of 1.873mn units last month. The backlog of houses approved for construction that are yet to be started increased 2.9% to an all-time high of 280,000 units in March. Housing completions dropped 4.5% to a rate of 1.303mn units, with single-family housing units plunging 6.4%. Multi-family home completions rose 1.0%. The inventory of single-family housing under construction increased 1.2% to a rate of 811,000 units last month, the highest since November 2006. Multi-family homes under construction increased 3.4% to a rate of 796,000 units.
• Gross bank lending in the UAE rose 0.8% y/y in December, the first annual growth since February 2021. Deposit growth also accelerated to 5.9% y/y from 4.8% in February.  Broad money supply grew 3.0% m/m and 5.7% y/y in December, the fastest annual growth since October 2020. The main driver of money supply growth in December 2021 was quasi money (fx and long-term dirham deposits) which rose 3.6% m/m followed by cash in circulation, up 2.3% m/m.

Today’s Economic Data and Events

16:30 CA Core CPI (MoM) (Mar) Forecast 0.5%   

18:00 US Existing Home Sales (Mar) Forecast 5.80M         

18:30 US Crude Oil Inventories Forecast 2.471M

Fixed Income

• A slew of Fed speakers opined on the near-term outlook for rates with views diverging somewhat from the hawkish assumptions in play in the market. Charles Evans, president of the Chicago Fed, said that rates will need to move up above neutral levels by the end of the year, estimating that it would be around 2.4%. Neel Kashkari, president of the Minneapolis Fed noted that inflation was “much too high” and that the Fed would need to do “more though our monetary policy tools” to tackle inflation while Raphael Bostic, head of the Atlanta Fed, cautioned against raising rates too much beyond neutral.
• Markets appear to have taken the commentary as still supportive of large moves in the near term and the 2yr UST yield added 14bps to 2.5915% while the 10yr added 8bps to 2.9361%. The curve bear flattened by 6bps to around 34bps.
• European bond markets re-opened after the Easter weekend with a downward bias. Yields were higher across Eurozone bonds with 10yr bund yields adding almost 7bps to 0.906% and the 10yr French bond yields adding 5bps to 1.377%. Gilt yields jumped 8bps to 1.965%.
• South African bonds fell sharply with yields adding 17bps to 10.266% while Indian 10yr yields held steady at 7.152%.
• The Islamic Development Bank has mandated banks for a USD-denominated 5yr sukuk of benchmark size.
• Fitch downgraded seven banks in Qatar owing to rapid loan growth and external financing pressures. Qatar National Bank had its rating cut to ‘A’ from ‘A+’ while Qatar Islamic Bank, Doha Bank, The Commercial Bank, Qatar International Islamic Bank and Dukhan Bank all had their ratings lowered to ‘A-‘ from ‘A’.

FX

• The dollar continues to push higher as yields rise and the broader economic outlook becomes more and more uncertain. The DXY index added 0.18% to 100.961 overnight though EURUSD for a change didn’t provide much of the gains. The single currency managed a modest appreciation to close at 1.0788. Rather it was the still climbing yen that is helping to push the dollar index higher at the moment, with USDJPY adding more than 1.5% overnight to 128.91. Even as the currency depreciates rapidly, the BoJ is still maintaining an accommodative stance, offering this morning to buy unlimited amounts of 10yr JGBs to keep yields at 0.25%.
• Sterling slipped below the 1.30 level overnight, closing down 0.16% to 1.2998. In commodity currencies USDCAD held steady at around 1.2618 while both AUDUSD and NZDUSD rose; up 0.34% and 0.09% respectively.

Equities

• US markets closed higher overnight even as yields jumped considerably higher. The Dow Jones index added 1.5% while the S&P climbed 1.6% and the NASDAQ jumped more than 2%. European markets opened after the Easter break negatively with the FTSE down 0.2% and the DAX off by 0.07%.
• Asian markets are again mixed today with the Nikkei adding 0.5% while the Hang Seng and Chinese indexes are pushing lower as there are no imminent signs of China easing its restrictive Covid-19 measures.
• The DFM added 1.6% overnight while the ADX was lower, down 0.4%. The Tadawul dropped by almost 1.7%.

Commodities

• Commodity prices were generally weaker, including oil, as the IMF lowered its global growth expectations and as the market grapples with China maintaining its restrictive measures to control Covid-19. Brent futures fell 5% to USD 107.25/b while WTI dropped a similar amount to USD 102.56/b.
• Data from the API showed a drop in US crude inventories of 4.5m bbl last week. Official numbers will be released later today with focus on whether the SPR release is starting to be felt in the market.
• Bruno le Maire, the prime minister of France, said it was “more important than ever” for the EU to put an embargo on imports of Russian oil. Were the EU to cut off Russian oil and products from its market, oil balances would tighten considerably. 

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