Global Markets Update QNB Economics 7 August 2016
Executive Summary Key Takeaways US yields rose on strong jobs data, raising expectations of possible Federal Reserve action; Saudi rates increased on concerns of banking sector liquidity The pound fell following the Bank of England s decision to cut rates and introduce quantitative easing; Brazilian real rose on positive sentiment Japan s benchmark index fell on a stronger yen and disappointment with stimulus measures; Egypt equities rose on a possible deal with the IMF Oil prices gained on a larger-than-expected drawdown of gasoline inventories and central bank stimulus This upcoming week is relatively light week in terms of data, but markets will be focused on official reaction to the strong job numbers in the US Sources: Bloomberg and QNB Economics 2
US yields rose on strong jobs data, raising expectations of possible Federal Reserve action; Saudi rates increased on concerns of banking sector liquidity Global Benchmark Yields (%, local currencies) Maturity 29-Jul 05-Aug Change in Yield (bps) Advanced Economies Week MTD* YTD* US 10 yrs 1.45 1.59 13.5 13.5-68.1 Germany 10 yrs - 0.12-0.07 5.2 5.2-69.6 France 10 yrs 0.10 0.16 5.2 5.2-83.3 Italy 10 yrs 1.17 1.14-3.2-3.2-45.9 Japan 10 yrs - 0.19-0.09 9.7 9.7-35.8 UK 10 yrs 0.69 0.67-1.3-1.3-128.8 Emerging Markets Bahrain*** 7 yrs 5.54 5.50-4.3-4.3-34.4 Brazil 10 yrs 11.81 11.75-5.7-5.7-476.1 China 10 yrs 2.80 2.77-3.4-3.4-9.4 India 10 yrs 7.17 7.17 0.1 0.1-59.3 Indonesia 10 yrs 6.94 6.86-7.8-7.8-188.8 Nigeria 9 yrs 15.26 15.11-14.1-14.1 406.9 Qatar*** 14 yrs 3.51 3.51-0.4-0.4-78.9 Russia 10 yrs 8.47 8.43-4.0-4.0-114.0 Saudi Arabia** 10 yrs 3.93 4.34 40.7 40.7 24.9 South Africa 10 yrs 8.65 8.58-6.4-6.4-121.1 Turkey 10 yrs 9.67 9.90 23.0 23.0-84.0 Abu Dhabi*** 3 yrs 1.25 1.26 1.0 1.0-36.7 Dubai*** 4 yrs 2.78 2.76-2.0-2.0-13.7 US non-farm payrolls for July revealed 255k new jobs compared to market expectations of 180k new jobs. Market expectations of a Federal Reserve rate hike by December increased to a 47% likelihood, compared to just 8% one month ago Interest rates in Saudi Arabia rose on concerns about the impact of low oil prices reducing liquidity in the banking system 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
The pound fell following the Bank of England s decision to cut rates and introduce quantitative easing; Brazilian real rose on positive sentiment Global Exchange Rates vs USD 29-Jul 05-Aug Change (%) Advanced Economies Week MTD YTD US Dollar Index 95.53 96.19 0.7 0.7-2.5 Euro Area* 1.12 1.11-0.8-0.8 2.1 Japan 102.06 101.82 0.2 0.2 18.1 UK* 1.32 1.31-1.2-1.2-11.3 Emerging Markets Brazil 3.25 3.17 2.6 2.6 25.1 China 6.64 6.66-0.4-0.4-2.5 Egypt 8.89 8.88 0.1 0.1-11.9 Indonesia 13,112 13,117 0.0 0.0 5.1 India 67.00 66.78 0.3 0.3-0.9 Kuwait 0.30 0.30 0.1 0.1 0.6 Nigeria 319.75 319.25 0.2 0.2-37.6 Russia 65.94 65.47 0.7 0.7 10.8 Turkey 2.99 3.00-0.3-0.3-2.7 South Africa 13.88 13.73 1.1 1.1 12.7 UAE 3.67 3.67 Bahrain 0.38 0.38 Oman 0.39 0.38 PEGGED Qatar 3.64 3.64 Saudi Arabia 3.75 3.75 The pound fell after the Bank of England (BoE) action, as markets greeted the measures as comprehensive and above expectations The BoE reduced its policy rate by 25 basis points, introduced a 70bn bond-buying programme and a term funding scheme to lend 100bn to banks Brazilian real continued to strengthen on the wave of monetary stimulus 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
Japan s benchmark index fell on a stronger yen and disappointment with stimulus measures; Egypt equities rose on a possible deal with the IMF Global Equity Indices 29-Jul 05-Aug Change (%) Advanced Economies Week MTD YTD US (S&P 500) 2,174 2,183 0.4 0.4 6.8 Europe (STOXX 50) 2,991 2,974-0.6-0.6-9.0 Japan (Nikkei 225) 16,569 16,254-1.9-1.9-14.6 UK (FTSE 100) 6,724 6,793 1.0 1.0 8.8 Emerging Markets Bahrain (BB) 1,160 1,157-0.3 0.1-4.9 Brazil (IBOVESPA) 57,308 57,661 0.6 0.6 33.0 China (Shanghai ) 2,979 2,977-0.1-0.1-15.9 Egypt (EGX 30) 8,031 8,255 2.8 3.4 17.8 India (CNX NIFTY) 8,639 8,683 0.5 0.5 9.3 Indonesia (Jakarta) 5,299 5,420 2.3 3.9 18.0 KSA (Tadawul) 6,336 6,246-1.4-0.9-9.6 Kuwait (KSE) 5,461 5,459 0.0 0.2-2.8 Nigeria (All Share) 28,047 27,426-2.2-2.1-4.2 Oman (Muscat 30) 5,854 5,870 0.3 0.4 8.6 Qatar (Doha 20) 10,652 10,681 0.3 0.7 2.4 Russia (MICEX) 1,945 1,944 0.0 0.0 10.4 S.Africa (J'burg 40) 45,916 45,386-1.2-1.2-0.9 Turkey (Istanbul 100) 75,406 76,066 0.9 0.9 6.0 UAE (Abu Dhabi) 4,594 4,527-1.5-1.1 5.1 UAE (Dubai) 3,519 3,472-1.3-0.3 10.2 Egypt is negotiating a possible IMF loan to secure USD12bn from over the next three years Nigerian equities were hit by concerns of the banking system, falling oil prices and a lower economic outlook 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 gained on a larger-than-expected drawdown of gasoline inventories and central bank stimulus Commodity Prices* 29-Jul 05-Aug Change (%) Energy Week MTD YTD Brent 42.5 44.3 4.3 4.3 18.8 WTI 41.6 41.8 0.5 0.5 12.9 LNG 6.1 6.1 0.0 0.0-12.7 Precious Metals Gold 1,351 1,336-1.1-1.1 25.9 Silver 20.3 19.7-3.1-3.1 42.3 Industrial Copper 4,925 4,789-2.8-2.8 1.8 Steel 619 621 0.3 0.3 63.9 Aluminum 1,644 1,645 0.1 0.1 9.2 Wheat 408 416 2.0 2.0-11.5 Corn 335 324-3.1-3.1-9.6 Cocoa 2,835 3,021 6.6 6.6-5.9 US gasoline inventories declined although an increase was expected (-3.3m barrels vs -0.4m) However, US crude inventories rose more than expected (1.4m barrels vs -1.5m) 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 upcoming week is relatively light week in terms of data, but markets will be focused on official reaction to the strong job numbers in the US Last Week s Data Review Date Country Event Period Consensus Actual Previous Aug 01 Global JP Morgan Manufacturing PMI Jul 51.0 50.4 Aug 01 US ISM Manufacturing Jul 53.0 52.6 53.2 Aug 04 UK BoE rate decision 0.25% 0.25% 0.50% Aug 05 US Nonfarm payrolls Jul 180k 255k 292k Forthcoming Economic Events Date Country Event Period Consensus Actual Previous Aug 09 UK Industrial Production MoM Jun 0.1% -0.5% Aug 09 UK Manufacturing Production MoM Jun -0.2% -0.5% Aug 12 US Retail Sales Advance MoM Jul 0.4% 0.6% Aug 12 US U. of Mich. Senitment Survey Aug 91.5 90.0 Aug 12 Eurozone GDP SA YoY (Preliminary) Q2 1.6% 1.6% Aug 12 Eurozone Industrial Production SA MoM June 0.5% -1.2% Sources: Bloomberg and QNB Economics 7
Two-Year Performance of Major Asset Classes Sovereign 10-Year Bond Yields Equities 3 2 US Germany 1900 1800 Advanced Economies* (left axis) Emerging Markets** (right axis) 1200 1100 1 1700 1600 1000 900 0 08/14 11/14 02/15 05/15 08/15 11/15 02/16 05/16 1500 800-1 1400 700 08/14 11/14 02/15 05/15 08/15 11/15 02/16 05/16 Exchange Rates Commodities 105 100 95 90 85 80 75 Dollar Index (left axis) EUR:USD (right axis) 1.4 1.3 1.2 1.1 110 100 90 80 70 60 50 40 30 Oil (left axis) Food*** (right axis) 400 300 70 1 20 200 08/14 11/14 02/15 05/15 08/15 11/15 02/16 05/16 08/14 11/14 02/15 05/15 08/15 11/15 02/16 05/16 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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