17 March 2020
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US equities suffer biggest decline since 1987

The US Empire Manufacturing Index, a measure of business conditions in New York fell by a record 34.4 points to -21.5 in March, its lowest reading since the financial crisis.

By Aditya Pugalia


The US Empire Manufacturing Index, a measure of business conditions in New York fell by a record 34.4 points to -21.5 in March, its lowest reading since the financial crisis. New orders, shipments, employment and average number of hours worked all declined in March.  Data released by China earlier on Monday showed a much larger than forecast contraction in retail spending, investment and industrial production in February, raising the prospect of an outright decline in Chinese GDP in Q1 2020 on an annual basis. The data likely contributed to the biggest US equity market decline since 1987. 

The IMF announced it would make its full USD 1tn lending capacity available to support countries in their fight agains the coronavirus, while G7 leaders pledged to work together and do “whatever is necessary” to support their economies, after a conference call earlier today. The EU will close all external borders for 30 days from today, and President Trump indicated the disruption to normal activity in the US could extend into the summer, and stressed the need for social distancing. The Fed will increase the its overnight repo to USD 500bn on Tuesday from USD 175bn on Monday.  Asian equity markets have rebounded this morning, and US equity futures are higher as well. 

In the GCC, the UAE central bank and SAMA cut their benchmark rates by 75bp rather than the full 100bp cut announced by the Fed on Sunday night. Kuwait’s central bank cut its deposit and repo rates by 100bp. Abu Dhabi also announced measures to provide some relief to businesses, waiving fees, subsidising utilities and lowering rents as well as providing additional loan guarantees and financing support for SMEs. 

In a surprise irregular move (the next MPC meeting was scheduled for April 2), the Central Bank of Egypt cut the benchmark overnight deposit rate by 300bps yesterday, taking it to 9.25%. The cut indicates a change in tack by the CBE, indicating a commitment to shoring up the domestic economy in the face of the coronavirus crisis even at a risk to portfolio inflows and potential currency weakness – the EGP has been selling off modestly in recent weeks. As of March 16, Egypt had 126 confirmed cases of the disease, and the country is set to be hit hard by a decline in tourism – all international air traffic will be suspended at Egyptian airports from March 19 to March 31.

Reports suggest that embattled Lebanon is moving towards an easing of its long-standing currency peg, as bank clients with USD accounts may be allowed to withdraw pounds at the rate of LBP 2,000/USD, compared to the official rate of LBP 1,507/USD. This is around half way between the official peg and the current parallel market rate of LBP 2,500/USD.

US Empire state manufacturing index plunges in March

Source: Bloomberg, Emirates NBD Research

Fixed Income

Treasuries closed higher following the Federal Reserve’s decision to cut interest rates by 100 bps and bring the lower end to 0%. Yields on the 2y UST and 10y UST closed at 0.36% (-13 bps) and 0.71% (-25 bps) respectively. The Federal Reserve continues to intervene in the market with the NY Fed buying USTs worth USD 40bn.

Regional bonds continued their sell-off. The YTW on Bloomberg Barclays GCC Credit and High Yield index breached 4% to close at 4.05% (+22 bps) and credit spreads widened 41 bps to 330 bps.


This morning the JPY is trading softer against the other major currencies as the 10 year UST yields have climbed and US equity futures have risen. As we go to print, USDJPY is trading 0.67% higher at 106.53. Elsewhere the NZD has climbed for the first time in seven days as the government announced a stimulus package of 4% of GDP. As we go to print, NZDUSD is trading 0.31% higher at 0.60623.


Developed market equities closed sharply lower as investors paid more attention to the escalating measures taken by several countries to stem the spread of the coronavirus. The S&P 500 index and the Euro Stoxx 600 index dropped -12.0% and -4.9% respectively.

Regional equities were no different. The DFM index and the Tadawul dropped -6.2% and -5.2% respectively. The Qatar Exchange was a notable exception with gains of +1.5% as the government asked the government funds to invest as much as QAR 10bn in public equities.


Oil prices continued to wilt as panic sets in over how badly demand will be destroyed over the comings months, particularly in Europe and potentially in the US. Brent futures closed down more than 11% to settle at a USD 30/b handle while WTI lost almost 10% to close at USD 28.70/b. Aramco’s chief executive said that the company would maintain higher production levels until at least May, implying that Saudi Arabia’s production may stabilize at over 12m b/d for a few months.

The EIA’s latest drilling productivity report estimates that production from shales basins will increase to 9.08m b/d in April, a monthly gain of 18k b/d. The increase is concentrated in the Permian basin in Texas where enormous scrutiny will fall in coming weeks as to how quickly E&P companies will slash spending. Initial projections from US and Canadian oil companies range from cuts to capex budgets of as high as 60% to 30% lower than earlier plans.

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Written By

Aditya Pugalia Research Analyst

Khatija Haque Head of Research & Chief Economist


Emirates NBD Research Research Analyst


Emirates NBD Research Research Analyst

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