UAE government announces change to weekend

• The UAE government has announced that it will be moving to a 4.5 day week, with a half day worked on Friday and Saturday and Sunday off, in a change to the current Friday-Saturday weekend. The move brings the UAE more in line with international business practices, potentially adding an extra day of trading with the rest of the world, and is part of a recent package of reforms aimed at improving the business environment and boosting inward investment. It is as yet unclear as to whether the private sector will follow suit, but with schools set to change to the new schedule it seems likely that most firms will opt to adopt the new Saturday-Sunday regimen, if not the half day on Friday.
• There was a positive surprise in German data released yesterday, after Monday saw a big miss in factory orders. Industrial production recorded growth of 2.8% m/m, exceeding expectations of just 1.0%. September’s figure meanwhile was revised to a shallower contraction of -0.5%, compared to the initial reading of -1.1%. This leave’s November’s production just -0.6% lower than November 2020, compared to predictions that it would remain down nearly 3.0%. Industrial production in Germany has been constrained by the global supply chain issues that have held back the recovery around the world, and the automotive sector has been particularly affected by the shortage of chips. However, the outlook for the sector has seemingly improved from the start of the fourth quarter, with major autos manufacturers signaling an improvement in conditions. Meanwhile, the ZEW survey results from Germany were somewhat mixed. While the current situation deteriorated to -7.4 on the back of surging Covid-19 cases and more stringent restrictions (compared to consensus projections of 5.7), the expectations survey came in at 29.9, beating predictions of 25.4. Nevertheless, this was still down only on November’s 31.7, reflecting the more difficult environment in which German firms are operating.
• Eurozone Q3 GDP growth was confirmed at 2.2% q/q yesterday, unchanged from the preliminary reading. On an annual basis, growth was 3.9%, revised up modestly from the previous 3.7%. The bloc’s GDP is now just 0.5% shy of its pre-pandemic levels, but the challenges facing major constituent economies such as Germany could see a slower-than-anticipated expansion in Q4.

Key Economic Data and Events This Week

• 08:30 Reserve Bank of India repurchase rate decision. Forecast: 4.0%.
• 16:00 US MBA mortgage applications.
• 19:00 Bank of Canada rate decision. Forecast: 0.25%

Fixed Income

• Treasury markets continued to lose ground as investors grow more assured that the Omicron variant will have less of a public health impact than initially feared. Yields at the front end of the UST curve surged higher, rising to nearly 0.7% and ultimately closing up almost 6bbps at 0.6892%. The 10yr yield added just short of 4bps to 1.4733%, contributing to a bear flattening of the curve to less than 80bps.

FX

• As markets reoriented toward risk the dollar struggled to gain much ground. The DXY index was essentially unchanged, settling at 96.369 with most of the gains coming from EURUSD which fell 0.16% to 1.1267 and USDJPY which added 0.1% to 113.60. Sterling was another notable decliner, falling by 0.15% to 1.3244.
• But while major FX peers weakened against the dollar, commodity currencies rallied sharply. USDCAD added 0.9% to 1.2639 while AUD rose almost 1% to 0.7119 after the RBA provided some more assured remarks about the impact of Omicron. NZD was dragged higher too, rising almost 0.6% to 0.6781.

Equities

• Asian equities were on the front foot yesterday, bolstered by Monday’s RRR reduction in China in a signal that the government was focused on maintaining growth, and then by the strong trade data announced on Tuesday. The Shanghai Composite closed up 0.2%, but the Hang Seng gained 2.7% even as concerns over Evergrande lingered. Elsewhere in Asia, the Kospi added 0.6% and the Nikkei added 1.9%.
• The positive momentum continued through the rest of the day, with the composite European STOXX 600 ending Tuesday 2.5% higher. The CAC added 2.9% and the DAX 2.8%, while the UK’s FTSE 100 closed up 1.5%. In the US, the tech-heavy NASDAQ was the primary gainer as risk appetite returned, closing up 3.0%, followed by the S&P 500 with a 2.1% gain while the Dow Jones added 1.4%.
• Within the region, the DFM closed up 1.0%, while the ADX lost -0.2%. The Tadawul added 0.8% and Egypt’s EGX 30 added 0.2%.
• Dubai has announced plans to list Tecom Group as part of its planned raft of sell-offs. The company’s business complexes around the emirate host over 5,600 different firms.

Commodities

• Oil prices continued to gain as markets diminish the negative demand potential of the Omicron variant. Brent futures added 3.2% to USD 75.44/b while WTI rose 3.7% to USD 72.05/b. Data from the API reported a draw in US crude inventories of 3.1m bbl last week while there were builds in both gasoline and distillates. Official EIA data will be released later today.

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