July 31, 2017 [ W E E K LY E C O N O M I C C O M M E N TA R Y ] WEEKLY ANALYSIS FOR THE MOST CRITICAL ECONOMIC AND FINANCIAL DEVELOPMENTS MACRO & MARKETS COMMENTARY» Federal Open Market Committee (FOMC) indicated it is more concerned about the outlook of inflation. The FOMC statement suggested that the Federal Reserve wants to shrink its balance sheet sooner rather than later this year. Economic growth in the US accelerated in Q2 2017, However Economic Growth Index (EGI) decelerated in Q2, signalling only a moderate improvement in labour market conditions. These combinations of economic data put pressure on the US dollar.» Dollar spot index (DXY - the index that tracks the performance of the U.S. dollar against major world currencies) fell for the third consecutive week, declining by 0.64% (or 0.61points) over the week and closing its weekly trading session at 93.26 point on the 28th of July [the lowest level since May 2016], compared to 93.86 at last week s close. The single currency closed the week at a fresh session high, driven mainly by a combination of better than expected euro area data and renewed USD weakness. The EUR/USD rose by 0.75% [or 88 pips], closing its trading session at $1.1751 per Euro on Friday, the 28th of July 2017.» Crude oil had its best week since February 2016 after a government report showed the U.S. inventory declining to its lowest level since January. During the week, Saudi Arabia promised that shipments from Saudi Arabia will be capped at 6.6 million barrel a day in August, a step that is expected to help to rebalance markets. WEEKLY CHANGES AGAINST THE USD MAJOR MARKETS 12% 0% 1.17% 8.61% 9.28% 0.75% 1.07% (0.40%) (0.44%) 2.32% 6.93% The Employment Cost Index (ECI) is a quarterly economic series detailing the changes in the costs of labor for businesses in the United States economy. The ECI is prepared by the U.S. Department of Labor. (12%) GOLD WTI BRENT EUR GBP JPY CNY US 10Y Yield GE 10Y Yield
TREASURY RESEARCH WEEKLY ECONOMIC COMMENTARY 31 JULY 2017 PAGE 2» West Texas Intermediate WTI (September 2017 Delivery) surged by 8.61% [or $3.94] per barrel to $49.71 per barrel. Brent crude prices (September 2017 Delivery) ended the week higher by 9.28%, or $4.46 per barrel, closing at $52.52 on Friday, the 28 th of July 2017.» U.S. Treasury rose as the better - than expected earnings season and the improvement of consumer confidence reduced demand for safe haven government bond. The yield on the benchmark 10 year Treasury fell during the week, declining by 5.2 basis points (bps) or 2.32% over the week, closing its weekly trading session at 2.29% on the 28th of July 2017. ECONOMIC DATA & EVENTS FROM THE LAST WEEK. U.S.A & CANADA GDP in the United States grew at 2.6% Q/Q annualized rate in Q2 2017 following the revised down reading to 1.2% Q/Q in the previous quarter. Initial jobless claims in the United States climbed more than expected to 244K in the week ending July 22 following the revised up reading to 234K in the prior week. Employment cost index rose 0.5% in Q2 2017 compared to 0.8% increase in the previous quarter. MBA Mortgage applications increased 0.4% in the week ending July 21 following 6.3% increase in the previous week. New home sales were at 610K in June compared to the revised down reading to 605K registered in May. Existing home sales fell to 5.52 million in June from 5.62 million in May. Durable goods orders increased 6.5% in June preliminary estimate compared to -0.1% in May. Manufacturing PMI climbed to 53.2 in July preliminary estimate from 52 in June. Consumer confidence index unexpectedly rose to 121.1 in July from 117.3 in June. University of Michigan sentiment was revised up to 93.4 in June final estimate from 93.1 previously estimated. The Canadian economy expanded 0.6% M/M in May following 0.2% M/M growth rate in April. UK & JAPAN GDP in the United Kingdom grew by only 0.3% Q/Q in Q2 2017 as expected following 0.2% Q/Q in the previous quarter. Year on year growth slowed to 1.7% from 2%. Jobless rate in Japan fell below expectations to 2.8% in June from 3.1% in May. Job to applicant ratio rose to 1.51 in June from 1.49 in May. CPI inflation remained stable at 0.4% Y/Y in June, the same as in May. Retail trade grew 2.1% Y/Y in June, the same as in May (revised up reading). Manufacturing PMI fell to 52.2 in July preliminary estimate from 52.4 in June. EUROZONE Consumer confidence index in the Euro Area was confirmed at -1.7 in July final estimate as expected, the same as previously estimated.
TREASURY RESEARCH WEEKLY ECONOMIC COMMENTARY 31 JULY 2017 PAGE 3 Manufacturing PMI fell to 56.8 in July preliminary estimate from 57.4 in June. Composite PMI fell below expectations to 55.8 in July preliminary estimate from 56.3 in June. In Germany, CPI inflation accelerated to 1.7% Y/Y in July preliminary estimate from 1.6% Y/Y in May. Consumer confidence index unexpectedly rose to 10.8 in August from 10.6 in July. IFO business climate unexpectedly rose to 116 in July following the revised up reading to 115.2 in June. IFO expectations climbed to 107.3 in July from 106.8 in June. IFO current assessment rose to 125.4 in July from 124.2 in June. Manufacturing PMI fell to 58.3 in July preliminary estimate from 59.6 in June. Composite PMI declined to 55.1 in July preliminary estimate from 56.4 in June. The French economy expanded 0.5% Q/Q in Q2 2017 as expected, the same as in the previous quarter. On yearly basis, GDP growth accelerated from 1.1% in Q1 2017 to 1.8% in the second quarter. CPI inflation kept stable at 0.7% in July preliminary estimate, the same as in June. Consumer confidence index unexpectedly declined to 104 in July from 108 in June. Manufacturing PMI rose to 55.4 in July from 54.8 in June. Composite PMI fell below expectations to 55.7 in July from 56.6 in June. Manufacturing confidence index in Italy rose to 107.7 in July from 107.3 in June. Consumer confidence index climbed to 106.7 in July from 106.4 in June. In Spain, GDP grew 0.9% Q/Q in Q2 2017 preliminary estimate compared to 0.8% Q/Q in the previous quarter. On yearly basis, GDP grew 3.1% in Q2 preliminary estimate following 3% growth rate in the prior quarter. Retail sales increased 2.8% Y/Y in June following the revised up increase to 3.9% Y/Y in May. CPI inflation kept stable at 1.5% Y/Y in July preliminary estimate, the same as in June. EMERGING MARKET, On July 26, The Brazilian Central Bank cut its Selic rate from 10.25% to 9.25% as expected. Inflation came in at -0.72% M/M in July compared to -0.67% M/M in June. Total outstanding loans increased to $3078 billion in June from $3065 billion in May. Net debt to GDP ratio rose above expectations to 48.7% in June from 48.1% in May. Russian gold and FOREX reserve augmented to $414.7 billion in the week ending July 21 from $412.6 billion in the previous week. On July 28, key rate was kept unchanged at 9% as expected. GCC & MENA, SAMA net foreign assets increased to SAR1849.7 billion in June from SAR1843.9 billion in May. Measure of money supply M2 grew 2.4% Y/Y in June following 3.4% Y/Y increase in May. On July 27, the Turkish Central Bank kept its benchmark repurchase rate, overnight lending rate, and overnight borrowing rate unchanged at 8%, 9.25%, and 7.25% respectively. Capacity utilization fell to 78.7% in July from 79% in June.
TREASURY RESEARCH WEEKLY ECONOMIC COMMENTARY 31 JULY 2017 PAGE 4 WEEKLY CLOSING FX CHART POUND STERLING WEEKLY CLOSING FX CHART EURO & JAPANESE YEN 1.80 GBP/USD Jul 28 CLOSE $1.3136 1.60 EUR / USD Jul 28 CLOSE $1.1751 USD / JPY Jul 28 CLOSE 110.68 140 1.70 1.50 120 1.60 1.50 1.40 1.30 1.40 1.30 1.20 1.10 100 80 60 40 20 1.20 1.00 0 WEEKLY CLOSING CRUDE OIL USD PER BARREL WEEKLY CLOSING SPOT GOLD USD PER OUNCE NYMEX WTI Crude Weekly closing Jul 28 CLOSE $49.71 ICE Brent Crude Weekly closing Jul 28 CLOSE $52.52 150 Gold Spot price, quoted as US Dollars per Troy Ounce Jul 28 CLOSE $1269.64 130 110 90 70 50 30 10 WEEKLY CLOSING GOVERNMENT BOND YIELDS USA & GERMANY WEEKLY CLOSING GOVERNMENT BOND YIELDS ITALY & SPAIN U.S 10 - year government Bond Jul 28 CLOSE 2.29% Italy 10 - year government Bond Jul 28 CLOSE 2.12% 3.7 Germany 10 - year government Bond Jul 28 CLOSE 0.54% 6.5 Spain 10 - year government Bond Jul 28 CLOSE 1.51% 3.0 2.3 4.5 1.6 0.9 2.5 0.2 0.5 0.5
TREASURY RESEARCH WEEKLY ECONOMIC COMMENTARY 31 JULY 2017 PAGE 5 PROFIT RATE BENCHMARK ENERGY / COMMODITIES USD TENOR LIBOR SIBOR SAR - DEP LAST PRICE WTD 1 - Month 1.2317 1.4575 1.09 GOLD - SPOT 1,269.64 1.17% 3 - Month 1.3106 1.7975 1.53 SILVER - SPOT 16.76 1.44% 6 - Month 1.4550 2.0500 1.75 ALUMINUM - LME 3 MTH 1,907.00 (0.42%) 9 - Month - - - COPPER - LME 3 MTH 6,325.00 5.35% 12 - Month 1.7290 2.2425 1.93 WTI - NYMEX 49.71 8.61% BRENT - ICE 52.52 9.28% Foreign Exchange STOCKS INDEXES WEEKLY CLOSING Spot SAR Equ WTD Index Closed WTD GBP / USD 1.3136 4.9260 1.07% S&P 500 2,472 (0.02%) EUR / USD 1.1751 4.4066 0.75% Dow Jones 21,830 1.16% AUD / USD 0.7987 2.9951 0.90% NASDAQ 6,375 (0.20%) USD / CHF 0.9687 3.8712 2.43% FTSE 100 7,368 (1.13%) USD / CAD 1.2433 3.0162 (0.85%) DAX Index 12,163 (0.63%) USD / JPY 110.68 0.0339 (0.40%) CAC Index 5,131 0.27% USD / CNY 6.4755 0.5791 (0.28%) Nikkei 225 19,960 (0.70%) USD / SAR 3.7502 1.0000 0.00% TASI Index 7,175 (1.18%) WEEK AHEAD ECONOMIC CALENDAR DATE COUNTRY ECONOMIC RELEASE /EVENTS PERIOD EXPECTED * PRIOR IMPORTANCE Mon 31 / 07 04:00 CH Manufacturing PMI Jul 51.5 51.7 Tue 01 / 08 04:45 CH Caixin China PMI Mfg Jul 50.4 50.4 Tue 01 / 08 10:50 FR Markit France Manufacturing PMI Jul F 55.4 55.4 Tue 01 / 08 10:55 GE Markit/BME Germany Manufacturing PMI Jul F 58.3 58.3 Tue 01 / 08 10:55 GE (000's)Unemployment Change Jul -5k 7k Tue 01 / 08 11:00 EC Markit Eurozone Manufacturing PMI Jul F 56.8 56.8 Tue 01 / 08 12:00 EC GDP SA QoQ 2Q A 0.60% 0.60% Tue 01 / 08 12:00 EC GDP SA YoY 2Q A 2.10% 1.90% Tue 01 / 08 15:30 US Personal Income Jun 0.40% 0.40% Tue 01 / 08 15:30 US Personal Spending Jun 0.10% 0.10% Tue 01 / 08 16:45 US Markit US Manufacturing PMI Jul F 53.1 53.2 Thu 03 / 08 14:00 UK Bank of England Bank Rate Aug-03 0.25% 0.25% Thu 03 / 08 17:00 US Factory Orders Jun 2.80% -0.80% Fri 04 / 08 15:30 US Change in Nonfarm Payrolls Jul 180k 222K Fri 04 / 08 15:30 US Unemployment Rate Jul 4.30% 4.40% Source: Bloomberg for forecasting
TREASURY RESEARCH WEEKLY ECONOMIC COMMENTARY 31 JULY 2017 PAGE 6 THE WEEKLY ECONOMIC COMMENTARY IS PREPARED & EDITED BY: ABDULKARIM I. ALKADRI Research - Senior Analyst +966 11 479 8297 / +966 542 188 565 aialkadri@bankalbilad.com TREASURY CONTACT LIST SAMER.M.A. FARHOUD General Manager - Treasury Division +966 11 479 8288 Sm.farhoud@Bankalbilad.com SAJJAD HUSSAIN Chief Dealer +966 11 479 8588 S.hussain@bankalbilad.com FOREIGN EXCHANGE +966 11 479 8282 +966 11 479 8888 Ext. 9424 Fxdesk@bankalbilad.com MONEY MARKET +966 11 479 8935 +966 11 479 8888 Ext. 9427 MMDesk@bankalbilad.com SALES & BANKNOTES +966 11 479 8880 Salesdesk@bankalbilad.com TREASURY SUPPORT +966 11 479 8270 Halosaimi@bankalbilad.com DISCLOSURE APPENDIX ANALYST DISCLAIMER Research analyst (s) responsible for the content of this research report certify that the views expressed and attributed to the research analyst (s) in the research report accurately reflect their personal views about the subject matters discussed. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report. The views of the author (s) do not necessarily reflect the views of Bank Al Bilad and are subject to change without notice. ADDITIONAL DISCLOSURES This report is dated as at 31 July 2017. All market data included in this report are dated as at close 29 July 2017, unless otherwise indicated in this report. DISCLAIMER This report is prepared for information purpose only. It should not be construed as an offer to sell or a solicitation of an offer to purchase or subscribe to any investment. Although the information contained in this report is obtained from many sources believed to be reliable, Bank Al Bilad does not guarantee its completeness or accuracy. To the extent permitted by applicable laws and regulations in the Kingdom of Saudi Arabia, neither Bank Al Bilad nor any of its affiliates, their directors, officers and employees will be liable or have any responsibility of any kind for any loss or damage that may be incurred as a result of using the information contained in this report.