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Emmanuel Macron won the French presidential election with 66% of votes against Marine le Pen’s 34%, in a result that was broadly in line with polls going into the weekend. While the euro rallied above USD1.10 briefly on the announcement, it has retreated since as the outcome was largely priced in. Macron’s victory removes one of the main event risks of this year, but the way ahead remains challenging. Parliamentary elections in June could yield a hung parliament which would make it difficult for Macron to implement his economic agenda.
US non-farm payrolls beat expectations on Friday, posting a 211k rise in April, up from (a revised) 79k in March. The unemployment rate fell to 4.4%, the lowest in nearly 10 years, and wages rose 0.3% m/m and 2.5% y/y, pointing to tightening labour market conditions. The data boosted market expectations of a Fed rate hike next month, with the implied probability of a June hike reaching 100% on Friday, up from less than 70% a week earlier. Key US data releases this week include CPI, retail sales and the University of Michigan consumer confidence index.
Saudi Arabia’s oil minister said that OPEC could extend the current agreement on cutting production into H2 2017 and possibly even beyond, as the organisation is “determined” to bringing global stock levels back to the five-year average. Oil prices have moved back below USD50/b after losing ground over the last three weeks.
In Bahrain, net foreign assets declined 11% to USD 1.7bn in February, less than one-and-a-half months’ import cover. The government will need to enact further fiscal reforms to reduce the budget deficit in the face of lower oil prices.
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Source: Emirates NBD Research
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| Time | Cons |
| Time | Cons |
| Germany Factory Orders | 10:00 | 0.7% | Canada Housing Starts | 16:15 | 215.0k |
Source: Bloomberg.
Strong economic data boosted the prospect of higher inflation and caused sovereign bond to fall across the developed world last week. Futures implied probability of a June rate hike in the US reached circa 92% and political reduced substantially after Macron’s decisive win in the French election over the weekend. Yields on 2yr and 10yr treasuries closed at 1.31% (+4bps) and 2.35% (+3bps) respectively while those on 10yr Bunds increased 10bps to 0.41% during the week.
Benchmark yield widened, oil prices fell below the psychological level of $50 / b and new supply talk remained heightened during the week. And yet, GCC bonds reflected surprising resilience. Though bond prices came off slightly from their all-time high touched in mid-week, overall yield on liquid UAE bonds actually closed the week lower at 3.06% (-3bps) and credit spreads tightened 10bps to 128bps over the week. Technical support for GCC bonds remain high and it generally doesn’t pay to underweight GCC bonds, nevertheless, we think a high level of caution is currently warranted.
In the primary market, another name got added to the prospective list of issuers with Moody’s assigning first time ratings of A1/stable to Qatar Islamic Bank. National Bank of Kuwait is planning to set up dollar bond program and Abu Dhabi Commercial Bank (ADCB UH) is also believed to be in plans to issue senior unsecured dollar bond after reporting a stellar quarterly result reflecting 1Q net of Dhs 1.11 billion vs expectations of Dhs 1.02 billion.
The Euro has lost ground against most of the other majors in the aftermath of the French election (see above). As we go to print, EURUSD trades 0.27% lower at 1.0969. With this said, the pair remains in an uptrend and we expect further short term Euro strength, with the pair likely to retest the days earlier highs of 1.10 shortly.
Today’s underperforming major currency is AUD which has softened against all other majors due to weaker than expected economic data. Building approvals declined 13.4% m/m and 19.9% y/y in March compared with expectations for declines of 4% and 10% respectively. In addition, in China (their major trading partner) imports grew 11.9% m/m in April compared with expectations for a gain of 18%. As we go to print, AUDUSD trades 0.35% lower at 0.7398 and remains vulnerable. We expect a descent towards our Q2 2017 forecast of 0.73 to follow shortly.
Asian equities are trading higher this morning following the victory of Emmanuel Macron in the France’s presidential election. The Nikkei index was trading +2.0% at the time of this writing.
Regional equities made a negative start to the week as weakness in oil prices weighed on investor sentiment. However, volumes continued to remain low with aggregate turnover of less than USD 1bn.
In terms of earnings, Emaar Malls reported Q1 2017 net profit of AED 539mn (+2.0% y/y), slightly ahead of expectations. Revenues remained flat at AED 836mn even as footfall increased 10%. The stock closed +0.8% ahead of the announcement.
With only a few weeks to go ahead of OPEC's next regular meeting the oil futures market is shuddering. Brent and WTI futures gave up more than 5% and 6% in the past week and have lost ground for three weeks running, their longest stretch of declines since November 2016. Both contracts have now moved below the USD 50/b handle and are trading lower than long-term moving averages. Both the Brent and WTI longer curves have moved back into contango, widening to as much as over USD 1/b for Dec 17-19.
Emirates NBD Research