November Insights

Markets appear to be at an inflection point as bond yields soar and the dollar surges in the wake of Donald Trump’s surprise election win. Should these trends continue in 2017 they will add headwinds to regional growth and may make sovereign debt issuance more expensive.  The next edition of this publication will be in January. We wish all our readers a peaceful and enjoyable holiday season.

• Global macro: After a tumultuous start to the year dominated by China risks and oil, in the end the black swans of Brexit and the Trump election eclipsed them as the signature events of the year.
• GCC macro: Economic activity in the GCC was relatively robust in Q3, with evidence of expansion in both the oil and non-oil sectors.  However, additional fiscal tightening in Saudi Arabia and the likely impact on consumption and investment has led us to revise our 2016 and 2017 growth forecasts down to 1.4% and 1.8% respectively.    
• MENA macro: Following the long-awaited devaluation of the Egyptian pound in early November, attention might soon shift to MENA’s other currencies which could also be at risk of coming under significant downside pressure in the near term.
• Sector Focus: An overview of Dubai’s real estate sector.
• Fixed Income: The surprised outcome of the US election caused violent market gyrations and a material sell off in bonds last month. Sovereign bond yields spiked and corporate bonds suffered in tandem despite some relief from stable commodity prices supporting credit spreads tightening.
• Currencies: Confounding most expectations about the impact of a Trump election win the USD has surged as markets race to price in the effects of Trump’s economic policies.
• Equities: For the second time this year, equity investors were caught off guard by developments in the political world. However, what was remarkable was the speed with which the stock markets shifted gear from fear of the unknown to faith in Trump’s vague economic plans.  
• Commodities: The trajectory for oil prices will largely be determined by what action (or lack of action) OPEC takes at its next meeting at the end of November. We are cautiously optimistic that prices will be on a gradual upward path in 2017 with Brent oil averaging around USD 55/b. 

Bond yields break out of downtrends

Source: Bloomberg, Emirates NBD Research

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