04 September 2018
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Turkish inflation rose in August

SAMA net foreign assets declined in July


By Emirates NBD Research

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The pound remained under pressure yesterday following the UK Prime Minister May ruling out a second Brexit referendum, while EU Chief Negotiator Michel Barnier said that he was “strictly against” the UK’s proposal for economic ties. With the IHS Markit UK Manufacturing PMI falling to a 22 month low of 52.8 in August, it is apparent that ongoing Brexit uncertainties and concerns over the exchange rate are weighing on optimism.

SAMA’s net foreign assets declined –USD 5.1bn in July to USD 493.8bn.  NFAs have increased just USD 4.9bn year-to-date, despite a solid current account surplus (reflecting sharply higher oil prices this year) and external debt issuance.  However there were likely significant investments abroad which could explain the relatively small increase in NFAs so far this year.  Money supply contracted -0.9% m/m and -0.8% y/yin July, reflecting tighter monetary conditions domestically.  However, private sector credit grew 0.3% m/m and 1.1% y/y, the fastest rate of annual growth since January 2017. 

Turkish CPI inflation rose from 15.9% y/y in July to 17.9% in August, marking a 15-year high for the index. The economy has struggled with rising energy and transport costs, exacerbated by the sharp sell-off in the lira seen over the past several months. The currency showed further weakness on the back of the data release, but this was pared back somewhat following a statement by the central bank that it would take the 'necessary actions to support price stability' as it acknowledged the 'significant' risks to this highlighted by the latest inflation data. The bank's declaration that the 'monetary stance will be adjusted' at the upcoming MPC meeting has raised expectations that there will be a meaningful hike to the benchmark interest rates when the committee convenes on September 13.

Weak Lira spurs Turkish inflation

Source: Bloomberg, Emirates NBD Research

Fixed Income

Italian bonds rallied as Fitch ratings affirmed the ratings at BBB even as the agency lowered the outlook to negative from stable. Yields on the 10y Italian government bonds dropped 7 bps to 3.15%.

Regional bonds continued to drift lower with the YTW on the Bloomberg Barclays GCC Credit and High Yield index rising +1 bp to 4.44% and credit spreads widening 1 bp to 174 bps.

Saudi Arabia raised SAR 4bgn in three-part tap of July offering, bringing the total amount of the issuance to SAR 7.465 bn.


The pound is trading weaker in the Asian session and is currently positioned for a fourth day of declines. As we go to print GBPUSD is trading 0.11% lower at 1.2858 with Brexit uncertainties and softer economic data weighing on the sterling. A daily close below the 1.2845 level is likely to catalyze further declines towards 1.27770, a break of which may result in a retest of 1.26.


With US markets closed, it was a subdued day of trading for developed market equities. The Euro Stoxx 600 index closed +0.1%.

The Tadawul (+0.4%) was a notable exception in what was another negative day of trading for regional equities. Volumes continued to remain low across the board. Safco added +3.2% following the rise in urea prices.


Worries over a pending supply shortfall from Iran kept oil markets bid to start the week. Brent futures closed up 0.9%% while settlement of WTI futures was delayed owing to a public holiday in the US. A hurricane in the Gulf of Mexico is threatening oil production facilities in the region and will keep WTI supported in the short term.

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Written By


Emirates NBD Research Research Analyst

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