Market Review & Outlook

Transcription

1 Feb4 Feb5 Feb6 Feb7 Feb8 Feb9 Feb1 Feb11 Issue #: 6 February 7, 211 Market Review & Outlook NCB Weekly Views on Global, Regional and Local Economic and Financial Developments SPECIAL FOCUS Saudi Pharmaceutical Sector (page 2) HEADLINES 2 4 Saudi Macro and Equity Market The Saudi Pharmaceutical Sector US Macro and Equity Market Unemployment Declines Further Commodity Markets Yr Peak Sugar Prices Saudi Arabia Leading Economic Indicators 21 Latest Average WTI, Cushing 1M, USD/bbl Weighted Average Arabian Light, USD/bbl Average M USD LIBOR Average M SAR SAIBOR %.74% Period Global Macro A Snapshot of the EU Regional Macro Turkish Export Strength FOREX Market Commodity Currencies: Week of Gains Global Equity Markets Strong Gains for the Trio Said A. Al Shaikh Group Chief s.alshaikh@alahli.com Tamer El Zayat Senior Editor t.zayat@alahli.com Majed A. AlGhalib m.alghalib@alahli.com Paulina Chahine p.chahine@alahli.com Lama Kiyasseh l.kiyasseh@alahli.com Reem Mokhtar r.mokhtar@alahli.com Jarmo Kotilaine Chief j.kotilaine@alahli.com Ali AlReshan a.alreshan@alahli.com Average Spread, in Basis Points, SAIBORLIBOR Y/Y Growth in Monetary Base (M) Y/Y Growth in Money Supply (M) Basis Points Spread, SAIBOR LIBOR, LHS M SAR SAIBOR, RHS M USD LIBOR, RHS %* 1.7%* Saudi Arabia Liquidity and Risk Detector Sources: Reuters and NCB Last updated: 4 February 211 * 21 Numbers View of the Week % 5. Dec 1 Dec 1 Although there are no looming threats to the Saudi pharmaceuticals sector, a lack of indigenous research and development in the field will limit the development of new drugs locally. %

2 2 Saudi Macro and Equity Market The Saudi Pharmaceutical Sector The Saudi pharmaceutical market is the largest in the GCC. Its main drivers are the Kingdom s sizeable population, rising income levels, and the steady annual growth in health and social development spending. Over the 212 forecast period, the market is expected to post a compound annual growth rate (CAGR) of 5.92%. At wholesale prices, total value of market demand is expected to increase from SAR11.17 bn in 28 to SAR14.4 bn by 212. Expenditure in the sector is largely derived from the public sector, whose share of demand is forecast to rise by approximately 1% per year reaching a total market share of 58.2% in 212. To meet the increasing demand for pharmaceuticals, imports are expected to grow at a CAGR of 4.6, settling at SAR11.57 bn in 212. However, increased government efforts to promote local pharmaceutical manufacturing will bring about faster growth in local production. The value of local production is estimated at SAR1.62 bn in 28 and is forecast to grow at a CAGR of 12.88% over the forecast period, reaching SAR2.47 bn by 212. The patented drug subsector is expected to continue dominating market, however, its share is forecast to fall as regulatory policies and price cuts encourage domestic production growth in the remaining subsectors. Although there are no looming threats to the Saudi pharmaceuticals sector, a lack of indigenous research and development in the field will limit the development of new drugs locally. Key Macroeconomic and Equity Market Indicators Y/Y Growth in Credit (Private Sector) Tadawul All Share Index: 1 Dec 9 = J1 A1 J1 O1 J11 D6 1 D7 D8 D9 D1 1 Y/Y CPI Inflation Rate Price Performance of Sector Indices 2 Food and Beverages Overall Energy YTD 1 Petrochem Week 1 Indust Inv Retail Banking D6 D7 D8 D9 D1 Agric Telecom Average Daily Traded Value (SAR bn) Cement Multi Inv Transport 2 Construct 15 R. Estate Insurance Hotel Media YTD 1 1 Last Previous YT D 21 Oil Price, $bbl Jan D ec Oil Production, mmbd Real GDP.8%.16% CPI Inflation, Y/Y 5.4% 5.8% Broad M oney (M ), Y/Y 5..7% Credit, Private Sector 5.7% 2.7% 2Q1 Credit, Corporate.27%.76% 2Q1 Credit, Households 9.8% 9.17% Net Claims on Government N o v Oct Loantodeposit Ratio % Excess Reserves/Total % 61.% Net Foreign Assets, USDbn M 1 12M 9 Import LCs, SARbn Sources: SAMA, Reuters. Notes: 1/Oil price: Weighted Average Arabian Light. 2/Oil production: Million barrels per day of crude oil. /Net claims on government: banking sector claims on the central government less central government deposits in the banking system in SAR bn. 4/Loantodeposit ratio: The ratio of bank claims on the private sector (excluding investments in private securities) to total deposits, as reported on the consolidated balance sheet of banks. 5/Excess reserves/total: The ratio of excess reserves held by commercial banks in SAMA to total bank deposits in SAMA. 6/Import LCs: The cumulative value of letters of credit opened by banks to finance private sector imports. Paulina Chahine,, p.chahine@alahli.com

3 4Q5 4Q6 4Q7 4Q8 4Q9 4Q1 US Macro and Equity Markets Unemployment Declines Further For the second consecutive month, the US unemployment rate shed off another.4% to settle at 9% in January. The rate marks the lowest level in 21 months due to an addition of 5, in nonfarm payrolls while the government sector shed off 14, to bring the total to 6,. This follows November and December s revised additions of 9, and 121, respectively. Furthermore, according to household data, the labor force shrank by 54, yet the unemployed category dropped 622, explaining the fall in the unemployment rate. Albeit the lowest level in unemployment since April, due to the weak number of job additions and ongoing winter storm conditions, the recent unemployment situation does not necessarily represent the current job market situation as it is not believed to be sustainable. The Fed doesn t seem very impressed as they prefer a longterm improvement that will take several years to take effect. The committee indicated that it will continue with its QE2 program and keep the policy rate near zero as long as needed. The economic condition of the US has been improving for some time now, and along with signs of a better real estate market, the economy is on the right track. If indicators maintain positive figures, we believe, the Fed will be pressured to adjust their monetary policy to guide and control the economy s growth. Key Macroeconomic and Capital Market Indicators Real GDP Growth, Annualized Benchmark Yields, Annualized Last Next Annual Quarterly 4% % 28Jan11 4Feb11 2% 1% 1M M 6M 2Y 5Y 1Y Y 4Q1(A ) 4Q1(P ) Real GDP.2% 25F eb Jan F eb Unemployment 9. 4M ar A. H. Earnings, M /M.1% 7F eb CPI Inflation, Y/Y F eb National Unemployment Rate DJIA 5. YTD 2. S&P 5 Week. D6 D7 D8 D9 D Target Fed Funds Rate/Core PCE Fed Funds Core PCE. D6 D7 D8 D9 D1 Benchmark Equity Indices NASDAQ MSCI US Sector Indices Industrial C. Disc. Energy Materials Financials IT Telecom C. H. Care Utilities Core PCE, Y/Y.7 28F eb Existing Home Sales, M /M 5.6% 2F eb Housing Starts, M /M 4.% 16F eb N o v D ec Trade Balance, $bn 8.1 1F eb Retail Sales, M /M.6 14F eb Industrial Production, M /M.8% 18F eb Capacity Utilization F eb Jan M ar Fed Funds Rate.2 15M ar Sources: Reuters, Bureau of Labor Statistics (BLS), and Bureau of Economic Analysis (BEA). Notes: A/ Advance estimate, P/Preliminary estimate, F/Final estimate. Majed A. AlGhalib,, m.alghalib@alahli.com

4 4 Commodity Markets Sugar Prices' Year Peak Amidst Supply Volatility Raw sugar prices rallied this past week on the back of Australia s Cyclone Yasi, which had wiped out Queensland s cane crop in its wake, paralyzing exports. In New York, the price of unrefined sugar for March delivery, having peaked at a year high price of 6.8 US cents/lb on Wednesday, fell back to 2.64 US cents/lb by closing on Friday. A weakening dollar boosts demand for sugar futures held in other currencies as the commodity becomes cheaper. In London, March white sugar caught up with US prices scaling back to USD794.4/metric tonne below Wednesday s record high of USD857/metric tonne. Furthermore, increasing oil prices, which have hovered at USD1/barrel, have inflated the demand for ethanol a cheaper alternative to gasoline which is made from sugar cane, increasing demand for the commodity. Key sugar producing and consumer country, India, also scaled back its production forecasts for the year to 24 mn metric tonnes. It is forecast to have a surplus in sugar but in India s tightly regulated market this move could hinder the process of allowing unrestricted exports. In Brazil, the world s largest sugar exporter, weather conditions are set to affect production levels for 211, resulting in a global low inventory cover. Nonetheless, global sugar prices, having climbed for the third year in a row in 21, are expected to remain bullish in the mediumterm as supply tightens worldwide. Key Commodity Prices and Indices Benchmark Crude Oil Prices 2 WTI Brent 1 J1 1 A1 J1 O1 J11 2 Precious Metals 1 8 Gold Silver J1 A1 J1 O1 J11 Goldman Sachs Agriculture Index J1 A1 J1 O1 J11 2 Saudi Arabian Light, Asia Deliveries 2 1 J1 1 A1 J1 O1 J11 2 Base Metals 4 Copper Aluminum 2 J1 A1 J1 O1 J11 2 Baltic Exchange Dry Index 4 2 J1 2 A1 J1 O1 J Last Week 4F eb WT I, Spo t, $ / bbl % 4F eb B rent, Spo t, $ / bbl % 4F eb Go ld, LM E, $ / Oz 1, F eb Silver, LM E, $ / Oz % 4F eb P latinum, $ / Oz 1, % 4F eb P alladium, $ / Oz F eb A luminum, LM E, $ / t 2, % 4F eb C o pper, LM E, $ / t 1,45 4.4% 4F eb N ickel, LM E, $ / t 28,22 4.9% 4F eb Z inc, LM E, $ / t 2,5 6.6% 4F eb Wheat, Sep, $ / B ushel % 4F eb C o rn, Sep, $ / B ushel % 4F eb So ybeans, Sep, $ / B ushel Notes: All variables depicted in the charts above are rebased to in the last trading day in. Lama Kiyasseh,, l.kiyasseh@alahli.com

5 5 Global Macro A Snapshot of the EU Many developments on the euro zone front bring to the fore questions on how soon member countries will reach an agreement on economic reforms. Friday s EU summit saw what amounted to a row between France and Germany on the one hand, and many of the other EU countries on the other hand over a proposal drafted solely by the two powerhouses. The proposal included, along with other ideas, dropping inflationindexed wages, raising the retirement age, incorporating constitutional debt rules, and a minimum corporate tax, which many countries voiced opposition to. These proposals stem from Germany s unwillingness to shoulder more debt and increase the flexibility of and extend the EFSF (European Financial Stability Facility) unless stricter budgetary commitments and reforms by other members are agreed to. In December, the Euro zone PPI rose to 5.% Y/Y,driven by higher energy prices, the unemployment rate remained at 1, and retail sales declined.9% Y/Y, according to Eurostat. On Feb rd, ECB policymakers left interest rates at a 1%, ruling out a rate hike soon by highlighting the recent spike in inflation across the EU. On Thursday, the FAO announced that its food price index soared for a seventhstraight month in January to a record high, and predicting that this is likely to continue unless measures are taken to curb speculation in the commodity markets. These figures do not bode well for the monetary union if it continues to be divided on economic reforms, but Germany s adamancy to reach an agreement by the next summit meeting in late March during the European Council meeting might just garner the political will to resolve the European debt crisis. Selected Global Macroeconomic Indicators Europe/Japan/Oceania Growth* Inflation* Policy Rate* Policy Rate Change Last Period Last Date Target Last Decision Date Cumulative Euro Zone UK Japan Australia New Zealand 2.6% 4.9% 6.% 1.2% 1.6% 1.9%.7% % %.7%.4% 2.7% % 2..6% 2.9% Feb11 1Jan Jan1 E. Zone UK Japan Australia Latin America/Caribbean N. Zealand Mexico Brazil Chile 6.1%.6% 1. 5.% 6.7% % 5.9% 1.6% Sep Jan11 19Jan11 1Jan11 Mexico Brazil Chile Asia/Southeast Asia China India Hong Kong Singapore South Korea Indonesia Thailand Malaysia 9.2% 5.7% 2.8% 1.%.2% % 1.7% 9.8% 8.9% 6.8% 12.6%. 6.9% 6.7% 5.% 4Q1 4Q1 4Q1 4Q1 4.6% 8.4%.1% 4.6% % Jan11 4.7%.8%. 2.1% 5.81% Jan11 27Jan11 1Jan11 5Jan11 12Jan11 27Jan11 China India H. Kong Singapore S. Korea Indonesia Thailand Malaysia Eastern Europe/Central Asia Russia Russia Turkey 5.6%.9% 2.7% % 6.4% Jun1 2Jan11 Turkey 2% 1% 1% 2% % Notes: 1/Growth: Real GDP Growth Rate, 28: Y/Y % change in full year GDP, Last/Period: Quarterly GDP growth rate annualized unless otherwise indicated. 2/ CPI Inflation: YoY % Change in CPI, Target: Central bank/monetary authority inflation target. /Policy Rate: Last: Current policy rate, Decision/Date: Decision taken in latest meeting/date of latest meeting. Reem Mokhtar,, r.mokhtar@alahli.com

6 6 Regional Macro Turkish Export Strength After a 2% drop in, Turkish exports rebounded dramatically last year, highlighting the competitiveness of the economy in the face of a global challenges and a strong Lira. This continues a positive trend which saw exports expand by 268% in % growth in 21 took total exports to USD11.7 bn, still short of the precrisis peak of USD12 bn. Among the leading sectors, car exports rose by 16% to USD17.4 bn. Textiles gained 1 to USD14.5 bn and chemicals a remarkable 2% to USD12.7bn. Industry accounts for 82.% of Turkish exports and agriculture for 1.4%. The strong performance has continued into January with a 22.7% Y/Y increase translating into an annualized rate of 14.. Turkish exports are well diversified with Germany the largest destination at 1.2%, followed by the UK, Italy, and France. However, the faster growth has been observed in exports to the Middle East. The nine largest regional trade partners and China jointly accounted for 21. of Turkish exports in 21. Following 18% Y/Y growth last year, Iraq is the fifth largest export destination. Exports to China, India, Russia, and Brazil are growing at annual rate of some 5. Important efforts are underway to further boost Turkey s export performance. These include trade liberalization through freetrade agreements (FTAs). Turkey currently has 14 FTAs with countries that account for 1% of Turkish exports, with two more under implementation. Moreover, the government recently unveiled an industrial strategy document which seeks to boost Turkish competitiveness through major infrastructure investments. Selected Regional Economic Indicators MSCI GCC J1 A1 J1 O1 J IPO Issuance Dow Jones Islamic J1 A1 J1 O1 J Sukuk Issuance 4 OPEC Oil Production, Monthly Change 2 Iraq Saudi UAE Angola Venezuela Ecuador Kuw ait Value, LHS No. of Deals Value, LHS No. of Deals Algeria Qatar Libya Iran Nigeria Middle East/Africa Selected Indicators Saudi Arabia Kuwait Qatar UAE Oman Bahrain Jordan Egypt South Africa Growth* Inflation* Policy Rate* 28 Last Period Last Date Target Last Decision Date 4.2% 6.% 25.4% 7.4% 12.8% 6.% 7.2% 7.2%.1%.8% % 1.% 1.1%.1%.2% 4.7% 2.6% 21 e 5.4% 6..6% 1.7%.4% 1. 1.% 1.%. Aug Jan9 8Feb1 1May8 8Oct8 2May9 15Sep9 25Nov8 27Jan1 19Nov1 Notes: 1/MSCI GCC index excludes Kingdom of Saudi Arabia. 2/OPEC s monthly survey: Thousand barrels per day of crude oil.. /Initial Public Offering values in billion USD. 4/Sukuk values in billion USD. 5/Growth: Real GDP Growth Rate, : Y/Y % change in full year GDP, Last/Period: Quarterly GDP growth rate annualized unless otherwise indicated. 6/CPI Inflation: YoY % Change in CPI, Target: Central bank/monetary authority inflation target. 7/Policy Rate: Last: Current policy rate, Decision/Date: Decision taken in latest meeting/date of latest meeting. Jarmo Kotilaine, Chief, 5655@alahli.com

7 7 FOREX Market Commodity Currencies: Week of Gains The Canadian dollar had a week of gains against its major counterparts, reaching its highest level against the USD since May 28. This rise in the loonie was attributed to: 1) improvement in employment, which rose by 69, in Jan, more than three times higher than expectations; and 2) the declining unemployment in the US, the main trading partner of Canada, which boosted demand for CAD. The CAD ended last week with 1.%, 1. and 1.% gains against USD, EUR, and JPY, respectively. We expect the CAD to advance further as the global economic recovery remains on track, thus, boosting demand for oil. The Aussie, another commodity currency, got lucky, ending last week with gains driven by positive macroeconomic data. Increasing building approvals and widening trade balance coupled with the overall strong performance of the economy are the main reasons for the rally in AUD. The seasonally adjusted total of dwelling units approved surged 8.7% in Dec 21, and the surplus in the balance on goods and services was AUD1.9 bn in Dec as well. In addition, the Reserve Bank of Australia revised upwardly its growth forecast for 211 from.7 to 4.2 to reflect the expectation of strong investment in the mining sector over the medium term. The Aussie registered 2., 2.2% and 2.1% against USD, EUR, and JPY, respectively at the end of last week. Key Spot Foreign Exchange Rates $ per * Last Week.2% 1YTD 5.1% J1 A1 J1 O1 J $ per * Last Week 1. 1YTD.% J1 A1 J1 O1 J per $* Last Week. 1YTD 11.6% J1 A1 J1 O1 J Rate versus $ Last Week Europe/Oceania Sw iss Franc (CHF) % Australian Dollar (AUD) New Zealand Dollar (NZD) Latin America/Caribbean Mexican Peso (MXN) % Brazilean Real (BRL) Chilean Peso (CLP) % Asia/Southeast Asia Chinese Yuan (CNY) % Indian Rupee (INR) % Hong Kong Dollar (HKD) Singaporean Dollar (SGD) % South Korean Won (KRW) 1,114..2% Indonesian Rupee (IDR) 8,995..4% Thai Baht (THB).84.8% Malaysian Ringgit (MYR).45.4% Eastern Europe/Central Asia Russian Rouble (RUB) % Turkish New Lira (TRY) % Middle East/Africa Saudi Riyal (SAR).754. Kuw aiti Dinar (KWD).288.1% Qatari Riyal (QAR).642.1% UAE Dirham (AED).671. Omani Riyal (OMR).85.2% Bahraini Dinar (BHD).77. Jordanian Dinar (JOD).7111.% Egyptian Pound (EGP) % South African Rand (ZAR) % Cumulative 1YTD MYR AUD SGD THB MXN CHF ZAR NZD KRW IDR BRL CNY CLP KWD INR RUB QAR SAR AED JOD BHD OMR HKD TRY EGP Ali AlReshan,, a.alreshan@alahli.com

8 8 Global Equity Markets Global Markets End Mixed The three major indices in the US equity markets have recorded their highest weekly gains this year. Dow Jones Industrial Average climbed 2.27% this week, setting its highest gain in 9 weeks. At Friday s closing, the index reached , the highest level since midjune 28. S&P5 followed suit with an impressive 2.71% gain, also recording the highest gain in 9 weeks. Meanwhile, NASDAQ outperformed both indices and added.1% to reach at the end of last week which sets the highest reading for the index since November 27. Stock markets were fragile the week before last as Egypt s political situation worsened and most global indices suffered on the 28th of January amidst intensifying protests. The major indices managed to regain its previous losses and overshadow Egypt s unrest as the economy encouraged investors and provoked tapping into riskier assets. Sound economic indicators and better than expected earnings have helped boost stocks attractiveness. The global economic situation seems to have cooled down while political issues are on the rise. The world s barometer of investor sentiment and market volatility, VIX, has lost a staggering 2. that amounted from five daily consecutive drops, indicating the little effect of Middle Eastern and North African s political turmoil on US stock prices and investor assurance. Equity markets are expected to carry on their strong performances for 211 as the overall sentiment is positive. Major Global Equity Markets and Indices, Local Currency (LC) Terms MSCI World Last 4.5 Week.2% 1YTD 11.7% 1 1 J1 A1 J1 O1 J MSCI G7 Last 1,115.6 Week.2% 1YTD 12.% 1 1 J1 A1 J1 O1 J MSCI EM Last 1,126. Week.9% 1YTD 1.8% 2 1 J1 A1 J1 O1 J Country/Index Week YTD Europe/Japan/Oceania UK (FTSE1).% 8.7% Germany (DAX).6% 19.2% France (CAC4).4% 1.7% Japan (N225).8% 1.8% Australia (All Ordinaries).2%.2% N. Zealand (NZSX5)..8% Latin America/Caribbean Mexico (IPC) 1.% 14.7% Brazil (Bovespa). 2.8% Chile (IGPA)..7% Asia/Southeast Asia China (ShanghaiC) 1.4% 16. India (BSESensex).2% 5.% Hong Kong (Hang Seng) 1.1% 8. Singapore (Strait Times) 1.4% 11. S. Korea (KOSPIC) 1.8% 25.% Indonesia (JakartaC).2% 7.6% Thailand (SET).8% 15.% Malaysia (Kuala LampurC) 1.7% 19.6% Eastern Europe/Central Asia Russia (RTSI).. Turkey (ISE National 1) 4.1% 19.7% Middle East/Africa KSA (TASI) 5.8% 2.4% Kuw ait (KSEI).7%.9% Qatar (DSM2) Abu Dhabi (ADI).9%.1% Dubai (DFMGI).2% 1.6% Oman (MSM).6% 9. Bahrain (All Share I). 1. Jordan (ASE General I).7% 4.1% Egypt (CASE) 15.7% 9.1% S. Africa (JSE All Share Index) 1.9% 14. Cumulative 1YTD Indonesia Chile Russia Qatar S. Korea Turkey Malaysia Germany Thailand Mexico S. Africa Singapore Oman UK H. Kong India NZ KSA France Bahrain Australia Kuw ait Japan Brazil A. Dhabi Jordan Egypt Dubai China Majed A. AlGhalib,, m.alghalib@alahli.com

9 Economics Department The Economics Department Research Team Head of Research Said A. Al Shaikh, Ph.D Group Chief Macroeconomic Analysis Sector Analysis/Saudi Arabia Jarmo Kotilaine, Ph.D Chief Tamer El Zayat, Ph.D Senior /Editor Albara a Alwazir Senior a.alwazir@alahli.com Paulina Chahine p.chahine@alahli.com Ali AlReshan a.alreshan@alahli.com Majed A. AlGhalib m.alghalib@alahli.com Lama Kiyasseh l.kiyasseh@alahli.com Reem Mokhtar r.mokhtar@alahli.com Management Information System Sharihan AlManzalawi Financial Planning & Performance s.almanzalawi@alahli.com To be added to the NCB Economics Department Distribution List: Please contact: Mr. Noel Rotap Tel.: Fax: n.rotap@alahli.com Disclaimer: The information and opinions in this research report were prepared by NCB s Economics Department. The information herein is believed by NCB to be reliable and has been obtained from public sources believed to be reliable. However, NCB makes no representation as to the accuracy or completeness of such information. Opinions, estimates and projections in this report constitute the current judgment of the author/authors as of the date of this report. They do not necessarily reflect the opinions of NCB as to the subject matter thereof. This report is provided for general informational purposes only and is not to be construed as advice to investors or an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or other securities or to participate in any particular trading strategy in any jurisdiction or as an advertisement of any financial instruments or other securities. This report may not be reproduced, distributed or published by any person for any purpose without NCB s prior written