IMF upgrades global growth projections

• The IMF has revised upward its projection for global GDP growth in 2021 to 6% according to the fund’s latest World Economic Outlook. That compares with an initial projection of 5.5% for this year. All major economies received upgrades to their growth forecasts with the US projections of 6.4% growth representing a 1.3ppt increase on the prior estimate. China’s outlook was also upgraded by 0.3ppt to 8.4% while India received a boost of 1ppt to expected growth of 12.5%.
• For the Middle East and Central Asia region the IMF raised their outlook to growth of 3.7% from 3% previously. For Saudi Arabia, the fund projected growth of 2.9% this year and accelerating to 4% in 2022 while in the UAE they expect to see growth of 3.1% for 2021 before a slightly slower pace of 2.6% in 2022. The IMF’s projections for this year are considerably higher than our own expectations of 1.4% growth in the UAE and 0.7% in Saudi Arabia. We expect that oil production will remain a drag on growth thanks to OPEC+ still adopting output restraint while signs of activity in the non-oil sector are still muted. Egypt’s economy is projected to rebound by 2.5% before an acceleration to 5.7% in 2022. A more detailed Regional Economic Outlook for the MENA region will be published by the IMF next week.
• The upward revisions were mainly down to the progress of Covid-19 vaccines as well as large fiscal support, particularly from the US. However, the IMF was cautious to note the two-speed nature of the recovery with some economies powering ahead, thanks to policy support and vaccines while lower income countries may be at risk of lagging behind owing to limited policy flexibly.

Today’s Economic Data and Events

0830 IN RBI Repurchase rate: forecast 4%

09:00 IN Services PMI: forecast n/a

12:00 EC Composite PMI: forecast 52.5

12:30 UK Composite PMI: forecast 56.6

22:00 US FOMC Minutes March

Fixed Income

• US Treasuries extended their gains overnight as markets push aside inflation fears and expectations of an earlier move by the Fed are abating. Yields at the front end of the curve dipped by around 1bps on the 2yr UST while the belly saw the most movement with 5yr yields down almost 5bps to 0.8721% while the 10yr was down more than 4bps at 1.656%. A synchronized mover lower in inflation breakevens and real yields came despite another upward revision to US GDP forecast, this time from the IMF.
• Emerging market bonds in our universe were generally supported overnight with yields on Turkish 10yrs down 14bps at 17.41%, South African yields off by around 9bps at 9.429% on the 10yr while Indian 10yr bonds are hovering around 6.12% ahead of the RBI later today which is expected to keep rates on hold.

FX

• It was another day of dollar selling overnight although the performance was more mixed across currency pairs. The broad DXY index fell by 0.28% to 92.335 with most of the losses coming from higher EURUSD—up 0.5% to 1.1876—and lower USDJPY—settling at 109.75, down 0.4%. The recent dip in UST yields may be dimming the near-term outlook for the dollar although we still are of the view that strong growth in the US economy will allow the dollar to outperform both EUR and JPY.
• Sterling was a notable underperformer with GBPUSD down 0.55% at 1.3824. Expectations of more easing of travel restrictions have been pushed back while UK policymakers continue to warn about the possibility of a jump in Covid-19 cases as restrictions ease this month.
• CAD was the main loser among commodity currencies, weakening by 0.3% against the USD while AUD added about 0.2% and the NZD was unchanged.

Equities

• US equity markets were fairly muted after the records hit on Monday, with all three major indices closing marginally lower. The Dow Jones and the S&P 500 lost -0.3% and -0.1% respectively, while the NASDAQ closed down shy of -0.1%.
• After being closed on Monday, European equities started the week on a positive note, with the UK in particular seeing strong gains as the FTSE 100 gained 1.3% and the FTSE 250 regaining pre-pandemic levels. Leisure and hospitality firms did especially well on the back of the plans to ease lockdown. On the continent, the CAC gained 0.5% and the DAX 0.7%.
• Within the region the DFM closed flat yesterday, while the Tadawul gained 0.2%. In Egypt, the EGX 30 closed 0.1% higher.

Commodities

• Oil prices managed to slip in a gain of around 1% overnight across Brent, WTI and Murban markets, bolstered by stronger global growth forecast from the IMF. The EIA lowered its forecast for US supply this year to 11.04m b/d compared with 11.15m b/d previously. The lower pace takes into account the effects of cold weather in February which shut in considerable parts of US production.
• Elsewhere the API reported a drop in US crude stocks of 2.6m bbl last week along with a 4.5m bbl in gasoline inventories. The EIA data covering inventories will be released later this evening.

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