Non-oil economy in Abu Dhabi jumps in Q2

Abu Dhabi’s non-oil GDP now accounts for more than half of the emirate’s total GDP after growing 12.3% y/y in Q2 2023. This was more than double the non-oil GDP growth of 6.1% y/y recorded in Q1 2023. Headline real GDP growth in Abu Dhabi slowed to 3.5% y/y in Q2 from 3.9% y/y in Q1. The statistics centre identified construction, financial services, manufacturing and transport as among the fastest growing sectors last quarter. Separately, Abu Dhabi announced it would provide 100 investment opportunities in the industrial sector by 2027, with 33 of these in the chemicals segment.

The ISM manufacturing index for the US improved in September to 49, its strongest level since November last year though still signalling contraction in the sector. The production, employment and new orders components of the index all performed well in September even if they still remain below 50. Prices paid dropped relatively sharply, down 4.6pts m/m to 43.8 even though there had been a rise in some benchmark commodity prices in the past several weeks. The index is likely to be disrupted in upcoming prints by the impact of the UAW strike, not just for complete auto production but also for parts and related industries.

Turkey’s manufacturing PMI improved in September to 49.6 from 49 a month earlier. The index has been below the 50 threshold separating expansion from contraction for the past three months while the new orders subcomponent increased to a still contractionary 47.6 in September from 46.3.

There was commentary from several Fed speakers overnight, all of which leant into a hawkish narrative on rates. Michael Barr, the vice-chair for financial supervision, said the biggest question was “how long we will need to hold rates at a sufficiently restrictive level” rather than necessarily committing to further hikes. Loretta Mester, president of the Cleveland Fed, said that she suspected the FOMC would need to “raise the fed funds rate once more this year” while governor Michelle Bowman said she expected “that further rate increases will likely be needed to return inflation to 2%.”

Today’s Economic Data and Events

• 09:00 IN S&P Global India manufacturing PMI September
• 11:00 TU CPI y/y Sept: forecast 61.6%
• 18:00 US JOLTS job openings Aug: forecast 8.83m

Fixed Income

• The hawkish commentary from several Fed officials helped to push USTs lower at the start of the week. Yields on the 2yr UST rose 6bps to 5.1041% while the 10yr yields soared almost 11bps to 4.6785%. Markets are edging up expectations of a November rate hike from the FOMC to almost a one-in-three probability.
• Bond markets sold off in general overnight with high-yield and emerging market indexes both closing lower. EM bonds for the most part were weaker though the 10yr local currency Turkey yield dropped 35bps to 25.56%.
• Emirates NBD has mandated banks for a USD benchmark green bond issuance.
• Oman Telecommunications plans a USD 7yr benchmark sukuk.

FX

• The dollar extended its relentless rise against peers overnight, bolstered by a risk off move and rising treasury yields. EURUSD slumped more than 0.9% to 1.0477, its lowest level this year and threatening a return to parity. Sterling also closed sharply lower, down 0.9% at 1.2087 while USDJPY added 0.3% to 149.86.
• Commodity currencies showed no relief from the US dollar rally with USDCAD adding 0.7% to 1.3676 while AUDUSD fell 1.1% to 0.6363 and NZDUSD dropped 0.9% to 0.5947.

Equities

• Moves in US equity markets were mixed on Monday. The Dow Jones declined 0.2%, while the S&P 500 and the NASDAQ rose 0.01% and 0.67%, respectively.
• European equity markets closed weaker on the day, with the Euro Stoxx 50 index declining 0.89%, the DAX falling 0.91% and the CAC 40 dropping 0.94%. The FTSE 100 also dropped 1.28%. 
• Locally, the ADX rose 0.11% and the DFM picked up by 0.47%.

Commodities

• Oil prices dropped heavily overnight as markets responded to rate hiking commentary from Fed officials. December Brent fell 1.6% to USD 90.71/b while WTI dropped 2.2% to USD 88.82/b, failing to respond to messages from OPEC leaders that a lack of investment in oil and gas projects would lead to high prices.
• The UAE’s energy minister, Suhail al Mazrouei, said that OPEC+ had the “right policy” for oil markets in current conditions during the ADIPEC conference being held in Abu Dhabi. The minister noted that a lack of investment in oil and gas projections would risk oil market volatility and lead to higher prices, echoing comments from other industry leaders at the event.