Global Markets Update QNB Economics 03 July 2016
Executive Summary Key Takeaways Sovereign bond yields fell globally as the continued fallout from Brexit raised expectations for widespread monetary easing The UK pound weakened after the Bank of England Governor said that monetary policy easing would be needed over the summer Advanced economy equity markets recovered from the Brexit selloff on expected monetary stimulus while EM equity markets were more mixed Oil prices recovered on expected monetary easing and as concerns about Brexit look to be confined to the UK and Europe Nonfarm payrolls in the US are likely to dominate markets this week Sources: Bloomberg and QNB Economics 2
Sovereign bond yields fell globally as the continued fallout from Brexit raised expectations for widespread monetary easing Global Benchmark Yields (%, local currencies) Maturity 24-Jun 01-Jul Change in Yield (bps) Advanced Economies Week MTD* YTD* US 10 yrs 1.56 1.44-11.6-2.6-82.5 Germany 10 yrs - 0.05-0.13-7.9 0.4-75.5 France 10 yrs 0.39 0.16-22.7-2.4-83.0 Italy 10 yrs 1.56 1.23-32.7-2.8-36.6 Japan 10 yrs - 0.17-0.25-8.3-3.6-51.8 UK 10 yrs 1.09 0.86-22.3-0.4-109.7 Emerging Markets Bahrain*** 7 yrs 5.92 5.73-19.0-8.9-12.0 Brazil 10 yrs 12.42 12.17-24.5 10.7-434.0 China 10 yrs 2.93 2.86-7.0 0.0 0.0 India 10 yrs 7.48 7.42-5.7-3.1-34.2 Indonesia 10 yrs 7.79 7.38-41.2-7.7-136.9 Nigeria 10 yrs 14.66 13.96-69.8-16.8 291.7 Qatar*** 14 yrs 3.76 3.58-18.2-3.7-71.5 Russia 11 yrs 8.62 8.24-38.0-7.0-133.0 Saudi Arabia** 10 yrs 3.86 3.68-18.0-2.8-41.1 South Africa 10 yrs 9.09 8.71-37.4-12.0-108.3 Turkey 10 yrs 9.73 9.02-71.0-20.0-172.0 Abu Dhabi*** 3 yrs 1.52 1.42-10.1-0.5-21.2 Dubai*** 4 yrs 3.02 2.93-9.0-2.5 3.3 The Bank of England Governor said that monetary policy easing would be needed over the summer In the US, futures markets now imply a 12% probability of a Fed rate hike by the end of this year Lower EM yields suggest markets see easier monetary policy in advanced economies as supportive of capital flows to EMs 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 UK pound weakened after the Bank of England Governor said that monetary policy easing would be needed over the summer Global Exchange Rates vs USD 24-Jun 01-Jul Change (%) Advanced Economies Week MTD YTD US Dollar Index 95.45 95.65 0.2-0.5-3.0 Euro Area* 1.11 1.11 0.2 0.3 2.5 Japan 102.22 102.52-0.3 0.7 17.3 UK* 1.37 1.33-3.0-0.3-10.0 Emerging Markets Brazil 3.37 3.24 4.1-0.7 22.4 China 6.62 6.66-0.6-0.2-2.5 Egypt 8.87 8.87 0.0 0.2-11.8 Indonesia 13,391 13,115 2.1 0.7 5.1 India 67.97 67.32 1.0 0.3-1.7 Kuwait 0.30 0.30 0.2 0.0 0.6 Nigeria 281.75 282.13-0.1-0.6-29.4 Russia 65.12 63.77 2.1 0.2 13.7 Turkey 2.93 2.90 0.9-0.8 0.5 South Africa 15.08 14.56 3.5 1.1 6.2 UAE 3.67 3.67 Bahrain 0.38 0.38 Oman 0.38 0.39 PEGGED Qatar 3.64 3.64 Saudi Arabia 3.75 3.75 An improving outlook in Brazil helped the real outperform The South Africa rand strengthened after recording a record trade surplus due to strong exports 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
Advanced economy equity markets recovered from the Brexit selloff on expected monetary stimulus while EM equity markets were more mixed Global Equity Indices 24-Jun 01-Jul Change (%) Advanced Economies Week MTD YTD US (S&P 500) 2,037 2,103 3.2 0.2 2.9 Europe (STOXX 50) 2,776 2,883 3.9 0.6-11.8 Japan (Nikkei 225) 14,952 15,682 4.9 0.7-17.6 UK (FTSE 100) 6,139 6,578 7.2 1.1 5.4 Emerging Markets Bahrain (BB) 1,119 1,118-0.1 0.0-8.0 Brazil (IBOVESPA) 50,105 52,233 4.2 1.4 20.5 China (Shanghai ) 2,854 2,932 2.7 0.1-17.1 Egypt (EGX 30) 7,253 6,943-4.3 0.0-0.9 India (CNX NIFTY) 8,089 8,328 3.0 0.5 4.8 Indonesia (Jakarta) 4,835 4,972 2.8-0.9 8.2 KSA (Tadawul) 6,551 6,500-0.8 0.0-6.0 Kuwait (KSE) 5,408 5,365-0.8 0.0-4.5 Nigeria (All Share) 30,650 29,305-4.4-1.0 2.3 Oman (Muscat 30) 5,797 5,777-0.3 0.0 6.9 Qatar (Doha 20) 9,966 9,885-0.8 0.0-5.2 Russia (MICEX) 1,884 1,897 0.6 0.3 7.7 S.Africa (J'burg 40) 45,570 46,016 1.0 0.1 0.5 Turkey (Istanbul 100) 75,366 77,952 3.4 1.5 8.7 UAE (Abu Dhabi) 4,500 4,498 0.0 0.0 4.4 UAE (Dubai) 3,368 3,311-1.7 0.0 5.1 The FTSE 100 recovered strongly last week, but this index is dominated by multinational companies with international revenue and ignores GBP weakness In US dollar terms the FTSE 100 is down 7% since the referendum and the more domestic focused FTSE 250 is down 15% Middle East stockmarkets absorbed the Brexit selloff last week (they were closed on the Friday after the referendum) so underperformed the rest of the world 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 recovered on expected monetary easing and as concerns about Brexit look to be confined to the UK and Europe Commodity Prices* 24-Jun 01-Jul Change (%) Energy Week MTD YTD Brent 48.4 50.4 4.0 1.3 35.1 WTI 47.6 49.0 2.8 1.4 32.3 LNG 5.4 5.4 0.7 0.0-21.8 Precious Metals Gold 1,316 1,341 1.9 1.5 26.4 Silver 17.7 19.8 11.4 5.6 42.7 Industrial Copper 4,698 4,911 4.5 1.4 4.4 Steel 620 630 1.6 0.0 66.2 Aluminum 1,618 1,665 2.9 0.9 10.5 Wheat 455 416-8.5-3.5-11.4 Corn 385 353-8.2-1.6-1.6 Cocoa 3,070 3,034-1.2 1.0-5.5 Crude oil inventories fell more than expected in the US (-4053k vs -2220k expected) Precious metals have continued to benefit from safe haven flows and low interest rates 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
Nonfarm payrolls in the US are likely to dominate markets this week Last Week s Data Review Date Country Event Period Consensus Actual Previous Jun 28 US GDP Annualised QoQ Q1 1.0% 1.1% 0.8% Jun 30 UK GDP YoY Q1 2.0% 2.0% 2.0% Jun 30 Japan Industrial Production May -0.2% -2.3% 0.5% Jul 01 Eurozone Manufacturing PMI June 52.6 52.8 52.6 Forthcoming Economic Events Date Country Event Period Consensus Actual Previous Jul 05 US Durable Goods Orders May -2.2% -2.2% Jul 06 US Fed Meeting Minutes Jun Jul 08 US Change in Nonfarm Payrolls Jun 175k 38k 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 07/14 10/14 01/15 04/15 07/15 10/15 01/16 04/16-1 Exchange Rates 1500 1400 07/14 10/14 01/15 04/15 07/15 10/15 01/16 04/16 Commodities 800 700 105 100 95 Dollar Index (left axis) EUR:USD (right axis) 1.4 1.3 120 100 Oil (left axis) Food*** (right axis) 400 90 85 1.2 80 60 300 80 75 1.1 40 70 1 20 200 07/14 10/14 01/15 04/15 07/15 10/15 01/16 04/16 07/14 10/14 01/15 04/15 07/15 10/15 01/16 04/16 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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