UAE private sector lending rises sharply in February

UAE broad money supply (M2) grew 1.7% m/m and 11.4% y/y, up from 10.0% y/y in January. The main driver was growth in quasi money (time and FX deposits) although narrow money (cash in circulation and demand deposits) also grew at a faster pace in February. Bank deposit growth was largely unchanged from January at 12.8% y/y, while bank lending grew 4.8% y/y in February. Data from Haver Analytics shows growth in lending to the private sector rising sharply at 2.8% m/m and 7.6% y/y in February, more than offsetting a decline in lending to government and government related entities.

Egypt has approved a new green hydrogen project incentives law to support and encourage greater investment in the sector. The law allows for VAT exemptions for equipment, raw materials, supplies and transportation. The government will also cover the cost of real estate taxes on buildings in green hydrogen projects. Separately, the Supreme Council for Investments announced a package of incentives and other reforms to support foreign investment. These included faster approval times, a digital platform to register and liquidate firms, reduced bureaucracy and simplification of processes. New legislation is being considered to allow foreign ownership of real estate, and level the playing field for private sector businesses by amending laws that give preferential treatment to state owned entities. In other news, the central bank of Egypt announced that it intends to sell its shareholding in The United Bank and has appointed Barclays as its advisor to finalise the deal. The raft of announcements are in line with the reforms outlined in the IMF programme, which aim to improve the business environment and reduce the role of the state in the economy.

The World Bank, in their latest regional update, have revised down their expectations for GCC GDP growth. GCC economic growth is now expected to reach 2.5% in 2023, down from a previous forecast of 3.2%. The revision was driven by expectations of a global slowdown and a weaker outlook for oil GDP on the back of April’s OPEC+ production cuts. Real GDP growth in the UAE has also been revised lower, with the group forecasting growth of 2.8% in 2023. Weaker oil GDP is expected to be offset by robust activity in the non-oil sector, particularly in the areas of tourism, real estate, and construction.   

The final release of April Eurozone CPI confirmed that inflation rose 7.0% y/y in April, up modestly from the 6.9% in March, driven by higher energy and food prices. On a monthly basis the April inflation figure was revised down fractionally to 0.6% m/m, from 0.7% in the initial release. Importantly that represents a slowdown from the 0.9% m/m growth seen in March. The core inflation measure remained unrevised in the final release, suggesting that there was a marginal slowing to 5.6% y/y in April, from 5.7% in March. Headline inflation is widely expected to fall sharply over the rest of 2023, with last year’s high food and fuel prices now included in the base. Measures of core inflation are however likely to prove stickier, consistent with our view that the ECB will raise rates by a further 25bps at their June meeting.

Today’s Economic Data and Events

• Egypt deposit rate decision Forecast: 18.25%
• 16:30 US initial jobless claims (w/e May 6) Forecast: 253k
• 16:30 Philadelphia Fed business outlook (may) Forecast: -20
• 18:00 US conference board leading index (Apr) Forecast: -0.6%

Fixed Income

• The improving odds of a debt deal being reached helped to lift risk sentiment and saw US Treasuries extend their sell off. Yields on the 2yr UST rose 7bps to 4.154% while the 10yr yield added 3bps to 3.5641%.
• Egyptian bonds have bounced sharply in the last few days as the government has announced further asset sales that may help to unlock the next round of IMF or GCC assistance. Yields on Egypt’s 10yr USD bond fell 68bsp overnight to 16.904%.

FX

• The improving tone around the debt ceiling negotiations failed to lift risk-on currencies with the dollar gaining against most peers overnight. EURUSD dropped by 0.2% to 1.084 while GBPUSD had a negative bias. USDJPY added for a fifth day in a row, closing up 0.9% at 137.68.
• Commodity currencies fared better, with gains across the board. USDCAD added 0.2% to 1.3455, AUDUSD nudged slightly higher to 0.666 while NZDUSD closed up 0.3% at 0.6249.

Equities

• US equities advanced on Wednesday as confidence of a potential debt ceiling deal grew. The Dow Jones and the S&P 500 both rose 1.2%, while the NASDAQ gained 1.3%.
• European equities were more mixed on the day. The Eurostoxx 50 and the DAX rose 0.2% and 0.3%, respectively, while the FTSE 100 fell by 0.4%.
• Locally the DFM saw strong gains, rising 1.6%. Saudi Arabia’s Tadawul index added 0.6%.   

Commodities

• Oil prices had a solid boost on the hope that a debt ceiling deal in the US will be concluded. Brent futures added 2.7% to USD 76.96/b while WTI rose by 2.8% to USD 72.83/b.
• Data from the EIA showed a large build in commercial crude stocks, up 5m bbl while gasoline inventories fell and diesel stocks were near unchanged. Oil production fell by 100k b/d to 12.2m b/d.