Weekly Economic Commentary – Dec 12, 2016

12 December, 2016
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The US stock markets touched another record last week, pulling up all major world indices in developed and emerging markets. Regional bourses, with the notable exception of Egypt and KSA, rose in the wake of resilient oil prices. Furthermore, OPEC has convinced countries outside of the cartel to cut production for the first time since 2001, so the upward oil price trend should strengthen. In currency markets, the dollar again advanced strongly especially after the ECB announced the extension of its QE program. Gold prices continue their descent towards USD 1000 per ounce.

Global Developments


  • US ISM non-manufacturing PMI index rose to 57.2 in Nov, from 54.8 in the previous month, beating market expectations of 55.4.
  • US University of Michigan’s consumer sentiment jumped to 98 in Dec from a final reading of 93.8 in Nov.
  • US wholesale inventories declined -0.4% mom in Oct after a paltry 0.1% increase in Sep. Durable goods were down -0.3% and nondurable goods -0.4%.
  • The US trade deficit swelled to USD 42.6bn in Oct from a USD 36.2bn in Sep. Exports fell by USD 3.4bn mom to USD 186.4bn, imports rose USD 2bn to USD 229bn.
  • Weekly mortgage applications in the US fell further by 0.7% due to higher interest rates, after a 9.4% plunge in the week ending November 25.
  • US factory orders increased 2.7% mom in Oct, thanks mainly to a strong performance in the nondefense aircraft segment.
  • US unemployment benefits decreased by 10k to 258,000, in line with market expectation
  • Brazil consumer prices rose 6.99% yoy Nov, down from of 7.87% in Oct, a sign that the economy is slowly regaining a degree of normalcy.


  • The ECB left rates unchanged and reduced its QE program from EUR 80 bn per month to EUR 60bn from Apr, but extended its duration to Dec (from Mar 2017) or beyond “if necessary”. Bundesbank President Weidmann reportedly voted against this decision.
  • German manufacturing orders surged 4.9% mom (6.3% yoy) in Oct after falling -0.3% (2.9% yoy) in Sep. Both domestic and foreign orders were on a roll.
  • Eurozone’s retail sales rose 1.1% mom (2.4% yoy) in Oct, offsetting the -0.4% drop +1.1% yoy) in Sep. The performance was due to soaring sales in Germany,
  • France industrial production fell -0.2% mom and -1.8% yoy in Oct. France recorded a trade gap of EUR 5.2bn in Oct, compared to EUR 4.8bn in Sep.
  • Swiss consumer prices declined -0.3 % yoy in Nov, following a -0.2 % fall in Oct.
  • Germany’s trade surplus narrowed slightly to EUR 20.5bn in Oct from EUR 21.1bn in Sep but rose from EUR 20.1bn in Oct 2015.
  • UK industrial production fell for the third consecutive month by -1.3% mom in Oct, down from -0.4% in Sep. Manufacturing output led the downward drag.

Asia and Pacific:

  • Japan’s GDP growth in Q3 was revised down to 0.3% qoq (from 0.5% qoq) and 1.3% yoy due to business investment weaker than initially estimated.
  • Japan’s consumer confidence index dropped to 40.9 in Nov, down from 42.3 in Oct with negative scores in most major categories especially employment. Since the start of Abenomics in 2013 confidence has remained weak.
  • Malaysia posted a MYR 9.8bn trade surplus in Oct, narrowing from a MYR 12.2bn surplus a year earlier but beating market estimates of a MYR 8.1bn surplus.
  • Philippines’ inflation was 5% yoy in Nov vs 2.3% in Oct.
  • China trade surplus continues to shrink: in Nov it was USD 44.6bn compared to USD 54bn a year earlier.
  • China consumer inflation rose to 2.3% yoy in Nov, from 2.1% in Oct on the back of higher energy prices. Producer prices rose 3.3% yoy in Nov, up from 1.2% in Oct.
  • Australia’s GDP declined -0.5% qoq in Q3, following a 0.6% rise in Q2. Government spending, investment and net exports were a drag.

Bottom line: Stock markets are overexcited expecting the marvels of Trumpnomics. However the macro data point to the same gradual pickup in global growth.  The OECD composite leading indicator does not induce over-optimism: it remained at 99.8 in Oct, in line with the level recorded over the past 12 months. Some improvement is detectable in Europe where a banking crisis is once again brewing with Monte dei Paschi di Siena and Unicredit facing dire straits. In the US, nonfinancial corporates’ net worth has been increasing since late 2011 so companies are less dependent on short-term financing. Despite the record amount of debt due to low interest rates, the ratio of debt to net worth is low relative to the historical average.

Regional Developments

  • Bahrain’s central bank governor stated that no Sukuk issues are being planned “in the near future” and also that the country is committed to its dollar peg.
  • S&P downgraded Bahrain sovereign’s credit ratings to BB-/Stable from BB/Negative on weakening external finances.
  • State-run Bahrain Petroleum Company (Bapco) has received bids from international construction companies to expand its Sitra oil refinery with an aim to boost processing capacity to 360k barrels per day from 267k bpd currently, at an estimated cost of USD 5bn.
  • Annual urban consumer inflation in Egypt accelerated to 19.4% in Nov – the highest since Nov 2008 – from 13.6% in the previous month, driven by increase in food and transportation costs amidst the weaker pound. Core inflation meanwhile surged to 20.73%; food and beverage inflation reached 21.5%.
  • China and Egypt have agreed to a 3-year CNY 18bn bilateral currency swap, that will facilitate trade and improve foreign currency liquidity in Egypt.
  • According to Egypt’s finance ministry, customs duties have been increased on around 320 categories of goods – to 60% for many items. This move is designed to encourage domestic production and is expected to boost customs revenues by EGP 6bn a year, if imports remain at current volumes.
  • Egypt’s long-awaited investment law will be sent to the Cabinet on Dec 14, reported the state news agency.
  • Egypt will issue a USD 1bn, one-year Treasury bill denominated in USD this week, according to the central bank.
  • Egypt’s state oil company and the African Export-Import Bank inked a USD 200mn loan agreement, to expand electricity generation and distribution.
  • Inflation in Kuwait eased to 3.6% in Oct from the year-high of 3.8% reported in Sep.
  • Around 7,000 Kuwaitis who hold a dual citizenship and are covered by US tax laws according to Foreign Account Tax Compliance Act (FATCA), have a total balance of USD 2.3bn in their accounts, with the average per individual at USD 328k.
  • Lebanon’s interior ministry has entered into a USD 16.5mn collaborative project with the British Embassy to improve protection of human rights by the Internal Security Forces. The three-year project will see the British Policing Support Program assist the ISF.
  • Oman’s Finance Ministry is planning to cut expenditure again in 2017 according to sources briefed by senior figures. A draft budget for 2017 targets 5% cut in spending from this year’s budget, and no increase in revenues, the sources said. The draft assumes an average oil price of USD 45 per barrel.
  • Qatar plans investments of up to QAR 46bn in major infrastructure projects in its attempt towards greater economic diversification and sustainable development, according to the finance minister. He stated that efficiency enhancement in public spending, financial sector growth and higher contribution of the private sector would lead to an annual growth rate of 3.4% next year.
  • Total assets of Qatar’s banking sector increased by 10.7% yoy to QAR 1.113 trillion in 2015, according to the central bank’s 2015 annual report. Credit facilities constituted 67.3% of overall assets while banks’ credit to the real estate sector grew by 27.4% yoy to QAR 121.2bn.
  • PMI in Saudi Arabia rose to 55 in Nov, from a survey-record low of 53.2 in Oct. Output, new orders, purchasing activity and input stocks all rose sharply while employment recorded only a marginal increase.
  • Regulatory changes are unlikely ahead of the proposed Aramco IPO, according to the vice chairman of Saudi Arabia’s Capital Markets Authority.
  • Saudi Arabia has informed its US and European customers of reduced oil deliveries from Jan, reported Reuters, citing a source familiar with the Saudi oil policy. At the same time, no cuts are expected for Asia: sources at eight refiners in Asia disclosed of having been notified by Saudi Aramco that in January it was set to supply full crude amounts.
  • Saudi Arabia announced the establishment of a company to refinance up to SAR 50bn for the housing sector, revealed the housing minister. The new firm will be called the Saudi refinancing company.
  • Saudi Arabia’s power and water plant developer ACWA Power has postponed its plans for a potential bond issue to 2017, “due to timing constraints and requests from investors for more time to evaluate the proposed offering”.
  • Saudi Arabia is among the top donor countries with total contributions to the World Bank and its programs for poor countries exceeding USD 2.2bn. Saudi Arabia has also shelled out more than USD 139bn in humanitarian assistance to 95 countries over the past 40 years, revealed the Ambassador to Egypt.
  • Around 25mn Gulf nationals moved within the GCC in 2015, according to the GCC General Secretariat, compared to around 13mn in 2006. Bahrain, Saudi Arabia and UAE were the most attractive destinations.

UAE Focus

  • UAE PMI increased to a 4-month high of 54.2 in Nov (Oct: 53.3), supported by stronger new orders growth (rising to 56.4 from 53.2) and a modest rise in employment (51.8 from 50.3). Domestic orders strengthened, while export orders continued to decline for the 5th straight month, thanks to “successful marketing initiatives” including price discounting, according to Markit.
  • The UAE central bank is currently in the process of rolling out an ambitious regulatory development programme, disclosed the Assistant Governor for Banking Supervision Affairs. This includes a new central bank and banking law that will further enhance Central Bank’s independence and governance, a new Public debt law that will support the development of a domestic debt market, a Federal investment law, and a “Netting Law” that will increase credit availability and reduce costs for banks involved in the UAE.
  • Shareholders of UAE’s National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) approved the banks’ plans to merge, thus creating the largest bank in the MENA, with AED 655bn in total assets.
  • The value of foreign investments in Abu Dhabi Securities Exchange (ADX) reached AED 3.3bn by Nov this year, of which non-Arab investment amounted to AED 3.1bn, while institutional investments touched AED 4.6bn.
  • Islamic Development Bank became the largest Sukuk issuer on Nasdaq Dubai, after it listed a USD 1.25bn Sukuk – its 7th – last week. Nasdaq Dubai currently has 56 Sukuk listings totaling USD 43.96bn, making it the largest exchange globally for Sukuk by value.
  • The UAE granted 185 patents out of 1,368 registered applications in Jan-Oct this year, according to the Ministry of Economy’s International Centre for Patents Registration. Trademark registration applications filed at the Ministry totalled 16,464 as of mid-Nov 2016, with 15,377 applications completed.
  • Around 490 eligible Emiratis have been approved to receive AED 290.4mn in housing loans and grants – this covers 352 residential housing grants and 79 housing loans – from the Sheikh Zayed Housing Programme, according to the Minister of Public Works and Chairman of the Board of Directors of the National Housing Scheme.
  • UAE’s Ras Al-Khaimah is targeting three million passengers to visit the emirate by 2025; the first goal is to touch 1mn tourists by 2018.

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The USD 2.7 billion shift from bonds to equity
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The Trump Boom?
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