Monthly Insights - May

Economic data has been surprisingly resilient in developed economies over the last month, with services activity holding up particularly well. At the same time, inflation has proved stickier than anticipated, and the market has swung from pricing a 40% probability of a rate cut from the Fed at the July meeting (in early May) to a nearly 60% probability of a rate hike at the June meeting currently. Our base case remains that the Fed will likely pause for now, and assess the data over the next month. We have raised our forecasts for both the ECB deposit rate (to 3.75%) and the BoE base rate (to 5.25%) by end September, reflecting stronger than expected growth in H1 2023 and still high inflation.

Oil prices have staged a quiet recovery in May, and the OPEC+ ministerial meeting this weekend could be lively as ministers debate additional cuts. We think the most likely outcome is that OPEC+ will maintain the status quo, with the market already projected to be in deficit in H2.

The GCC economies continue to show resilience to the weaker global backdrop, with the PMI survey data pointing to improving business conditions in April. FDI has been a key driver of activity in Dubai, with the latest estimates showing an 80% increase in FDI into the emirate last year.

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