Global Markets Update QNB Economics 28 August 2016

Transcription

1 Global Markets Update QNB Economics 28 August 2016

2 Executive Summary Key Takeaways Yields rose in Brazil and South Africa on political concerns; Indonesian rates jumped on worries about the cost of cleaning up forest fires The US dollar strengthened as prospects for an interest rate hike increased, weakening other currencies Global equities fell on the prospect of higher interest rates in the US; GCC equities fell on lower oil prices Oil prices declined due to higher-than-expected inventories and a stronger US dollar This week, all eyes will be focused on US employment data for clues about the Fed s next move Sources: Bloomberg and QNB Economics 2

3 Yields rose in Brazil and South Africa on political concerns; Indonesian rates jumped on worries about the cost of cleaning up forest fires Global Benchmark Yields (%, local currencies) Maturity 19-Aug 26-Aug Change in Yield (bps) Advanced Economies Week MTD* YTD* US 10 yrs Germany 10 yrs France 10 yrs Italy 10 yrs Japan 10 yrs UK 10 yrs Emerging Markets Bahrain*** 7 yrs Brazil 10 yrs China 10 yrs India 10 yrs Indonesia 10 yrs Nigeria 9 yrs Qatar*** 14 yrs Russia 10 yrs Saudi Arabia** 10 yrs South Africa 10 yrs Turkey 10 yrs Abu Dhabi*** 3 yrs Dubai*** 4 yrs Markets reacted strongly to beginning of the impeachment proceedings for President Dilma Rousseff in Brazil Investors were spooked by the summoning of South African finance minister, Pravin Gordhan, as part of an investigation for breaking anti-spy laws Legend > 2 standard deviation fall in yields > 1 standard deviation fall in yields < 1 standarad deviation change in yields > 1 standard deviation rise in yields > 2 standard deviation rise in yields Sources: Bloomberg and QNB Economics; *Month to Date and Year to Date; **10-year swap rate; ***USD denominated 3

4 The US dollar strengthened as prospects for an interest rate hike increased, weakening other currencies Global Exchange Rates vs USD 19-Aug 26-Aug Change (%) Advanced Economies Week MTD YTD US Dollar Index Euro Area* Japan UK* Emerging Markets Brazil China Egypt Indonesia 13,163 13, India Kuwait Nigeria Russia Turkey South Africa UAE Bahrain Oman PEGGED Qatar Saudi Arabia The US dollar increased following Federal Reserve chair Janet Yellen s remarks that the case for an increase in the federal funds rate has strengthened The market probability of interest rate hike in the US by the end of the year increased from 51.1% the previous week to 64.7% by the end of last week The official rate of the naira rose but reports suggest that the currency continues to weaken on the black market on concerns of a shortage of dollars Legend > 2 standard deviation strengthening of currency > 1 standard deviation strengthening of currency < 1 standarad deviation change in currency > 1 standard deviation weakening of currency > 2 standard deviation weakening of currency Sources: Bloomberg and QNB Economics; * Exchange rate quoted as amount of USD per currency unit in line with market convention, other exchange rates are amount of currency per USD 4

5 Global equities fell on the prospect of higher interest rates in the US; GCC equities fell on lower oil prices Global Equity Indices 19-Aug 26-Aug Change (%) Advanced Economies Week MTD YTD US (S&P 500) 2,184 2, Europe (STOXX 50) 2,968 3, Japan (Nikkei 225) 16,546 16, UK (FTSE 100) 6,859 6, Emerging Markets Bahrain (BB) 1,149 1, Brazil (IBOVESPA) 59,099 57, China (Shanghai ) 3,108 3, Egypt (EGX 30) 8,317 8, India (CNX NIFTY) 8,667 8, Indonesia (Jakarta) 5,461 5, KSA (Tadawul) 6,227 5, Kuwait (KSE) 5,472 5, Nigeria (All Share) 27,421 27, Oman (Muscat 30) 5,894 5, Qatar (Doha 20) 11,320 11, Russia (MICEX) 1,960 1, S.Africa (J'burg 40) 45,877 46, Turkey (Istanbul 100) 78,146 77, UAE (Abu Dhabi) 4,518 4, UAE (Dubai) 3,572 3, Emerging market equities experienced the largest declines as the outlook for a US rate hike improved, sparking concerns about potential capital outflows Legend > 2 standard deviation rise in equity index > 1 standard deviation rise in equity index < 1 standarad deviation change in equity index > 1 standard deviation fall in equity index > 2 standard deviation fall in equity index Sources: Bloomberg and QNB Economics 5

6 Oil prices declined due to higher-than-expected inventories and a stronger US dollar Commodity Prices* 19-Aug 26-Aug Change (%) Energy Week MTD YTD Brent WTI LNG Precious Metals Gold 1,341 1, Silver Industrial Copper 4,798 4, Steel Aluminum 1,667 1, Wheat Corn Cocoa 3,095 3, News surfaced that Iran is open to cooperate with OPEC members on an output freeze, given that its production has nearly returned to pre-sanction levels US crude inventories increased although a slight decrease was expected (2.5m barrels vs -0.5m) US gasoline inventories were unchanged despite expectations of a decline (0.0m barrels vs -1.3m) Legend > 2 standard deviation rise in price > 1 standard deviation rise in price < 1 standarad deviation change in price > 1 standard deviation fall in price > 2 standard deviation fall in price Sources: Bloomberg and QNB Economics; * Spot prices or nearest expiring future 6

7 This week, all eyes will be focused on US employment data for clues about the Fed s next move Last Week s Data Review Date Country Event Period Consensus Actual Previous Aug 23 Eurozone Markit Manufacturing PMI Aug Prelim Aug 25 US U of Michigan Consumer Senitment Aug Aug 25 US Durable Goods Orders July Prelim 3.5% 4.4% -3.9% Aug 26 US GDP Annualised SA QoQ 2Q 1.1% 1.1% 1.2% Aug 26 UK GDP QoQ 2Q Prelim 0.6% 0.6% 0.6% Forthcoming Economic Events Date Country Event Period Consensus Actual Previous Aug 31 Eurozone CPI Estimate YoY Aug 0.3% 0.2% Aug 31 Japan Industrial Production MoM July Prelim 0.7% 2.3% Sep 01 Eurozone Markit Manufacturing PMI Aug Sep 01 US ISM Manufacturing Aug Sep 01 China Caixin China Manufacturing PMI Aug Sep 02 US Change in Nonfarm Payrolls Aug 180k 255k Sep 02 US Unemployment rate Aug 4.8% 4.9% Sources: Bloomberg and QNB Economics 7

8 Two-Year Performance of Major Asset Classes Sovereign 10-Year Bond Yields Equities 3 2 US Germany Advanced Economies* (left axis) Emerging Markets** (right axis) /14 11/14 02/15 05/15 08/15 11/15 02/16 05/ /14 11/14 02/15 05/15 08/15 11/15 02/16 05/ Exchange Rates Commodities Dollar Index (left axis) EUR:USD (right axis) Oil (left axis) Food*** (right axis) /14 11/14 02/15 05/15 08/15 11/15 02/16 05/ /14 11/14 02/15 05/15 08/15 11/15 02/16 05/ Sources: Bloomberg and QNB Economics; * MSCI World Index; ** MSCI Emerging Markets Index;; ***S&P GSCI Agricultural Index, which includes wheat corn, soybeans, coffee, sugar, cocoa and cotton 8

9 Disclaimer and Copyright Notice All the information in this report has been carefully collated and verified. However, QNB Group accepts no liability whatsoever for any direct or consequential losses arising from its use. Where an opinion is expressed, unless otherwise cited, it is that of the authors which does not coincide with that of any other party, and such opinions may not be attributed to any other party. The report is distributed on a complimentary basis to valued business partners of QNB Group. It may not be reproduced in whole or in part without permission. QNB Economics Team Ziad Daoud Acting Head of Economics Rory Fyfe Senior Economist Ali Jaffery Economist