Saudi Arabia money supply growth slowed in March

The U.S. ISM fell to a 9-month low of 57.3 in April from 59.3 in March and a 14-year high of 60.8 in February. The overall reading is still firm however and would not be inconsistent with growth rebounding in the second quarter. The decline was mainly driven by the production index which fell to 57.2 in April from 61.0. The employment index also fell to 54.2 from 57.3 last month, and the inventory component was 52.9 from 55.5. Other readings of construction spending and auto sales were also a bit softer yesterday, but again not to the extent that they would imply a serious slowdown in economic activity is underway.

More worrying perhaps was the softer data from the UK where the Markit manufacturing PMI showed a decline to a 17-month low of 53.9 in April compared with a downwardly revised 54.9 in March. After an almost stagnant Q1 this April data shows the UK economy failing to generate any upturn that might suggest the Q1 weakness was temporary. When combined with reports that consumer borrowing rose by the smallest amount in five and a half years they cast further doubts over the Bank of England’s ability to tighten monetary policy next week, with the odds of a rate hike having fallen to 16.2% compared with 90% at the start of April.

Meanwhile Saudi Arabia's broad money supply growth slowed to just 0.2% y/y in March as fx and longer term SAR deposits declined m/m.  However, private sector credit appears to be gradually recovering although on an annual basis it remains negative at -0.5% y/y. On average private sector credit growth increased 0.3% m/m in Q1 2018 compared with -0.5% m/m in Q4 2018.  Moreover, SAMA's net foreign assets (NFAs) increased by USD 6bn to USD 485bn, the first monthly increase in three months. We expect Saudi Arabia's external debt issuance in April likely boosted NFAs further.

Saudi Arabia money supply growth slowed in March

Source:Markit, Bloomberg,Emirates NBD Research

Fixed Income

US treasuries drifted lower in what was a rather sluggish session of trading ahead of anticipated quarterly refunding announcement from Treasury later today. Yields on the 2y UST, 5y UST and 10y UST closed at 2.50% (+2bps), 2.81% (+2bps) and 2.96% (+1bps).

Regional bonds drifted lower in line with move in benchmark yields. The YTW on the Bloomberg Barclays GCC Credit and High Yield index rose 1bp to 4.52%. However, credit spreads tightened 1bp to 176 bps.

Dubai Aerospace is looking raise USD 500mn by selling sukuk. The timing of the transaction is still not certain and could happen either this year or next year.

Fitch assigned Omantel a final long-term rating of BBB-. The outlook is negative.

FX

For a fifth day, GBPUSD has found itself under pressure after economic data has continued to fuel concerns over the strength of the UK economy (see macro). A third daily close below the 100 day moving average does not bode well for the outlook and a break below the 61.8% one year Fibonacci retracement is equally concerning for sterling bulls. While there may be a short term reprieve due to the profit taking as the 14-day RSI (Relative Strength Indicator) approaches oversold conditions, analysis of the weekly candle chart shows an alarming development. The supporting baseline from the weekly uptrend that has been in effect since March 2017 has been breached and a weekly close below this level can result in more significant declines for the price.

Equities

Developed market equities closed mixed with the S&P 500 index adding +0.2% and the Euro Stoxx 50 index losing -0.1%. Mixed corporate earnings and macroeconomic data weighed on investor sentiment.

Most regional equity indices drifted lower with the Tadawul losing -0.6% and the DFM dropping -1.2%. Weak corporate earnings and profit booking appeared to have led Saudi equities lower. Banking sector stocks took the most hit. Al Rajhi Bank dropped -1.9% after reporting weaker than expected earnings. The bank reported Q1 2018 net profit of SAR 2.38bn, missing consensus estimates of SAR 2.46bn by 3.5%.

Commodities

Oil prices sold off sharply yesterday as the market weighed the potential of the US re-imposing sanctions on Iran against expectations for further oil production growth from the US. Brent closed down by 2.7% to USD 73.13/b while WTI fell nearly 2% to close at USD 67.25/b. The slide in oil looks in part to have been affected by a jump in the greenback as European currencies in particular suffered.

Click here to Download Full article