Global Markets Update QNB Economics 15 October 2017
Executive Summary Key Takeaways US yields fell after inflation came in lower-than-expected; Turkish rates rose after a diplomatic dispute with the US The UK pound rose on firming expectations that the Bank of England will hike rates in November Emerging market equities gained on prospects of slower Fed tightening; Japanese stocks rose on higher expectations of PM Shinzo Abe s re-election Oil prices rose on concerns of supply disruptions after the US decertified the Iran nuclear deal, raising the possibility of restrictions on Iranian oil exports This week, markets will focus on the release of China s Q3 GDP Sources: Bloomberg and QNB Economics 2
US yields fell after inflation came in lower-than-expected; Turkish rates rose after a diplomatic dispute with the US Global Benchmark Yields (%, local currencies) Maturity 06-Oct 13-Oct Change in Yield (bps) Advanced Economies Week MTD* YTD* US 10 yrs 2.36 2.27-8.6-6.1-17.1 Germany 10 yrs 0.46 0.40-5.6-6.1 19.5 France 10 yrs 0.74 0.82 8.2 7.4 13.1 Italy 10 yrs 2.15 2.08-6.3-2.7 26.9 Japan 10 yrs 0.06 0.06 0.8-0.4 1.8 UK 10 yrs 1.36 1.37 0.4 0.2 12.8 Emerging Markets Bahrain** 11 yrs 6.72 6.63-9.7-9.4-6.6 Brazil 10 yrs 9.73 9.78 4.9 4.2-162.5 China 10 yrs 3.65 3.68 2.7 5.8 62.1 Egypt 9 yrs 6.15 6.02-13.7-18.0 NA India 10 yrs 6.76 6.73-2.3 7.1 21.9 Indonesia 10 yrs 6.53 6.56 3.4 6.7-140.9 Nigeria 8 yrs 15.12 14.89-22.7-87.5-119.9 Qatar** 9 yrs 3.41 3.49 8.1 14.2-16.5 Russia 9 yrs 7.59 7.48-10.5-9.5-88.0 Saudi Arabia** 9 yrs 3.41 3.38-2.5 2.0-48.3 South Africa 10 yrs 8.70 8.62-8.2 5.9-30.4 Turkey 10 yrs 11.09 11.25 16.0 28.0-14.0 Abu Dhabi** 10 yrs 3.22 3.20-1.7 NA NA Dubai** 3 yrs 2.57 2.58 0.8-1.3-31.3 US Core PCE fell to 1.3% in August from 1.4% in July, its seventh decline in the past eight months As a result, the market probability of a Fed rate in December fell modestly from 78% last week to 74% this week Turkish markets were unsettled after a US official in Turkey was arrested and the US embassy in Turkey suspended some visa processing last week 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; **USD denominated 3
The UK pound rose on firming expectations that the Bank of England will hike rates in November Global Exchange Rates vs USD 06-Oct 13-Oct Change (%) Advanced Economies Week MTD YTD US Dollar Index 93.80 93.09-0.8 0.0-8.9 Euro Area* 1.17 1.18 0.8 0.1 12.4 Japan 112.65 111.82 0.7 0.6 4.6 UK* 1.31 1.33 1.7-0.8 7.7 Emerging Markets Brazil 3.16 3.15 0.3 0.5 3.5 China 6.63 6.58 0.7 1.1 5.6 Egypt 17.67 17.62 0.3 0.1 2.9 Indonesia 13,519 13,498 0.2-0.2-0.2 India 65.37 64.93 0.7 0.5 4.6 Kuwait 0.30 0.30 0.1 0.0 1.2 Nigeria 355.49 355.85-0.1 0.9-11.4 Russia 58.15 57.34 1.4 0.4 7.3 Turkey 3.61 3.64-0.6-2.0-3.1 South Africa 13.75 13.27 3.5 2.2 3.6 UAE 3.67 3.67 Bahrain 0.38 0.38 Oman 0.39 0.39 PEGGED Qatar 3.67 3.69 Saudi Arabia 3.75 3.75 Bank of England Governor Mark Carney commented last week that UK interest rates could rise in the coming months The market probability of a Bank of England hike in November is 77%, up from 65% last month South Africa s supreme court ruled that President Zuma must face corruption charges; the rand rallied on prospects of the president s removal from office 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
Emerging market equities gained on prospects of slower Fed tightening; Japanese stocks rose on higher expectations of PM Shinzo Abe s re-election Global Equity Indices 06-Oct 13-Oct Change (%) Advanced Economies Week MTD YTD US (S&P 500) 2,549 2,553 0.2 1.3 14.0 Europe (STOXX 50) 3,603 3,605 0.0 0.3 9.5 Japan (Nikkei 225) 20,629 21,155 2.6 3.9 10.7 UK (FTSE 100) 7,523 7,535 0.2 2.2 5.5 Emerging Markets Bahrain (BB) 1,274 1,275 0.1-0.7 4.4 Brazil (IBOVESPA) 76,055 76,990 1.2 3.6 27.8 China (Shanghai ) 3,374 3,391 0.5 1.2 9.2 Egypt (EGX 30) 13,882 13,892 0.1 0.0 12.5 India (CNX NIFTY) 9,980 10,167 1.9 3.9 24.2 Indonesia (Jakarta) 5,951 5,924-0.5 0.4 11.8 KSA (Tadawul) 7,259 6,988-3.7-4.1-3.1 Kuwait (KSE) 6,693 6,629-1.0-0.8 15.3 Nigeria (All Share) 35,774 36,848 3.0 4.0 37.1 Oman (Muscat 30) 5,213 5,128-1.6-0.2-11.3 Qatar (Doha 20) 8,132 8,342 2.6 0.4-20.1 Russia (MICEX) 2,094 2,099 0.2 1.0-6.0 S.Africa (J'burg 40) 51,010 51,450 0.9 4.2 17.2 Turkey (Istanbul 100) 104,138 106,226 2.0 3.2 35.9 UAE (Abu Dhabi) 4,434 4,526 2.1 2.9-0.5 UAE (Dubai) 3,599 3,660 1.7 2.7 3.7 Saudi Arabian equities were dragged down by insurance stocks after regulators closed some insurance brokerages on regulatory violations Nigeria s stocks continued their strong outperformance this year on higher oil prices and improving growth 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
Oil prices rose on concerns of supply disruptions after the US decertified the Iran nuclear deal, raising the possibility of restrictions on Iranian oil exports Commodity Prices* 06-Oct 13-Oct Change (%) Energy Week MTD YTD Brent 55.6 57.2 2.8-0.6 0.6 WTI 49.3 51.5 4.4-0.4-4.2 Precious Metals Gold 1,277 1,304 2.1 1.9 13.6 Silver 16.8 17.4 3.5 4.6 9.4 Industrial Copper 6,667 6,882 3.2 6.2 24.3 Aluminum 2,153 2,134-0.9 1.5 26.0 Wheat 444 440-0.9-2.0 7.7 Corn 350 353 0.8-0.7 0.2 Cocoa 2,085 2,087 0.1 2.2-1.8 The International Energy Agency released its monthly report last week, indicating that OPEC will likely have to extend its agreement to keep the market balanced and to continue inventory normalisation US crude inventories fell by 2.7m barrels (2.0m expected and 6.0m in the prior week) US gasoline inventories rose by 2.5m barrels (-0.1m expected and 1.6m in the prior week) 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
This week, markets will focus on the release of China s Q3 GDP Data Review Date Country Event Period Consensus Actual Previous Oct 09 China Caixin China PMI Composite 51.4 52.4 Oct 12 US Intial Jobless Claims Oct 250k 243k 260k Oct 13 US University of Michigan Sentiment Oct 95.0 101.1 95.1 Oct 13 US Retail Sales Sep 1.7% 1.6% -0.2% Oct 13 US CPI YoY Sep 2.3% 2.2% 1.9% Forthcoming Economic Events Date Country Event Period Consensus Actual Previous Oct 16 China PPI YoY Sep 6.4% 6.3% Oct 16 Japan Industrial Production YoY Aug 5.4% Oct 17 US Industrial Production MoM Sep 0.2% -0.9% Oct 17 Euro Area CPI YoY Sep 1.5% 1.5% Oct 19 US Initial Jobless Claims Oct 240k 243k Oct 19 China GDP YoY Q3 6.8% 6.9% Sources: Bloomberg and QNB Economics * A stands for advance, P for preliminary, S for second and F for final 7
Two-Year Performance of Major Asset Classes Sovereign 10-Year Bond Yields Equities 3 2 US Germany 2100 2000 1900 Advanced Economies* (left axis) Emerging Markets** (right axis) 1200 1100 1 1800 1700 1000 900 0 10/15 01/16 04/16 07/16 10/16 01/17 04/17 07/17 1600 1500 800-1 1400 10/15 01/16 04/16 07/16 10/16 01/17 04/17 07/17 700 Exchange Rates Commodities 105 100 95 90 85 80 75 Dollar Index (left axis) EUR:USD (right axis) 1.3 1.2 1.1 65 60 55 50 45 40 35 30 25 Oil (left axis) Food*** (right axis) 400 300 70 10/15 01/16 04/16 07/16 10/16 01/17 04/17 07/17 1 20 10/15 01/16 04/16 07/16 10/16 01/17 04/17 07/17 200 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
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