Market Review & Outlook

Transcription

1 Issue # 1 April 9, 1 Market Review & Outlook NCB Weekly Views on Global, Regional and Local Economic and Financial Developments SPECIAL FOCUS Cement Demand Rises (page ) HEADLINES Saudi Macro and Equity Market Cement Demand Rises US Macro and Equity Market Labour Market Faces Disappointment Commodity Markets Gold Loses Ground Global Macro Cookie Crumbles Regional Macro Bridging Regional Gaps FOREX Market Asian Currencies Curbed by Euro Woes Global Equity Markets European Indices Post Third Decline Said A. Al Shaikh Group Chief Economist s.alshaikh@alahli.com Tamer El Zayat Senior Economist Editor t.zayat@alahli.com Majed A. AlGhalib Senior Economist m.alghalib@alahli.com Jarmo Kotilaine Chief Economist j.kotilaine@alahli.com Albara a Alwazir Senior Economist a.alwazir@alahli.com Yasser AlDawwod Economist y.aldawood@alahli.com Saudi Arabia Leading Economic Indicators Average WTI, Cushing 1M, USD/bbl Weighted Average Arabian Light, USD/bbl Average 3M USD LIBOR Average 3M SAR SAIBOR Average Spread, in Basis Points, SAIBORLIBOR Y/Y Growth in Monetary Base (M) Y/Y Growth in Money Supply (M3) Basis Points Apr Apr5 Spread, SAIBOR LIBOR, LHS 3M SAR SAIBOR, RHS 3M USD LIBOR, RHS Apr6 Apr7 Apr %.69% % 13.3% Saudi Arabia Liquidity and Risk Detector Sources: Reuters and NCB Last updated: 6 April 1 View of the Week Apr9 Latest Apr %.8% 3.3.9% 13.8% Apr11 Period 1YTD 1YTD 1YTD 1YTD 1YTD Feb 1 Feb 1 We expect 1 production levels to increase in the range of mn tons, thus, driving corporate earnings higher... Apr1 %

2 Saudi Macro and Equity Market Cement Demand Rises The expansionary policy of the Saudi government continues to fuel business activity by raising demand for raw materials. Cement demand has been rising on the back of huge government and private sector projects. We expect government expenditure to exceed the budgeted amount by 13%, reaching SAR78 bn during 1. This will increase the need for cement to meet the elevated demand levels. During 11, production levels increased by 5. mn tons to reach 8. mn tons in comparison to and 9 s production of 3. mn tons and 37.8 mn tons, respectively. The rise in production was accomplished by the addition of new cement factories in the market. Recently, Saudi Industrial Development Fund approved a SAR3 bn loan to a new factory in Hail. The rising demand has been reflected by local deliveries growing by 13.6% last year, representing 97% of production as the remainder was either exported or stocked as inventory. As for 1, the first two months have witnessed an increase in cement and clinker production by 18. and.9%, respectively over the same period last year. Local demand reached almost 1 growth through JanuaryFebruary as vast projects risk raising local prices. We expect 1 production levels to increase in the range of 5356 mn tons, thus, driving corporate earnings higher and supporting expansionary plans to build a much needed capacity. Key Macroeconomic and Equity Market Indicators Y/Y Growth in Credit (Private Sector) Tadawul All Share Index: 31 Dec 1 = F8 F9 F1 F11 F1 Y/Y CPI Inflation Rate 1 Food and Beverages Overall 1 F8 F9 F1 F11 F1 Average Daily Traded Value (SAR bn) YTD 1 1 Jan1 Feb1 Mar1 Apr1 Price Performance of Sector Indices Transport R. Estate Multi Inv Insurance Hotel Telecom Indust Inv Media Banking Petrochem Cement Agric Construct YTD Retail Week Energy Last Previous 1 11 Oil Price, $bbl Mar Feb Oil Production, mmbd Real GDP 6.8%.6 CPI Inflation, Y/Y 5.% 5.3% Broad M oney (M 3), Y/Y 13.8% 13.6% Credit, Private Sector 1.1% 1.1% 3Q11 Credit, Corporate 7.7% 8.59% 3Q11 Credit, Households.6 1. Net Claims on Government 3 1,91.1 1,58.1 Loantodeposit Ratio 78.3% 78.1% Excess Reserves/Total % 6.% Net Foreign Assets, USDbn M 1 M 11 Import LCs, SARbn Sources: SAMA, Reuters. Notes: 1/Oil price: Weighted Average Arabian Light. /Oil production: Million barrels per day of crude oil. 3/Net claims on government: banking sector claims on the central government less central government deposits in the banking system in SAR bn. /Loantodeposit ratio: The ratio of bank claims on the public and 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/Net Foreign Assets: SAMA s Held Net Foreign Assets. 7/Import LCs: The cumulative value of letters of credit opened by banks to finance private sector imports. Majed A. AlGhalib, Senior Economist, m.alghalib@alahli.com

3 3 US Macro and Equity Markets Labour Market Faces Disappointment After three months of strong performance, where more than, jobs were created during Dec 11 through February of this year, March statistics acted as a surprising closing event for 1Q1 with only 1, jobs added. This figure falls short of even the most modest of predictions; however, the unemployment rate fell to 8.%. More so, the boosted jobcreation statistics in January and February were likely the result of temporary hirings as well as seasonal factors such as the mild winter. The weakest link in job creation appears to be in the retail sector. This could be attributed to the rising gas prices that add to the cost of commuting to the nonessential goods and services such as dining and recreational activities which decreases demand. That, in turn, forces these businesses to cut costs by not pursuing expansion plans. The Fed stated that that the economy, although growing, is still fragile and that low interest rates are still needed to support growth. According to the Department of Labor, women were most devastated by the decrease in job creation as their labor force participation went down by 177, versus a rise in male employment by 1,. This might have an adverse repercussion on Obama s reelection campaign since economic recovery constitutes one of its top main objectives; especially that 56% of his electorates in 8 were women. Key Macroeconomic and Capital Market Indicators Real GDP Growth, Annualized Benchmark Yields, Annualized Last Next 1 Annual % (F) 1Q1(A) Real GDP 3. 9Apr Q6 Q7 Quarterly Q8 Q9 Q1 3% % 1% 3Mar1 1 Mar Apr Unemployment 8.% 9M ay Mar Apr A. H. Earnings, M /M.% 9M ay 1 1M 3M 6M Y 5Y 1Y 3Y CPI Inflation, Y/Y.9 17Apr National Unemployment Rate M8 M9 M1 M11 M1 Target Fed Funds Rate/Core PCE 5. Fed Funds Core PCE.. F8 F9 F1 F11 F1 Benchmark Equity Indices NASDAQ S&P 5 DJIA IT Financials C. Disc. Materials Industrials H. Care C. Staples Energy Telecom Utilities YTD Week 1 1 MSCI US Sector Indices 1 1 Core PCE, Y/Y 1.9 % 9 A pr Existing Home Sales, M /M.9% Apr Housing Starts, M /M 1.1% Apr Jan Feb Trade Balance, $bn Apr Retail Sales, M /M 1.1% 1 A pr Industrial Production, M /M. 15Apr Capacity Utilization 78.7% 15Apr Mar Apr Fed Funds Rate. M ay Sources: Reuters, Bureau of Labor Statistics (BLS), and Bureau of Economic Analysis (BEA). Notes: A/ Advance estimate, P/Preliminary estimate, F/Final estimate. Currently, instead of preliminary and final estimate, the Bureau of Economic Analysis (BEA) uses second and third estimate, respectively. Yasser AlDawood, Economist, y.aldawood@alahli.com

4 Commodity Markets Gold loses ground Hedge fund managers and speculators turned bearish on gold futures and options as their expectations for higher copper prices are attributed to signs of a strengthening US economy. Speculators cut their bullish gold bets by 1,88 to 118,185 contracts in the week ended April 3, according to data from the Commodity Futures Trading Commission. Moreover, the bearish stance coincided with a 3% fall in gold prices amid dwindling hopes of a further loosening of US monetary policy following the release of the US Federal Reserve's March Meeting. Consequently, the meeting extinguished hopes of a third round of quantitative easing. Spot gold was up.6 % at USD1,68.31 an ounce before closing on Thursday. Gold had briefly nudged above USD1,63 an ounce but still fell.3% for the week, the thirdworst weekly drop of the year, retreating further from the March high above USD1,79 an ounce on expectations of another quantitative easing. The two previous quantitative easing programs helped push gold to record highs in 11, but the climb has stalled as the recent strengthening of US economic data curbed those expectations. Copper has been the benefactor recently as speculators raised their copper longs for a twelfth week in a row. Hitting its highest level since August 11, copper's net long rose by 3,759 contracts to 18,6 on strong US economic data. The possibility of the U.S. economy stumbling still looms, which keeps precious metals within an arm's reach for wary investors. Key Commodity Prices and Indices Benchmark Crude Oil Prices WTI 1 Brent 1 Jan1 Feb1 Mar1 Precious Metals 3 Gold Silver 1 Jan1 1 Feb1 Mar1 Apr1 Goldman Sachs Agriculture Index Jan1 Feb1 Mar1 Apr1 Saudi Arabian Light, Asia Deliveries 1 1 Jan1 Feb1 Mar1 Apr1 Base Metals Copper 1 Aluminum 1 Jan1 Feb1 Mar1 Apr1 Baltic Exchange Dry Index Jan1 Feb1 Mar1 Apr1 5 7 Last Week WTI, Spot, $/bbl % Brent, Spot, $/bbl 1.3.1% Gold, LM E, $ /Oz 1, % Silver, LM E, $ /Oz % Platinum, $/Oz 1,591..7% Palladium, $/Oz Aluminum, LM E, $/t,9 1.8% Copper, LM E, $ /t 8,9.1% Nickel, LM E, $/t 18,.1% Zinc, LM E, $/t 1,986.9% Wheat, M ay, $/Bushel % Corn, M ay, $/Bushel 6.58.% Soybeans, M ay, $/Bushel 1.3.% Notes: All variables depicted in the charts above are rebased to in the last trading day in 11. Albara a Alwazir, Senior Economist, a.alwazir@alahli.com

5 5 Global Macro Cookie Crumbles China s economy has lost some steam going into 1 as its slowdown weighs on the global recovery. Government officials have lowered the expected growth rate for 1 to 7. last month as inflated prices pressured growth prospects and as the weakening demand from the European region negatively impact the economy via trade links. However, during February, the consumer price index fell below the targeted rate of % by posting a 3.% gain as officials have taken measures to combat price hikes. Recently, the National Bureau of Statistics announced that March s inflation rate has rebounded to 3.6% as food prices accelerate. The rate remains below target but certainly raises worries of further stimulus efforts to be considered by China to stimulate economic expansion. Their current loosening stance aims to drive credit facilities which will positively impact consumers. Asian markets have encompassed the leading role in the global economy. The side effects of their robust growth figures have been inflationary pressures and governments have been struggling to contain local prices. Recently, inflation rates across the region have been somewhat moderate but we expect prices to gain marginally in line with stimulus measures. China will continue to act as the main catalyst for 1 as the European regional debt crisis hinders growth, while the US is expected to maintain a slow pace of recovery this year. Selected Global Macroeconomic Indicators Europe/Japan/Oceania Growth 1 Inflation Policy Rate 3 Policy Rate Change Last Period Last Date Target Last Decision Date Cumulative 1YTD Euro Zone UK Japan Australia New Zealand 1.7% 1.3% 3.9%.7% 1..7%..7%.3% 1.8%.7% 3.6%.1% 3.1% 1.8% Feb1 Feb1 Feb1 Dec11 Dec11...1% Apr1 5Apr1 13Mar1 3Apr1 7Mar1 E. Zone UK Japan Australia Latin America/Caribbean N. Zealand Mexico Brazil Chile % 3.7% 1.%. 3.9% 5.%.% Feb1 Mar1 Feb Jan1 8Mar1 15Mar1 Mexico Brazil Asia/Southeast Asia China India Singapore South Korea Indonesia Thailand Malaysia 1.3% 1.% % 6.1% 7.8% 7.% 8.9% 6.1% 3.6% 3.3% % 3.6% 7..6%.6%. 3..% Mar1 Jan1 Feb1 Mar1 Mar1 Mar1 Feb % % Apr11 15Mar1 8Mar1 8Mar1 1Mar1 9Mar1 Chile China India Singapore S. Korea Indonesia Thailand Eastern Europe/Central Asia Russia Turkey. 8.%.8% 5.% 3.7% 1.% Feb11 Mar Dec11 1Feb1 Malaysia Russia Turkey Notes: 1/Growth: Real GDP Growth Rate, : Y/Y % change in full year GDP, Last/Period: Quarterly GDP growth rate annualized unless otherwise indicated. / CPI Inflation: Y/Y % change in CPI, Target: Central bank/monetary authority inflation target. 3/Policy Rate: Last: Current policy rate, Decision/Date: Decision taken in latest meeting/date of latest meeting. Majed A. AlGhalib, Senior Economist, m.alghalib@alahli.com

6 6 Regional Macro Bridging Regional Gaps The Turkish government this month unveiled a new regional development incentive system, replacing an earlier policy from 9. The new scheme divides Turkey s provinces into six categories in terms of their socioeconomic development. The poorest regions, including virtually the entire SouthEast and East, are entitled to the most generous support, including government payment of all employee insurance costs on the minimum wage for 1 years. Other benefits include exemptions from the value added tax and customs duties, as well as temporary reductions in other taxes and insurance costs. Some of the tax reductions are applied to all the revenues of the investor, including businesses not directly covered by the scheme. Also land allocations are available. Some incentives are available for 1 years, up from a maximum of five under the old policy. The new scheme adds a new dimension of promoting strategic investments to the regional policy. The priority sectors include education, transportation, mining, certain types of tourism, defense, aviation, aerospace, and the biochemical industry. Priority projects will receive government support as applied to the fifth regional category regardless of their location. The new initiatives are linked to efforts to reduce the country s dependency on imported intermediate goods, thereby offering a structural solution for the current account deficit. All investments agreed after 1 January this year qualify. Turkey currently has some the largest income differential among its regions in Europe with difference between the highest and lowest some.9 as of 8. Selected Regional Economic Indicators MSCI GCC 1 Dow Jones Islamic OPEC Oil Production, Monthly Change % % 1 1 Libya Iraq Jan1 Feb1 Mar1 % % IPO Issuance 3 Value, LHS No. of Deals Jan1 Feb1 Mar1 Sukuk Issuance Value, LHS No. of Deals UAE KSA Ecuador Algeria Qatar Venezuela Kuw ait Nigeria Angola 9 11 Middle East/Africa Selected Indicators 9 11 Iran Saudi Arabia Kuwait Qatar UAE Oman Bahrain Jordan Egypt South Africa Previous.% 5.% 8.6% 3.% 1.1% 3.1%.3%.7% 1.7% Growth* Inflation* Policy Rate* Last Period Last Date Target Last Decision Date 6.8%. 16.3% 3.%.%.1% 3.1% 5.1%.8% 11.9%.1%.%.9% 3.3% %.3% Jan9 7Feb1 1Aug11 19Jan9 31Aug11 15Sep9 31May11 8Aug11 1Nov11 Notes: 1/MSCI GCC index excludes Kingdom of Saudi Arabia. /OPEC s monthly survey: Thousand barrels per day of crude oil.. 3/Initial Public Offering values in billion USD. /Sukuk values in billion USD. 5/Growth: Real GDP Growth Rate, Y/Y % change in full year GDP. 6/CPI Inflation: Y/Y % 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 Economist, j.kotilaine@alahli.com

7 7 FOREX Market Asian Currencies Curbed by Euro Woes Downside risks to the global economy have pushed investors towards safe havens once more. Asian currencies have depreciated against the greenback as the US announced a slowdown in job creation. US employers added 1, workers during March, way below the most conservative of estimates. This raised doubts on the rigidity of the economic recovery of the US which has been blossoming over the last few months. The Indonesian Rupiah declined by. over the week while the Malaysian Ringgit declined by.1%. Additionally, the Korean Won lost.1% as the government plans to launch a rocket and test nuclear weapons intensifying geopolitical tensions. Meanwhile, China s inflation prices have accelerated at 3.6% during March following a more contained 3.% in February. This led to the drop of the Yuan by.% during last week s trading sessions. The People s Bank of China has raised the reference rate by.8% to 6.31 as the currency is only allowed to trade. higher or lower. Acting as another safe haven, the Japanese Yen has been a favored asset during last week as it appreciated by almost 1.. The riskaverse sentiment, coupled with a current account surplus in February, led investors to seek Japan s currency. The ongoing turmoil in the European region boosted demand for safe havens as the global economy continues to be negatively pressured. Key Spot Foreign Exchange Rates $ per Last #NAME? Week ##### 1YTD #NAME? 6% % % Jan1 % Feb1 Mar1 Apr1 % $ per Last #NAME? Week ##### 1YTD #NAME? % % Jan1 Feb1 Mar1 Apr1 % per $ Last #NAME? Week ##### 1YTD #NAME? 1% 8% % Jan1 Feb1 Mar1 Apr1 % Rate versus $ Last Week Europe/Oceania Sw iss Franc (CHF) #NAME? #NAME? Australian Dollar (AUD) #NAME? #NAME? New Zealand Dollar (NZD) #NAME? #NAME? Latin America/Caribbean Mexican Peso (MXN) #NAME? #NAME? Brazilean Real (BRL) #NAME? #NAME? Chilean Peso (CLP) #NAME? #NAME? Asia/Southeast Asia Chinese Yuan (CNY) #NAME? #NAME? Indian Rupee (INR) #NAME? #NAME? Hong Kong Dollar (HKD) #NAME? #NAME? Singaporean Dollar (SGD) #NAME? #NAME? South Korean Won (KRW) #NAME? #NAME? Indonesian Rupee (IDR) #NAME? #NAME? Thai Baht (THB) #NAME? #NAME? Malaysian Ringgit (MYR) #NAME? #NAME? Eastern Europe/Central Asia Russian Rouble (RUB) #NAME? #NAME? Turkish New Lira (TRY) #NAME? #NAME? Middle East/Africa Saudi Riyal (SAR) #NAME? #NAME? Kuw aiti Dinar (KWD) #NAME? #NAME? Qatari Riyal (QAR) #NAME? #NAME? UAE Dirham (AED) #NAME? #NAME? Omani Riyal (OMR) #NAME? #NAME? Bahraini Dinar (BHD) #NAME? #NAME? Jordanian Dinar (JOD) #NAME? #NAME? Egyptian Pound (EGP) #NAME? #NAME? South African Rand (ZAR) #NAME? #NAME? Cumulative 1YTD RUB MXN CLP NZD TRY INR MYR SGD ZAR KRW CHF BRL THB AUD JOD OMR BHD HKD KWD AED QAR SAR EGP CNY IDR 3% 3% 6% 9% 1% Majed A. AlGhalib, Senior Economist, m.alghalib@alahli.com

8 8 Global Equity Markets Europe s Indices Post Third Decline European equities witnessed their third consecutive week of losses on worries of a contagious debt crisis in peripheral Europe. Spain announced that their public debt is expected to reach a new record at 79.8% of GDP as they struggle to get back on their feet. The Spanish government lowered expectations by increasing the projected deficit to 5.3% for 1. This heightened worries of a possible bailout for Spain. Their latest bond sale raised EUR.6 bn, barley over their minimum set range. Borrowing costs have hiked as investors demanded more to hold Spanish assets. The aforementioned pressured the regional STOXX6 downwards by 1.6% over the fourday trading week. Additionally, Germany experienced a setback as the nation s exports decreased by 1.% in February from the prior month following a.% from the previous month. Furthermore, its industrial output declined by 1.3% due to low winter temperatures that kept workers off construction sites. The German DAX declined by. last week while the French CAC slumped 3% as investors shy away from risk assets. Additionally, job creation in the US stumbled as employers only added 1, during March. The globally negative weak affected equities across all regions. UK s FTSE1 edged lower by.8%, marking its third consecutive decline. Stocks will remain extremely responsive to economic indicators which will limit 1 s growth levels. Major Global Equity Markets and Indices, Local Currency (LC) Terms MSCI World Country/Index Week YTD Cumulative 1YTD Last ###### Week ##### 11YTD ###### 1 1 Jan1 Feb1 Mar1 Apr1 MSCI G7 Last ###### Week ##### 11YTD ###### 1 1 Jan1 Feb1 Mar1 Apr1 MSCI EM Last ###### Week ##### 11YTD ###### 1 1 Jan1 Feb1 Mar1 Apr1 Europe/Japan/Oceania UK (FTSE1) #NAME? #NAME? Germany (DAX3) #NAME? #NAME? France (CAC) #NAME? #NAME? Japan (N5) #NAME? #NAME? Australia (All Ordinaries) #NAME? #NAME? N. Zealand (NZSX5) #NAME? #NAME? Latin America/Caribbean Mexico (IPC) #NAME? #NAME? Brazil (Bovespa) #NAME? #NAME? Chile (IGPA) #NAME? #NAME? Asia/Southeast Asia China (ShanghaiC) #NAME? #NAME? India (BSESensex) #NAME? #NAME? Hong Kong (Hang Seng) #NAME? #NAME? Singapore (Strait Times) #NAME? #NAME? S. Korea (KOSPIC) #NAME? #NAME? Indonesia (JakartaC) #NAME? #NAME? Thailand (SET) #NAME? #NAME? Malaysia (Kuala LampurC) #NAME? #NAME? Eastern Europe/Central Asia Russia (RTSI) #NAME? #NAME? Turkey (ISE National 1) #NAME? #NAME? Middle East/Africa KSA (TASI) #NAME? #NAME? Kuw ait (KSEI) #NAME? #NAME? Qatar (DSM) #NAME? #NAME? Abu Dhabi (ADI) #NAME? #NAME? Dubai (DFMGI) #NAME? #NAME? Oman (MSM3) #NAME? #NAME? Bahrain (All Share I) #NAME? #NAME? Jordan (ASE General I) #NAME? #NAME? Egypt (CASE3) #NAME? #NAME? S. Africa (JSE All Share Index) #NAME? #NAME? Egypt Dubai KSA Turkey Russia Germany Japan India Singapore Brazil H. Kong S. Korea Thailand Chile Indonesia Australia A. Dhabi Mexico NZ Kuwait S. Africa France China Malaysia UK Oman Jordan Qatar Bahrain Majed A. AlGhalib, Senior Economist, m.alghalib@alahli.com

9 Economics Department The Economics Department Research Team Head of Research Said A. Al Shaikh, Ph.D Group Chief Economist Macroeconomic Analysis Sector Analysis/Saudi Arabia Jarmo Kotilaine, Ph.D Chief Economist Tamer El Zayat, Ph.D Senior Economist/Editor Albara a Alwazir Senior Economist a.alwazir@alahli.com Paulina Chahine Senior Economist p.chahine@alahli.com Sultan Khoja Economist sw.khoja@alahli.com Majed A. AlGhalib Senior Economist m.alghalib@alahli.com Jellan Nour Economist j.nour@alahli.com Yasser AlDawood Economist y.aldawood@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 consent.