01 February 2017
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Trump administration talks down USD

Although the direction of economic policy under U.S. President Trump remains highly uncertain, one focus in the early days of his administration appears to be the strength of the USD.


By Emirates NBD Research

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Although the direction of economic policy under U.S. President Trump remains highly uncertain, one focus in the early days of his administration appears to be the strength of the USD. Yesterday saw Peter Navarro, who is the head of the new National Trade Council, comment that Germany was using a ‘grossly undervalued’ euro to exploit its trading partners. In a meeting with CEOs from pharmaceutical companies, President Trump also said that countries such as China and Japan were using monetary policy to devalue and gain a competitive advantage.

Data out of the Eurozone yesterday was positive, with Q4 real GDP growth rising to 0.5% q/q, compared to 0.4% in Q3. The German economy expanded 0.5% q/q in the final quarter of 2016, while growth in France came in at 0.4%. Unemployment data was also encouraging, with the official rate of joblessness falling to 9.6%, its lowest level since May 2009. Inflation data was also released yesterday, which showed a surprising jump in headline CPI to 1.8% y/y from 1.1% in December (highest since February 2013).

China’s official PMI figures for January were released earlier this morning, providing some reassurance that growth has stabilized at the start of 2017.The non-manufacturing PMI came in at 54.6, while the manufacturing PMI held steady at 51.3.

Kuwait is expected to increase spending in the 2017/18 fiscal year according to plans unveiled on Tuesday. The new budget (effective 1 April 2017) makes provision for KWD19.9bn in spending, in line with our forecast, and up from an estimated KWD19bn in 2016/17. Oil revenues are expected to rise this year, but the official estimate for budget revenues is based on a forecast oil price of USD45/b, well below our forecast of USD55/b. As a result the projected deficit (KWD 6.6bn) is significantly wider than our forecast (KWD3.0bn). Kuwait said it plans to IPO its power generating company this year as part of broader economic reforms, and has also mandated banks to prepare for a sovereign bond issue. 


China Manufacturing PMI stabilises 

Source: Emirates NBD Research, Bloomberg


Day’s Economic Data and Events







Eurozone Manufacturing PMI



ADP Employment Change



US ISM Manufacturing



US FOMC Rate Decision



Source: Bloomberg.


Fixed Income


Sovereign bonds ascended and UST curve flattened as risk off sentiment fuelled demand for safe haven assets. Yields on 2yr and 10yr treasuries closed at 1.20% (-1bp) and 2.45% (-4bps) while those on 10yr Bunds and Gilts closed at 0.43% (-1bp) and 1.41% (-3bps) respectively.

Credit spreads had a widening bias with CDS levels on US IG and Euro Main rising roughly a bp each to 67bps and 74bps respectively. However, cash corporate bonds, particularly the investment grade ones, across the globe benefitted from falling benchmark yields and closed mostly in the green.

Locally GCC Bonds followed the global lead and traded a tad stronger in price than the previous day even though credit spreads widened marginally on cash bonds. Bbg Barclays GCC bonds index reported 1bp increase in credit spreads to 140bps. That said, CDS levels on GCCC sovereigns had a tightening bias as oil prices closed slightly up.

Investors gain comfort from stream of corporate result announcements which are mostly either in-line or better than expectations. Yesterday Abu dhabi based banks reported results with FGB and NBAD reporting higher revenues amid increasing NPLs though ADCB’s revenue was down 16% in the 4Q last year as impairment rose. Real Estate sector in the UAE appears to be holding up well with Majid Al Futtaim as well as Emaar Malls reporting growth of 4% to 8% in profit.

Besides Bank of Sharjah, DIB is also in the primary market for a possible benchmark size dollar sukuk of 5-7yr tenure.




USD was subject to broad selling yesterday following comments from Navarro (see above), which turned market focus towards the new administration’s policy on currency strength. Over the course of the day, the Dollar Index depreciated 0.91% to 99.512, a loss that could have been more pronounced had it not been slowed by support at the 100 day MA. This morning, the index is currently at 99.69, just above the 100 day MA of 99.65 as markets prepare for this evenings FOMC monetary policy statement.

The underoerforming major of the morning session is NZD, which has weakened against all the other majors after economic data showed that unemployment in Q4 2016 has risen from 4.9% to 5.2%, contradicting market expectations for a decline to 4.8%. In addition, hourly earnings declined by 0.3% compared with expectations for a gain of 0.6%. As we go to print, NZDUSD currently trades 0.66% lower at 0.7263.




Developed market equities remained weak amid continued comments from Donald Trump. The S&P 500 index (-0.1%) closed off the lows while the Euro Stoxx 50 index lost a further -1.0%.

Asian equities are trading lower this morning tracking weak close to developed markets overnight. However, Chinese stocks were higher following a better than expected PMI data. The SHCOMP index was trading +0.3% at the time of this writing.

Regional equities closed lower in line with the broad trend. The DFM declined -1.0% while the Tadawul dropped -0.4%.

The decline on major indices was led by market heavyweights with Emaar Properties and Qatar National Bank losing -1.1% and -1.5% respectively. Etisalat lost -1.9% after du said it has acquired a licence to operate Virgin Mobile branded services in the UAE.




Oil prices ended January lower, their first monthly fall since October 2016. They managed to squeak out a modest rise yesterday thanks to dollar quashing commentary coming out of the White House. Weekly EIA data is out later this evening with the market expecting another build in stockpiles, which would be the longest stretch of builds since April last year.

Written By


Emirates NBD Research Research Analyst


Emirates NBD Research Research Analyst

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