01 June 2021
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SAMA net foreign assets fell in April

SAMA net foreign assets fell in April

By Edward Bell

  • SAMA’s net foreign assets fell by USD 8.3bn in April to USD 436.3bn.  The central bank’s deposits with overseas banks as well as investments in foreign securities declined in April.  On the liabilities side, government deposits at the central bank fell by USD 7.8bn last month.  As oil prices have remained relatively high, the decline in SAMA’s net foreign assets likely reflects public sector investments abroad.  Money supply growth slowed slightly to 8.3% y/y in April from 8.9% in March, while private sector credit growth remained strong at 14.4% y/y (14.6% in March). The value of point of sale transactions declined -4.1% m/m but was sharply higher than April 2020 due to the low annual base (the kingdom was in lockdown last April).
  • India’s economy expanded by 1.6% y/y in the first three months of 2021, beating market expectations. For the fiscal year ending in March, India’s economy contracted by 7.3% y/y, its first contraction since 1980. There was strong growth in manufacturing, up almost 7% in the quarter while construction accelerated by more than 14%. India’s economy is set to expand rapidly this year but it remains at risk of interruptions to economic activity given still widespread numbers of Covid-19 cases.
  • Turkey’s economy expanded by 7% in Q1 2021, better than market expectations and faster than nearly all other major economies barring China. Consumption was a main contributor to growth, up 7.4% y/y in Q1 while manufacturing rose by 12.2%. Inflation remains a near term risk for Turkey’s economy with headline inflation still above 17% in April. The Turkish lira has also recently hit a record low against the US dollar, threatening the viability of consumption in coming months.
  • Germany was the latest economy to report an acceleration in inflation with the consumer price index up 2.4% in May. The central bank in Germany is expecting inflation to peak at as high as 4% as tax cuts introduced during the pandemic are eliminated and Germany has changed the basket of goods used in its price calculation.
  • China’s private sector PMI for manufacturing, the Caixin survey, came in at 52 for May, a modest acceleration on a month earlier and in line with market expectations. Elsewhere across Asia factory activity has held up recently with South Korea’s manufacturing PMI at 53.7 for May, down from 54.6 a month earlier, and Japan’s final estimate for the month showing a similar dip to 53 from 53.6 but still holding well in expansion territory.

Today’s Economic Data and Events

08:30 AU RBA Cash target rate: forecast 0.10%

09:00 IN MFG PMI May: forecast n/a

13:00 EC CPI y/y May: forecast 1.9%

18:00 US ISM MFG May: forecast 60.9

Fixed Income

  • A public holiday to start the week meant US Treasury markets were closed overnight. In early trade today Treasuries are down slightly with yields on the 2yr UST up to 0.1446% and the 10yr back up above the 1.60% level.
  • In emerging markets, Indian government bonds sold off modestly with 10yr yields back up above 6% while South African yields edged lower by 2bps to 9.27% on the 10yr. Turkish 10yr government bonds have consolidated around the 17.8% level in recent days.

FX

  • The US dollar started the week on the back foot with the DXY index pushing back below the 90 level even as there were few fundamental catalysts to push it lower. Most of the gains came via the EURUSD which rose almost 0.3% to 1.2227 while USDJPY pushed further away from 110 to close at 109.58.
  • GBPUSD closed up 0.17% at 1.4212 with further gains in early trade today. Thanks to sterling’s stratospheric push since mid-2020 the currency is now only 4.3% below its pre-Brexit level of closer to 1.50. With the UK economy set to benefit from the effect of easing lockdown measures and central bank policy makers leaning toward an eventual normalization of policy the route seems clear for sterling to test higher.
  • Elsewhere commodity currencies were stronger against the USD with the loonie gaining by 0.1% and the AUD and NZD both rising around 0.29% against the USD.

Equities

  • A holiday in the US and UK meant a relatively quiet start to the week in global equity markets, but those that were open started off on the back foot.
  • In Asia, the Nikkei lost -1.0%, but there was a stronger start to the week in China where the Shanghai Composite gained 0.4%. India’s Nifty closed 1.0% higher.
  • In Europe, the CAC and the DAX both lost -0.6% yesterday.
  • Within the region, the DFM closed down -0.4% but the ADX ended 0.7% higher.

Commodities

  • Oil prices settled lower ahead of today’s OPEC+ meeting although those losses have been erased thanks to strong gains this morning, with Brent up almost 0.8% at USD 69.86/b and WTI gaining 1.5% at USD 67.34/b.
  • The joint technical committee of OPEC+ estimated that oil inventories will be below the 2015-19 five-year average in the second half of the 2021 as demand recovers in line with the economic recovery out of the Covid-19 pandemic and supply stays tight. While virus flare ups do pose a risk to demand, supply additions beyond OPEC+ countries are limited at this stage. The JTC estimates the market will be in deficit by around 1.2m b/d as a whole in 2021.
  • OPEC’s secretary general, Mohammad Barkindo, noted that if Iran returns to oil markets following negotiations over its nuclear programme, it would do so in an “orderly and transparent fashion.”

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Written By

Edward Bell Head of Market Economics


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