UAE Central Bank forecasts growth recovery

• The Central Bank of the UAE expects real GDP growth of 2.5% in 2021 as governor Abdulhamid Saeed Alahmadi said that growth is “subdued but recovering.” The governor also noted that local banks had lowered their use of emergency capital and liquidity measures that were introduced last year to 50% of its peak level. Our own expectation is for slightly slower growth of just under 2% in 2021 compared with a contraction of almost 7% as we expect hydrocarbon activity to still be a drag on output.
• Producers’ prices in China rose by 0.3% y/y in January, their first annual rise in the past 12 months. Factory activity had been slowing at the start of the year as China contends with a new outbreak of Covid-19 and ahead of the Lunar New Year holidays but the improvement in factory prices sends another signal of improvements in China’s economy. Consumer prices, however, fell by 0.3% y/y in January, reversing the gains from a month earlier.
• The US JOLTS report showed that layoffs slipped in December and job openings increased modestly to 6.65m. The headline nonfarm payrolls report for December estimated that 227,000 jobs were cut, seemingly on the back of limited hiring activity. The quits rate actually ticked up to 2.3% from 2.2% a month earlier.
• Robert Kaplan, head of the Dallas Fed, said that he wouldn’t be surprised by a “temporary jump” in inflation but that the factors driving prices higher were unlikely to be “persistent” or “long-term.” US CPI data will be released later today with expectations for a tick up to 1.5% y/y for the January read. The Fed’s preferred inflation measure, the PCE index, gained 1.5% for December and January figures will be released later this month.

Today’s Economic Data and Events

• Germany CPI y/y (Jan): 11:00 forecast 1%
• France Industrial production y/y (Dec): 11:45 forecast -1.7%
• US CPI y/y (Jan): 17:30 forecast 1.5%

Fixed Income

• US Treasuries oscillated but failed to recapture recent high yield levels. Yields on the 2yr UST ticked up marginally to 0.1151% while the 10yr yield slipped back and closed at 1.1568%.
• Bond markets in general were quiet with muted gains across most of the major benchmark indices. Gilt yields continue to hover around 0.46% while bund and OAT yields were essentially unchanged overnight.
• FAB priced its EUR 750m 5yr issue at 55pbs over midswaps with healthy coverage of Euro-denominated investors looking for positive yields.

FX

• The USD weakened across the board on Tuesday, extending its losses for a third straight session, as treasury yields retreated from recent highs. The DXY fell by over 0.5% and is currently trading at 90.420. USDJPY fell by as much as -0.6% and is hovering around 104.5.
• Major currencies paired against the greenback subsequently rallied. Both the EUR and GBP are up by over 0.6%, the former reaching 1.2130 while the latter advanced to 1.3820. The AUD is up to 0.7735 and will look to test the yearly high of 0.7802 reached in January. 

Equities

• There was little movement in the major global equity indices yesterday, following the substantial moves the day before, with the excitement seemingly reserved for Bitcoin. In the US, the Dow Jones was flat, the S&P 500 lost -0.1% and the NASDAQ gained 0.1%.
• It was a similar story in Europe, where the FTSE 100 performed relatively well with a rise of 0.3%, the CAC gained 0.1% and the DAX lost -0.3%.
• Within the region, the DFM rose 0.2% while the Tadawul saw gains of 1.0%.

Commodities

• Oil prices recorded another strong day of gains with Brent futures having rallied eight days in a row and WTI gaining seven days straight. Brent settled up 0.9% at USD 61.09/b but has retrenched somewhat in early trade this morning. WTI closed at USD 58.36/b, a gain of almost 0.7%.
• The API reported a draw in crude stocks of 3.5m bbl last week although it was offset by a larger build in gasoline inventories. EIA data will be released later today.

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