Recent Search
Popular Searches
OPEC managed to come to an agreement at its latest meeting which was a more constructive outcome than had been widely expected. The statement given by the producers’ bloc stressed that members will “strive to adhere” to their target of 100% compliance with the production cut agreement that has been in place since January 2017, rather than the over-compliance that has helped oil markets tighten quickly. However, the official statement appears to have been left intentionally vague with no specific country allocations nor is there a timeline for how quickly production will be raised. This has left the market guessing as to how much output will end up coming back online and how quickly.
The escalating trade war remained the dominant theme at the end of last week, with a tweet from President Trump that a 20% levy could be placed on European automakers further muddying the global trade climate. There are also reports that the U.S. Treasury is planning to increase scrutiny of Chinese investments in the U.S. deepening the rift between those two countries. An EU memo ahead of the upcoming EU Council meeting and summit has claimed that the global trade system is under assault by the U.S. and that ‘the crisis is set to deepen further in the coming months’. What seems clear is that the EU is likely to retaliate against any further U.S. measures, on top of the tit-for-tat tariffs already being levelled between the U.S. and China. Should these trends persist global supply chains might be at risk of fracturing, having more negative consequences for global growth. Separately EU leaders seemingly failed to hammer out a common deal over immigration yesterday which threatens to undermine Chancellor Merkel’s coalition government and the unity of the EU.
Turkey’s presidential and parliamentary elections saw a double victory for President Tayyip Erdogan and AKP-MHP, winning 53% of the presidential vote and 54% of the parliamentary vote respectively according to unofficial results. Erdogan will now assume greater powers as the new presidential system comes into effect, including the abolition of the position of prime minister.
.png)
Source: Bloomberg, Emirates NBD Research
UST yield curve continued to fall under the pressure of higher safe haven demand in the face of conflicting trade talks between the US and China. Yields on 2yr, 5yr, 10yr and 30yr USTs narrowed during the week to 2.54% (-1bp), 2.77% (-2bps), 2.90% (-2bps) and 3.00% (-1bp) respectively. Also the curve flatten further. The 2s10s spread reduced another 2bps during the week to reach 35bps now compared with over 90bps at the same time last year.
In an otherwise benchmark yield tightening environment, GCC bonds had a slight sell bias as credit spreads widened due to increasing risk aversion in the investors’ community. Average option adjusted spread on Barclays GCC bond index increased 4bps to 194bps causing yield to rise 2bps to 4.66%. YTD total return on the GCC bonds this year so far is a loss of 2.67%, however, we think the worse may be behind us as the region benefits from rising oil revenues and bulk of benchmark UST yield hikes may already be priced-in.
In terms of rating action, Fitch upgraded the outlook on Doha Bank to stable from negative.
The dollar was slightly weaker overnight against major currencies, having softened towards the end of last week as trade tensions continued to mount. The JPY strengthened against the USD in particular as risk aversion increased on fears of further measures being imposed on Chinese investments. The CNY also weakened 0.4% as the markets in Asia remain fearful of an escalating trade war between the US and China, raising concerns that the Chinese authorities might begin to use a weaker currency in its trade dispute. Other Asian currencies including the KRW and the SGD also lost ground.
Regional equities started the week on a positive note with Tadawul adding +1.8%. Banking sector stocks led the rally with Al Rajhi and Samba rallying +2.3% and +2.7% respectively. Elsewhere it was rather quiet.
Oil markets surged on Friday in response to OPEC’s announcement that it would keep its existing production cut deal, implying a smaller increase in production than had been expected. Some of those gains have already been unwound, however, as commentary from oil ministers from the producers’ bloc suggest as much as 500k b/d to 1m b/d could be added, although no time frame was given for the increase. Brent futures have started the week softer at USD 74.25/b while WTI is holding on to much of its gains at USD 68.43/b.
Investors had largely closed out long positions ahead of the OPEC meeting and had taken only tentative new short positions as the outcome of Friday’s meeting was highly uncertain. Meanwhile the US drilling rig count moved backward for the first time since the end of March, declining by one rig.
Emirates NBD Research