Global Markets Update QNB Economics 01 October 2017
Executive Summary Key Takeaways US yields continued to rise on prospects of a third rate hike this year as well renewed optimism around potential tax cuts The US dollar rose on potential upside to growth from tax cuts, causing other currencies pairs against the US dollar to fall European stocks rose as Chancellor Merkel won German elections and Germany s unemployment rate fell to 5.6%, the lowest rate since 1990 Oil prices rose on worries of potential supply disruptions with Kurdish independence This week, the focus will be on manufacturing PMI data in the US and Euro Area Sources: Bloomberg and QNB Economics 2
US yields continued to rise on prospects of a third rate hike this year as well renewed optimism around potential tax cuts Global Benchmark Yields (%, local currencies) Maturity 22-Sep 29-Sep Change in Yield (bps) Advanced Economies Week YTD* US 10 yrs 2.25 2.33 8.4-11.1 Germany 10 yrs 0.45 0.46 1.7 25.6 France 10 yrs 0.73 0.74 1.1 5.7 Italy 10 yrs 2.11 2.11 0.4 29.6 Japan 10 yrs 0.03 0.07 3.4 2.2 UK 10 yrs 1.36 1.37 1.0 12.6 Emerging Markets Bahrain** 11 yrs 6.69 6.72 3.2 2.8 Brazil 10 yrs 9.65 9.73 8.4-166.7 China 10 yrs 3.62 3.62 0.0 56.3 Egypt 9 yrs 6.07 6.21 13.2 NA India 10 yrs 6.66 6.66 0.0 14.8 Indonesia 10 yrs 6.43 6.50 7.0-147.6 Nigeria 8 yrs 16.14 15.75-39.3-34.3 Qatar** 9 yrs 3.33 3.35 2.0-30.7 Russia 9 yrs 7.57 7.56-0.5-80.0 Saudi Arabia** 9 yrs 3.41 3.36-4.3-50.3 South Africa 10 yrs 8.46 8.56 10.2-36.3 Turkey 10 yrs 10.99 10.97-2.0-42.0 Abu Dhabi** 9 yrs 2.86 2.85-0.1-47.8 Dubai** 3 yrs 2.56 2.59 3.0-30.0 Egyptian yields rose as the central bank avoided cutting rates in its latest meeting, despite the recent softening in inflation Nigerian yields fell as local currency debt issuance was vastly oversubscribed, allowing the country to raise USD0.7bn, double the amount initially sought 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 US dollar rose on potential upside to growth from tax cuts, causing other currencies pairs against the US dollar to fall Global Exchange Rates vs USD 22-Sep 29-Sep Change (%) Advanced Economies Week YTD US Dollar Index 92.17 93.08 1.0-8.9 Euro Area* 1.20 1.18-1.1 12.3 Japan 111.99 112.51-0.5 4.0 UK* 1.35 1.34-0.8 8.6 Emerging Markets Brazil 3.13 3.16-1.2 2.9 China 6.59 6.65-1.0 4.4 Egypt 17.66 17.64 0.1 2.8 Indonesia 13,312 13,472-1.2 0.0 India 64.80 65.28-0.7 4.0 Kuwait 0.30 0.30-0.2 1.2 Nigeria 361.50 358.99 0.7-12.2 Russia 57.50 57.55-0.1 6.9 Turkey 3.50 3.56-1.9-1.1 South Africa 13.25 13.56-2.3 1.3 UAE 3.67 3.67 Bahrain 0.38 0.38 Oman 0.39 0.39 PEGGED Qatar 3.70 3.67 Saudi Arabia 3.75 3.75 Prospects of Kurdish independence continued to weigh on the Turkish lira The South African rand fell as the leadership contest for the African National Congress began 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
European stocks rose as Chancellor Merkel won German elections and Germany s unemployment rate fell to 5.6%, the lowest rate since 1990 Global Equity Indices 22-Sep 29-Sep Change (%) Advanced Economies Week YTD US (S&P 500) 2,502 2,519 0.7 12.5 Europe (STOXX 50) 3,541 3,595 1.5 9.2 Japan (Nikkei 225) 20,347 20,356 0.0 6.5 UK (FTSE 100) 7,311 7,373 0.8 3.2 Emerging Markets Bahrain (BB) 1,308 1,283-1.9 5.2 Brazil (IBOVESPA) 75,390 74,294-1.5 23.4 China (Shanghai ) 3,353 3,349-0.1 7.9 Egypt (EGX 30) 13,695 13,889 1.4 12.5 India (CNX NIFTY) 9,964 9,789-1.8 19.6 Indonesia (Jakarta) 5,907 5,901-0.1 11.4 KSA (Tadawul) 7,326 7,283-0.6 1.0 Kuwait (KSE) 6,849 6,680-2.5 16.2 Nigeria (All Share) 35,189 35,440 0.7 31.9 Oman (Muscat 30) 5,100 5,137 0.7-11.2 Qatar (Doha 20) 8,361 8,312-0.6-20.4 Russia (MICEX) 2,052 2,077 1.2-7.0 S.Africa (J'burg 40) 49,565 49,376-0.4 12.5 Turkey (Istanbul 100) 104,123 102,908-1.2 31.7 UAE (Abu Dhabi) 4,455 4,397-1.3-3.3 UAE (Dubai) 3,633 3,564-1.9 0.9 Emerging market stocks fell as investors continued to digest the prospects of tighter Fed policy and US tax cuts, both of which make US assets more attractive 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 worries of potential supply disruptions with Kurdish independence Commodity Prices* 22-Sep 29-Sep Change (%) Energy Week YTD Brent 56.9 57.5 1.2-0.1 WTI 50.7 51.7 2.0-3.8 Precious Metals Gold 1,297 1,280-1.4 11.5 Silver 17.0 16.7-2.0 4.6 Industrial Copper 6,457 6,481 0.4 17.1 Steel 620 617-0.5 4.9 Aluminum 2,158 2,102-2.6 24.2 Wheat 450 448-0.3 9.9 Corn 354 355 0.5 0.9 Cocoa 1,983 2,043 3.0-3.9 US crude inventories fell by 1.8m barrels (2.5m expected and 4.6m in the prior week) US gasoline inventories rose by 1.1m barrels (-1.1m expected and -2.1m 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, the focus will be on manufacturing PMI data in the US and Euro Area Data Review Date Country Event Period Consensus Actual Previous Sep 25 Japan Nikkei Japan PMI Manufacturing Sep 52.6 52.2 Sep 25 Iraq Kurdish Independence Referendum Sep 27 US Durable Goods Orders Aug 1.0% 1.7% -6.8% Sep 28 US Intial Jobless Claims Sep-23 270k 272k 259k Sep 29 Euro Area CPI Estimate YoY Sep 1.6% 1.5% 1.5% Sep 29 US Core PCE YoY Sep 1.4% 1.3% 1.4% Sep 30 China Caixin China PMI Manufacturing Sep 51.7 52.4 51.7 Forthcoming Economic Events Date Country Event Period Consensus Actual Previous Oct 02 US ISM Manufacturing Sep 58.0 58.8 Oct 05 US Intial Jobless Claims Sep-30 265k 272k Oct 06 US Change in Nonfarm Payrolls Sep 85k 156k Oct 02 Euro Area Manufacturing PMI Sep 58.2 58.2 Oct 01 - Oct 25 Qatar Qatar real GDP YoY Q2 2.5% 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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