Weekly Economic Commentary – Nov 11, 2018

11 November, 2018
read 8 minutes

On Wall Street the positive reaction to the midterm elections lifted up equity prices. However, after the FOMC meeting on Wed investors’ mood turned sour as the central bank reminded that monetary tightening will continue in Dec. Then on Fri the oil price slump depressed energy stocks and the tech stocks sell off rekindled. So by end of the week the S&P500 lost half of the post election gains. In Europe the fluctuations had a similar profile and the major indices finished the week almost unchanged. In emerging markets, the Shanghai composite again recorded losses, influencing the entire MSCI EM index. Regional markets however did not feel the contagion with the exception of KSA. The reaction to the US elections and the moderately hawkish Fed statement sustained the dollar on all major crosses. Oil prices entered bear territory with the Brent falling below USD 70/b. A weaker economic outlook, especially in China and other emerging markets, has shifted the focus on oversupply. Moreover, US crude oil inventories rose by 5.8 mn barrels smashing all predictions. Long-dated futures underscore that investors expect markets to be awash in oil over the coming months as Russia, KSA and US have all increased production in the past few months. However, this might not be a forgone conclusion: after caving in to US pressure to boost output, OPEC and Russia might be inclined to cut back once again. In any case, for major OPEC producers further increase are unlikely. Gold price retreated slightly in sluggish trade.
Global Developments

  • The US midterm elections delivered a split Parliament with a Democratic regaining a majority in the House of Congress and Republicans boosting their majority in the Senate (which presides over key appointments such as the Supreme Court).
  • The Fed FOMC left the fed funds range rate at 2% to 2.25% as expected. The few changes in the final statement focused on the assessment of the economy and a more somber view of business investment. Risks to the macroeconomic environment were described, once again, as balanced. In practice the Fed confirmed its plan to gradually raise rates once every quarter.
  • The US ISM non-manufacturing composite index fell from 61.6 in Sep to 60.3 in Oct, but stays quite strong.
  • The University of Michigan Consumer sentiment slid 0.3 pts in Nov to 98.3, a 3-month low. Yearly inflation expectations were marginally lower at 2.8% vs 2.9% in Oct.
  • US wholesale inventoriesincreased by 0.4% mom in Sep moderating from the 0.9% jump in Aug. Durable goods surged 0.8% mom, while nondurable goods fell -0.4%. The inventory-to-sales ratio was steady at 1.26
  • The CoreLogic US Home price index increased 5.6% yoy (0.4% mom) in Sep just a tad above the 5.5% (0.1% mom) in Aug.
  • Initial claims for unemployment benefits in the US fell by 1,000, to 214,000. The 4-week moving average was marginally lower by 250 to 213,750, still close to historical lows. Continuing claims fell by 8,000, to 1.623 mn. The 4-week moving average also declined, from 1.640 mn to 1.633 mn.
  • Industrial production in Argentina tumbled -11.5% yoy in Sep following a -5.6% drop in Aug confirming that the slump in economic activity following the currency crisis is deepening.


  • Eurozone’s retail sales were unchanged (0.8% yoy) in Sep after rising 0.3% in Aug (2.2% yoy). Across major countries, sales rose in Germany and France but fell Spain and especially Italy (-0.8% mom in Sep after 0.6% in Aug).
  • The German trade surplus shrunk to EUR 18.4bn in Sep from EUR 24.2bn a year earlier, as imports rose by 5.3% yoy to EUR 90.7bn and exports fell -1.2% yoy to EUR 109.1bn.
  • German industrial production expanded by 0.2% mom in Sep vs 0.1% in Aug thanks to construction activity, while manufacturing and mining were flat mom and energy production declined.
  • German industrial orders rose 0.3% mom in Sep adding to the 2.5% percent gain in Aug thanks to a 2.8% mom rise in domestic orders which offset a 1.4% drop in foreign demand. Orders from third countries slumped -3.7% while those from the Eurozone increased 2.4%..
  • UK GDP growth in Q3 was 0.6% qoq (1.5% yoy) vs 0.4% (1.2% qoq) in Q2 a 2-year high. Private consumption growth was quite sustained thanks to good weather and the World Cup effect.
  • UK industrial production was flat yoy in Sep vs 1% in Aug, due to lower output growth in manufacturing (0.5% from 1.3% in Aug), in mining and quarrying (-1.8% vs 2.1%) and in electricity, gas, steam and air conditioning (-1.8% vs -0.9%).

 Asia Pacific:

  • China’s inflation was stable at 2.5% yoy (0.2% mom) in Oct (2.1% yoy YTD). Food prices were again the main driver after inclement weather damaged production. Nonfood prices rose 2.4% yoy in Oct vs 2.2% in Sep.
  • China’s M2 money supply growth crawled up to 8.3% yoy in Sep from 8.2% in Aug. Easier credit pushed up bank loans to CNY1.38 tn from CNY1.28 tn in Aug. However total social financing (the broadest measure of credit and liquidity) slowed to 10.6% yoy in Sep, from 10.8% in Aug.
  • The Chinese trade surplus widened to USD 34bn in Oct from USD 31.7bn in Sep. Export growth accelerated to 15.6%, yoy vs 14.1% in Sep. Imports soared 21.4% yoy in Oct, from 14.3% in Sep. Oct was the first full month when the 10% US tariff were enacted, but the impact was minimal.
  • GDP growth in the Philippines in Q3 was 6.1% yoy almost on par with 6.2% in Q2. Private consumption growth slowed on higher food prices, while imports of goods grew by double-digits, a consequence of the government’s large infrastructure spending program.
  • Japan’s current account surplus narrowed to JPY 1.82tn in Sep from JPY 2.26tn a year earlier. The goods trade surplus dropped to JPY 0.32tn from JPY 0.86tn a year ago, as exports retreated by -0.9% yoy, whereas imports climbed 8.0%.
  • Japan’s machinery orders plunged-18.3% mom in Sep vs 6.8% in Aug. Orders from the manufacturing sector fell -17.3% mom, while orders from non-manufacturing fell -17.1%. The slump was felt pretty much equally across sectors.
  • The Leading economic index in Japan was slightly weaker in Sep at 103.9 pts compared to 104.5 in Aug.

Bottom line:Another spate of data last week underscored that despite a rather solid US economy, global growth is declining. In particular emerging markets continue to record weaker growth, albeit not a collapse. Even in the US Q4 growth is likely to be below 3% after the 4.2% in Q2. More generally Quantitative Tightening combined with tighter rate policy will further weaken the momentum.
Regional Developments

  • Egypt grew by about 5.3% yoy in Q1 of the 2018-19 fiscal year, supported by the gas, communications and construction sectors, according to the planning minister.
  • Inflation in Egypt accelerated to 17.7% yoy and 2.6% mom in Oct (Sep: 16.0%), largely due to an increase in the price of vegetables.
  • PMI in Egypt edged down to 48.6 in Oct (Sep: 48.7), as a result of decline in new orders and output. Employment levels dropped as well, while purchasing activity rebounded.
  • Foreign reserves in Egypt increased to USD 44.501bn at end-Oct from Sep’s USD 44.459bn, according to the central bank.
  • The central bank disclosed that Egypt will auction a one-year Euro-denominated treasury bill worth EUR 675mn on Nov 12.
  • Egypt will begin “inflation targeting, a flexible inflation targeting framework” as part of its monetary policy, moving away from currency control, according to the central bank’s deputy governor.
  • The number of tourists into Egypt increased by around 40% yoy as of end-Sep, as per the tourism minister, who also expects annual tourists numbers to surpass 10mn this year (for the first time since 2012).
  • US has given Iraq a 45-day waiver to continue importing natural gas and electricity from Iran; the waiver is conditional on Iraq not paying Iran for imports in dollars.
  • Iraq plans to increase oil output and export capacity next year: target is production of 5mn barrels per day (bpd) from the current 4.6mn bpd while average exports are expected to touch 3.8mn bpd. After upgrading its energy infrastructures in the “coming years”, the plan is to raise exports to 8.5mn bpd.
  • Jordan and Lebanon are committed to keeping their currencies pegged to the US dollar, stated the respective central bankers at a recent panel debate.
  • Lebanon is expected to start gas exploration by the end of 2019, and this will take three to four years further, stated a vice-governor of the central bank.
  • Re-opening of the Nassib border crossing into Syria is yet to benefit Lebanon: the Syrian government has hiked customs duties five-fold; also, competition from other countries have negatively impacted Lebanese businesses.
  • Standard & Poor’s reaffirmed Oman’s credit rating at BB/B with a positive future outlook.
  • Total revenues of the Omani government surged by 24.4% yoy to OMR 6.67bn for the first eight months of 2018 thanks to the rebound in oil prices.
  • Total outstanding credit extended in Oman by conventional and Islamic banks and other depository corporations grew by 7.6% yoy to OMR 24.7bn as of the end of Aug.
  • Qatar reshuffles cabinet and boards of Qatar Petroleum and Qatar Investment Authority: it named the head of its largest bank as the minister of the new portfolio combining commerce and industry; chief executive of QP was named minister of state for energy affairs.
  • Saudi Arabia’s PMI ticked up to 53.8 in Oct (Sep: 53.4), thanks to an increase in employment (51.3 from Sep’s 50.7) and new orders growth. Output however rose at the slowest rate since Apr.
  • Saudi Arabia launched 402 projects, covering 12 sectors and worth SAR 12.15bn and also laid the foundation stone for another 199 projects costing SAR 4.2bn.
  • Foreigners sold a net SAR 89.2mn (USD 23.8mn)in the Saudi stock market in the week ended Nov 1: this compares to foreign selling of SAR 2.34bn in the previous week and a record SAR 4.01bn the week before.
  • Saudi Arabia’s central bank tops its Arab peers in terms of gold holdings: ranked 16thglobally, Saudi holds 323.1 tonnes of gold or 7.7% of its total reserves. Lebanon and Algeria followed, ranked 17thand 24thglobally, holding 286.8 and 173.6 tonnes respectively.
  • Middle East carriers reported a 1.8% yoy rise in demand in Sep, a four-month low, according to International Air Transport Authority (IATA) data. Globally, passenger demand, measured in revenue passenger kilometres, increased by 5.5% yoy. Separately, the IATA warned that traffic delays in the MENA region could double by 2025, and cost over USD 7bn in lost productivity and add over USD 9bn to airline operating costs.

UAE Focus

  • UAE PMI slowed to 55 in Oct (Sep: 55.3), as both output and new orders fell, while employment rose marginally.
  • UAE GDP is expected to grow at 4.2% in 2019, according to the central bank governor, with the non-oil sector expanding at 3.7%. Inflation is expected at 3.6% this year.
  • The bank merger between Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank – that could result in a lender with USD 113bn in assets – is at an “early stage”, according to the central bank governor.
  • Government deposits in UAE-based banks touched an all-time-high of AED 286bn at end-Sep 2018, thanks to the 35% pickup in oil prices in the past 12 months.
  • UAE non-resident deposits grew to a two-year high of AED 205.4bn or 11.8% of total deposits at the UAE banks by end-Sep; during this period, loans provided to non-residents amounted to AED 141.9bn or 8.6% of total credit provided by UAE banks.
  • Though the “positive list” of sectors/ activities allowing 100% foreign ownership has not been issued following the issuance of UAE’s new FDI law, the following 14 industries have been revealed to be in the “negative list”: this includes oil exploration and production; investigation, security, military; banking and financing activities; insurance; pilgrimage and Umrah services; certain recruitment activities; water and electricity provision; fishing and related services; post, telecommunication and other audio visual services; road and air transport; printing and publishing; commercial agency; medical retail (including pharmacies); and blood banks, quarantines and venom/poison banks.
  • Dubai’s non-oil foreign trade grew to AED 965.3bn in Jan-Sep this year, with re-exports growing by 13% to AED 299.2bn. China remained the emirate’s biggest trading partner with AED 102.9bn worth of trade, followed by India (which posted a 16% increase to AED 86.2bn) and US (AED 59.6bn).
  • Real estate brokerage commissions in Dubai touched AED 842mn from 18,121 transactions in Jan-Sep, according to the Dubai Land Department.
  • The first investment from DIFC’s USD 100mn Fintech fund launched last year will be made “shortly”, according to a senior official. He also stated that the fund “is in the process of being seeded and structured as we speak”.
  • UAE telecom subscriptionsincreased to 22.8mn by end-Aug; mobile phone subscribers touched 19.154mn – amounting to 217 lines per 100 inhabitants.
  • Passenger traffic at the Dubai World Central increased by 26.1% yoy to 119k persons in Q3 this year, bringing the year-to-date number to 637k (-1.9%). Sharjah airport meanwhile reported a 6.55% yoy increase in passengers to 3.32mn in Q3 alone.
  • The UAE passport is now the third most powerful in the world: UAE citizens can enter 113 countries visa free and another 50 countries provide visa-on-arrival.

Media Review
Opec is once again considering production cuts for 2019
How Trump is helping China
European  blues
The ethics of Artificial Intelligence
Emerging Markets show signs of rebound
Saudi Arabia think-tank studying possible effect of OPEC break up: WSJ
FAB & Al-Futtaim to launch AI Analytics Portal
Global Trade Tracker: Bloomberg
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