Lebanon and IMF reach conditional loan agreement

• There were further signs of strength in the US labour released overnight with initial jobless claims in the week to April 2nd falling to 166,00. That was a considerable drop from the more than 200k estimated for the prior week and well under market expectations. The weekly number was actually lower than pre-Covid levels, giving a signal as to how strong the labour is performing at this stage, even in the face of high inflation and the prospect for aggressive Fed tightening.
• Minutes from the ECB’s March meeting highlighted that the central bank is still divided on how to respond to the economic and inflation pressures caused by the war in Ukraine. Some policymakers were looking to bring asset purchases to an end and start to raise rates by Q3 while others reportedly wanted to hold off until the economic impact of the conflict became clear. The ECB has made an initial hawkish shift but compared with the Federal Reserve still looks well behind on the pace to normalize policy.
• The IMF has announced that it has reached staff-level agreement with Lebanon on the economic policies for a new four-year extended fund facility. However, the Lebanese authorities have to implement a list of eight ‘critical reforms’ ahead of board-level approval, so while this is certainly progress after a protracted negotiation with the fund, the political impasse in the country has to now stymied the wide-ranging reforms called for by the Fund and other bilateral partners in order to secure funding. These eight measures include ‘cabinet approval of a bank restructuring strategy’, a ‘reformed bank secrecy law’ and cabinet approval of a ‘medium-term fiscal and debt restructuring strategy.’ If Lebanon secures the EFF of USD 3bn, reforms to be implemented as part of the programme include a single exchange rate and capital controls, reforming state-owned enterprises, and strengthening governance and fiscal reforms, all of which the government parliament has struggled to achieve to date.
• Egypt’s net foreign reserves dropped to USD 37.08bn in March, down from nearly USD 41bn a month earlier. According to the Central Bank of Egypt, the forex reserves were used to “calm makers during periods of exceptional stress” caused by external factors. Last month the CBE surprised markets with an earlier than expected 100bps hike, taking overnight lending rates to 10.25%.

Today’s Economic Data and Events

08:30 IN RBI Repo rate: forecast 4%

16:30 CA Unemployment rate March: forecast 5.4%

Fixed Income

• US Treasuries continue to absorb the hawkishness of the March FOMC minutes and the curve is bear steepening. Yields on the 2yr UST were down marginally at 2.4595% while the 10yr yield added 6bps to close at 2.6578%. The 2s10s spread closed overnight at 19bps, its highest level in the last two weeks.
• European bond markets were weaker as a rule overnight as the ECB continues to dither on its plans to normalize policy. Yields on 10yr bunds rose 3bps to 0.677% while the 10yr gilt yield rose to 1.726%, up 2bps.
• S&P affirmed their sovereign rating on Kuwait at ‘A+’ with a negative outlook. FAB priced a CHF 200m 4yr green bond at MS+54, in line with initial price guidance.

FX

• The dollar remained bid overnights, gaining for six days in a row on the broad DXY index which rose 0.15% to 99.751. The ECB minutes did little to flatter the single currency and EURUSD fell 0.16% to 1.0879, falling six days running. USDJPY also continued to rally, up 0.12% at 123.95 while has been relatively stable in the last few days, holding at around 1.3070-1.3080.
• Fading commodity prices are taking their toll on the Canadian and Australian dollar. For the loonie, USDAD added 0.37% overnight to 1.2591 while AUDUSD fell by 0.4%, unwinding further the RBA’s tentative shift toward tighter policy. In New Zealand, NZDUSD fell 0.4% to 0.6891.

Equities

• Global equity markets were mixed overnight with the main US indices closing positively. The Dow added 0.25% while the S&P rallied up 0.4%. The tech-centric Nasdaq was the relatively laggard but still managed to edge higher.
• In Europe, markets were broadly negative. The EuroStoxx 50 index fell by 0.6% while the FTSE was dragged down almost 0.5%.
• In early trading today Asian markets are pushing lower. The Nikkei is off by 0.3% while the Hang Seng has fallen almost 0.8%.
• Locally, the ADX lost -0.7% but the DFM and the Tadawul both closed 0.4% higher. Egypt’s EGX 30 lost -2.2%.

Commodities

• Oil prices were again on the back foot with Brent down 0.5% to USD 100.58/b and WTI closing at USD 96.03/b, down 0.2%. The aggressive tone of the Fed as well as the release of strategic oil reserves from the US and its allies are weighing on oil in the near term but perhaps most critically is the impact of Covid, an echo in many parts of the world, but still causing economic pain in China. Lockdowns across major parts of the economy there will remain a negative signal for oil demand as we move into Q2.
• The IEA released details of its coordinate of SPR releases over the next six months. The US will contribute the bulk, providing more than 60m bbl while the UK will provide 4.4m bbl, Japan 15m and South Korea 7.2m bbl.

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