July 17, 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» The Federal Reserve (FED) might be viewing the lack of inflation as a major limitation for its ability to hike interest rate again this year. The FED chair Janet Yellen made it clear during her congressional testimony last week that the FED would alter its plans if softer price pressures proved more persistent. On the other hand, FED chair is expected to begin shrinking its $4.5 trillion balance sheet later this year. Retail sales & CPI in the United States were the real test for the future of inflation as the two data points came lower than expected. US dollar fell to its lowest level since September 2016.» Dollar spot index (DXY - the index that tracks the performance of the U.S. dollar against major world currencies) fell by 0.89% (or 0.85 points) over the week, closing its weekly trading session at 95.15 point on the 14th of July, compared to 96.01 at last week s close. EUR/USD closed the week higher by 0.61% [or 69 pips], closing its trading session at $1.1470 per Euro on Friday, the 14th of July 2017.» Crude oil prices surged during the week, mainly due to the decline in U.S stockpiles. U.S stockpiles dropped by 7.6 million barrel (compared to expectations at 6.3 million) to 495.35 million barrel. Another report showed that the number of U.S oil active rigs rose again (According to Baker Hughes, total rigs rose by 2 rigs to 765). WEEKLY CHANGES AGAINST THE USD MAJOR MARKETS 12% 0% (12%) 1.34% 5.22% 4.71% 0.61% 1.61% (1.22%) (0.45%) (2.22%) 3.68% The Beige book is a summary of Commentary on Current Economic Conditions by Federal Reserve District. It is published just before the FOMC meeting on interest rates. GOLD WTI BRENT EUR GBP JPY CNY US 10Y Yield GE 10Y Yield
TREASURY RESEARCH WEEKLY ECONOMIC COMMENTARY 17 JULY 2017 PAGE 2» West Texas Intermediate WTI (September 2017 Delivery) surged during the week by 5.22% [or $2.31] per barrel to $46.54 per barrel. Brent crude prices (September 2017 Delivery) ended the week higher by 4.71%, or $2.20 per barrel, closing at $48.91 on Friday, the 14th of July 2017.» Government bonds in the U.S rose sharply after dovish remarks from the FED chair Janet Yellen as inflation remains an important uncertainty for policymakers. The remarks by Chair Yellen raise doubts over the FED s plan to hike the interest rate for one more time before the end of the year. The yield on the benchmark 10 year Treasury fell during the week, declining by 5.3 basis points (bps) or 2.22% over the week, closing its weekly trading session at 2.33% on the 14th of July 2017. ECONOMIC DATA & EVENTS FROM THE LAST WEEK. U.S.A & CANADA Initial jobless claims in the United States fell less than expected to 247K in the week ending July 08 following the revised up reading to 250K in the previous week. MBA mortgage applications fell 7.4% in the week ending July 07 following 1.4% increase in the prior month. CPI witnessed 0% change in June following -0.1% M/M in May. Excluding food and energy, CPI inflation remained stable at 0.1% M/M in June, the same as in May. PPI final demand rose 0.1% M/M in June following 0% change in May. Retail sales advance unexpectedly fell 0.2% M/M in June following the revised down decline to - 0.1% M/M in May. Wholesale inventories were revised up to 0.4% M/M in May final estimate from 0.3% M/M previously estimated. Industrial production increased 0.4% M/M in June following the revised up reading to 0.1% M/M in May. Monthly budget statement came in at -$90.2 billion in June compared to $6.3 billion in May. On July 12, Bank of Canada rose its rate from 0.5% to 0.75%. Housing starts increased above expectations to 212.7K in June from 194.6K (revised down) in May. UK & JAPAN Unemployment rate in the United Kingdom unexpectedly fell to 4.5% in the three months ending May compared to 4.6% in the previous period. Jobless claims change came in at 5.9K in June following the revised up reading to 7.7K in May. Claimant count rate was at 2.3% in June, the same as in May. In Japan, industrial production was revised down to -3.6% M/M in May final estimate from -3.3% M/M previously estimated. Machine orders unexpectedly fell 3.6% M/M in May following -3.1% M/ M registered in April. Machine tool orders increased 31.1% Y/Y in June preliminary estimate compared to 24.5% Y/Y increase in May. PPI rose 2.1% Y/Y in June, the same as in May. Tertiary industry index fell 0.1% M/M in May following the revised up increase to 1.4% M/M in April. Measure of money supply M2 grew 3.9% Y/Y in June following the revised down increase to 3.8% Y/Y in May. The current account posted a surplus of 1653.9 billion in May following a surplus of 1951.9 billion in April.
TREASURY RESEARCH WEEKLY ECONOMIC COMMENTARY 17 JULY 2017 PAGE 3 EUROZONE Industrial production in the Euro Area increased by a seasonally adjusted 1.3% M/M in May following the revised down increase to 0.3% M/M in April. In Germany, CPI inflation was confirmed at 1.6% Y/Y in June final estimate, the same as previously estimated. In France, CPI inflation was confirmed at 0.7% Y/Y in June final estimate, the same as previously estimated. Italian CPI EU harmonized was confirmed at 1.2% in June final estimate, the same as previously estimated. Industrial production increased 0.7% M/M in May (more than expected) following the revised up decline to 0.5% M/M in April. CPI inflation in Spain was confirmed at 1.5% Y/Y in June final estimate, the same as previously estimated. EMERGING MARKET, Retail sales in Brazil increased 2.4% Y/Y in May following the revised down increase to 1.7% Y/Y in April. The trade balance posted a surplus of $1045 million in the week ending July 09 compared to $1863 million surplus in the previous week. Industrial production in India increased 1.7% Y/Y in May following the revised down increase to 2.8% Y/Y in April. Exports rose 4.4% Y/Y in June compared to 8.3% Y/Y increase in May. Wholesale prices came in at 0.9% Y/Y in June following 2.17% Y/Y increase in May. In China, CPI inflation kept stable at 1.5% Y/Y in June, the same as in May. PPI rose 5.5% Y/Y in June as expected, the same as in May. The Chinese trade balance posted a surplus of $42.80 billion in June compared to the revised down surplus to 40.79 billion in the previous month. Exports climbed 11.3% Y/Y in June following 8.7% increase in May. Measure of money supply M2 grew 9.4% Y/Y in June compared to 9.5% increase expected, and following 9.6% Y/Y growth rate registered in May. Russian gold and FOREX reserve declined to $410.9 billion in the week ending July 07 compared to $412.2 billion in the preceding week. Current Account Balance posted an unexpected deficit of $300 million in Q2 preliminary estimate following $23300 million surplus registered in the prior quarter. GCC & MENA, Measure of money supply M2 in Kuwait grew 9.83% Y/Y in May following 7.26% Y/Y growth rate in April. CPI inflation in Oman came in at 0.87% Y/Y in June following 1.96% Y/Y in May. The Turkish current account posted a deficit of 5.24 billion in May following the revised down deficit to $3.6 billion in April. Industrial production fell 1.5% M/M in May following 2.3% M/M increase in April.
TREASURY RESEARCH WEEKLY ECONOMIC COMMENTARY 17 JULY 2017 PAGE 4 WEEKLY CLOSING FX CHART POUND STERLING WEEKLY CLOSING FX CHART EURO & JAPANESE YEN 1.80 GBP/USD Jul 14 CLOSE $1.3098 1.60 EUR / USD Jul 14 CLOSE $1.1470 USD / JPY Jul 14 CLOSE 112.53 140 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 14 CLOSE $46.54 ICE Brent Crude Weekly closing Jul 14 CLOSE $48.91 150 Gold Spot price, quoted as US Dollars per Troy Ounce Jul 14 CLOSE $1228.70 130 110 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 14 CLOSE 2.33% Italy 10 - year government Bond Jul 14 CLOSE 2.28% 3.7 Germany 10 - year government Bond Jul 14 CLOSE 0.59% 6.5 Spain 10 - year government Bond Jul 14 CLOSE 1.64% 3.0 2.3 4.5 1.6 0.9 2.5 0.2 0.5 0.5
TREASURY RESEARCH WEEKLY ECONOMIC COMMENTARY 17 JULY 2017 PAGE 5 PROFIT RATE BENCHMARK ENERGY / COMMODITIES USD TENOR LIBOR SIBOR SAR - DEP LAST PRICE WTD 1 - Month 1.2261 1.4625 1.09 GOLD - SPOT 1,228.70 1.34% 3 - Month 1.3036 1.7963 1.53 SILVER - SPOT 15.99 2.40% 6 - Month 1.4560 2.0500 1.75 ALUMINUM - LME 3 MTH 1,927.00 (0.16%) 9 - Month - - - COPPER - LME 3 MTH 5,926.00 1.68% 12 - Month 1.7398 2.2388 1.93 WTI - NYMEX 46.54 5.22% BRENT - ICE 48.91 4.71% Foreign Exchange STOCKS INDEXES WEEKLY CLOSING Spot SAR Equ WTD Index Closed WTD GBP / USD 1.3098 4.9118 1.61% S&P 500 2,459 1.41% EUR / USD 1.147 4.3013 0.61% Dow Jones 21,638 1.04% AUD / USD 0.7832 2.9370 3.04% NASDAQ 6,312 2.59% USD / CHF 0.9635 3.8921 (0.05%) FTSE 100 7,378 0.37% USD / CAD 1.2644 2.9658 (1.80%) DAX Index 12,632 1.96% USD / JPY 112.53 0.0333 (1.22%) CAC Index 5,235 1.75% USD / CNY 6.4755 0.5791 (0.28%) Nikkei 225 20,119 0.95% USD / SAR 3.7503 1.0000 0.01% TASI Index 7,313 1.52% WEEK AHEAD ECONOMIC CALENDAR DATE COUNTRY ECONOMIC RELEASE /EVENTS PERIOD EXPECTED * PRIOR IMPORTANCE Mon 17 / 07 05:00 CH GDP YoY 2Q 6.80% 6.90% Mon 17 / 07 12:00 EC CPI YoY Jun F 1.30% 1.40% Mon 17 / 07 15:30 US Empire Manufacturing Jul 15 19.8 Tue 18 / 07 11:30 UK CPI Core YoY Jun 2.60% 2.60% Tue 18 / 07 11:30 UK CPI YoY Jun 2.90% 2.90% Tue 18 / 07 11:30 UK PPI Output NSA YoY Jun 3.40% 3.60% Tue 18 / 07 12:00 GE ZEW Survey Current Situation Jul 88 88 Tue 18 / 07 12:00 GE ZEW Survey Expectations Jul 18 18.6 Wed 19 / 07 15:30 US Housing Starts Jun 1160k 1092k Thu 20 / 07 14:45 EC ECB Deposit Facility Rate Jul-20-0.40% -0.40% Thu 20 / 07 14:45 EC ECB Main Refinancing Rate Jul-20 0.00% 0.00% Thu 20 / 07 15:30 US Initial Jobless Claims Jul-15 245k 247k Thu 20 / 07 15:30 US Philadelphia Fed Business Outlook Jul 22.9 27.6 Thu 20 / 07 17:00 EC Consumer Confidence Jul A -1.1-1.3 Fri 21 / 07 15:30 CA CPI YoY Jun 1.10% 1.30% Source: Bloomberg for forecasting
TREASURY RESEARCH WEEKLY ECONOMIC COMMENTARY 17 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 17 July 2017. All market data included in this report are dated as at close 15 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.