UAE economy grew 3.8% in 2021

• The UAE’s economy grew 3.8% in 2021 according to a series of tweets last week by Sheikh Mohammed bin Rashid Al Maktoum. This is well above our forecast of 2.5% GDP growth last year. The statistics centre has not yet published the full data set however, so it’s unclear how much of the growth was due to the oil and gas sector. We expect UAE GDP to accelerate further to 5.7% this year.
• Egypt’s CPI inflation accelerated to 10.5% y/y in March, compared with 8.8% in February. This was the fastest pace of price growth since mid-2019, and inflation has been accelerating for several months as the economy has been affected by the global rise in commodity prices exacerbated by the war in Ukraine, despite government efforts to cushion the blow on bread in particular. The the 16% depreciation in the pound which took place just past halfway through last month will also have fuelled higher prices and will likely continue to exert upwards pressure over the coming months. This latest inflation print takes real interest rates back into negative territory despite the 100bps hike by the CBE last month (which took the overnight deposit rate to 9.25%) and we now expect that the central bank will hike by 150bps at its next MPC meeting, scheduled for May 24.
• President Macron came in ahead of Marine Le Pen by just 3pp in the first round of the presidential elections yesterday. The runoff will take place on 24 April, and while Macron remains in the lead according to surveys, the gap is relatively narrow in some polls. Le Pen has focused on inflation in her campaign and promised to reduce taxes, particularly for younger people, should she win. She is also unlikely to support further integration within the EU on fiscal policy. A Le Pen victory would likely be negative for the euro and French bond yields.   
• China’s inflation came in ahead of forecasts for March, with CPI rising to 1.5% y/y from 0.9% in February. PPI slowed to 8.3% y/y last month from 8.8% in February. Higher energy and food prices, exacerbated by Covid lockdowns, contributed to faster consumer price growth last month.
• The focus this week will be on US inflation data for March, which is expected to accelerate 1.2% m/m and 8.4% y/y.  While higher energy and food prices will drive some of the headline inflation, core inflation is also expected to have picked up to 6.6% y/y from 6.4% in February. Retail sales data for March and the University of Michigan consumer sentiment survey will also be closely watched this week. Several Fed presidents are also due to speak this evening and in the coming days. Elsewhere, the Bank of Canada is expected to hike rates by 50bp to 1% and the ECB meets on Thursday as well.

Today’s Economic Data and Events

10:00 UK industrial production (Feb) forecast 2.1% y/y

Fixed Income

• US Treasuries declined over the week with a broad index of the bonds down around 1.7%. Yields on the 2yr UST added 5bps over the week to settle at 2.5115% while the 10yr yield soared almost 32bps to settle at the 2.7% handle. Other developed bond markets also closed Friday lower, with gilt yields up 2bps at 1.747% and the 10yr bund adding 2bps to close the week at 0.702%.
• Moody’s affirmed their long-term rating on Israel at ‘A1’ and changed the outlook to stable from positive.
• South African bonds closed weaker at the end of the week with yields up almost 6bps at 9.934% while Indian bonds fell back after the relative hawkishness of the RBI. Yields on 10yr Indian bonds jumped 20bps to 7.118% at the end of the week.
• In central bank action this week, Israel sets policy on April 11th, the RBNZ and Bank of Canada on April 13th while Turkey and the ECB meet on April 14th.

FX

• The dollar extended its gains last week with the broad DXY index adding 1.2% to close out at 99.796. Since the start of the year the dollar index has added 4.4%, buoyed by the Fed starting its rate hiking cycle and a search for havens amid the uncertainty of the war in Ukraine. EURUSD fell 1.5% last week in the run up to the upcoming ECB meeting. The pair is opening trading at around 1.0886 this week. USDJPY rose 1.5 last week to 124.34 as the BoJ appears committed to a highly accommodative policy. GBPUSD closed down 0.7% at 1.3025 and is holding near those levels in early trade today.
• Commodity currencies were weaker as a rule last week with NZD leading the pack lower. NZDUSD fell 1.1% to 0.6818 while AUDUSD fell 0.5% to close at 0.7424. USDCAD added 0.4% as the loonie weakens, taking the pair up to 1.2572 at the end of last week.

Equities

• Equity markets were weighed down by a general risk-off tone last week, whether driven by negative headlines regarding the war in Ukraine, or by the prospect of more rapid monetary tightening from the US’ Federal Reserve. The US’ NASDAQ is especially exposed to the latter threat, and it closed the week down -3.9%, with much shallower losses for the Dow Jones (-0.3%) and the S&P 500 (-1.3%).
• In Europe, the UK’s FTSE 100 was an outlier in closing up, gaining 1.8% w/w. By contrast, the DAX lost -1.1% and the CAC -2.0%, with French markets pricing in increasing uncertainty regarding the outcome of the upcoming presidential election.
• Asian shares also lost over the week, with the Nikkei, the Shanghai Composite and the Hang Seng losing -2.5%, -0.5% and -0.6% respectively. Things were more positive in India, however, where the Sensex added 0.3% and the Nifty 0.6%.

Commodities

• Oil prices fell a second week running with Brent futures down 1.5% at USD 102.78/b and WTI off by 1% to USD 98.26/b. Even as the war in Ukraine hasn’t shown much material sign of de-escalation, oil markets are focused on the unfolding Covid-19 outbreak in China, particularly in the economic centre of Shanghai.

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