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Market
Insights &
Strategy Morning news summary
Global Markets
Global News
th
15 April 2020 IMF sees great lockdown recession as worst since 1930s
depression; global growth seen contracting 3% in 2020: The
International Monetary Fund predicted the “Great Lockdown”
recession would be the steepest in almost a century and warned the
world economy’s contraction and recovery would be worse than
anticipated if the coronavirus lingers or returns. Global gross domestic
product will shrink 3% this year, the IMF estimated on Tuesday in its
first World Economic Outlook report since the spread of the virus and
subsequent freezing of major economies. That compares to a January
projection of 3.3% expansion and would likely mark the deepest dive
since the Great Depression. It would also dwarf the 0.1% contraction
of 2009 amid the financial crisis.
While the fund anticipated growth of 5.8% next year, which would be
the strongest in records dating back to 1980, it cautioned that its
forecasts were marked by “extreme uncertainty” and risks are tilted to
the downside. Much depends on the longevity of the pandemic, its
effect on activity and related stresses in financial and commodity
markets, it said. The IMF’s forecasts assume that outbreaks of the
novel coronavirus will peak in most countries during the second
quarter and fade in the second half of the year, with business closures
and other containment measures gradually unwound.
The cumulative loss in global GDP this year and next could be about
$9tn – bigger than the economies of Japan and Germany combined,
IMF chief economist Gita Gopinath said. Global trade volume in goods
and services will probably tumble 11% this year, the fund said. The
IMF said output in both advanced and emerging markets would
undershoot their pre-virus trends through 2021, seemingly dashing
any lingering hopes of a V-shaped economic rebound from the health
emergency. In a further sign of pessimism, the IMF sketched out three
alternative scenarios in which the virus lasted longer than expected,
returned in 2021 or both. A lengthier pandemic would wipe 3% off GDP
this year compared to the baseline, while protraction plus a resumption
next year would mean 8% less output than projected in 2021, it said.
Source: Bloomberg; Reuters
IMF sees advanced nations suffering the most from pandemic
while India, China eke out: The US economy is expected to contract
Rakesh Sahu 5.9% this year, IMF estimated its World Economic Outlook released
Director, Market Insights & Strategy on Tuesday, as compared with a 2% expansion in the fund’s last global
outlook in January. The US GDP may grow 4.7% next year, the IMF
Chavan Bhogaita said. The euro area will probably shrink 7.5% in 2020 and expand
Managing Director & Head of Market 4.7% in 2021, the fund said. Hard-hit Italy will see its GDP fall 9.1%
Insights & Strategy this year, while economic contractions are seen at 8.0% in Spain, 7.0%
in Germany and 7.2% in France, the Fund said. “Many countries face
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disruptions, plummeting external demand, capital-flow reversals and a
collapse in commodity prices,” the IMF said. “Risks of a worse
outcome predominate.” Growth in consumer prices in advanced
economies may average 0.5% this year before accelerating to 1.5% incollapse in commodity prices,” the IMF said. “Risks of a worse outcome predominate.” Growth in consumer
prices in advanced economies may average 0.5% this year before accelerating to 1.5% in 2021, it said.
The US jobless rate, which was at a half-century low before the pandemic, may swell to 10.4% in 2020,
the IMF said.
The IMF sees advanced economies shrinking the most, contracting 6.1%. Emerging-market and
developing economies will see a 1% drop. Growth in China and India will decelerate but their economies
will still manage to expand 1.2% and 1.9% respectively in 2020, the fund said. China’s economy is forecast
to grow 9.2% in 2021, the IMF said. The IMF’s baseline scenario assumes that the pandemic fades in the
second half of this year and that containment measures can be gradually wound down.
In a separate report, the IMF warned that the coronavirus crisis also “presents a very serious threat to the
stability of the global financial system.” While forceful government and central-bank actions have stabilised
investor sentiment, “there is still a risk of a further tightening in financial conditions” that could expose
cracks in the system, the fund said in its Global Financial Stability Report. The Fund called for central bank
liquidity swap lines to be extended to more emerging market countries, which face a double problem of
locked-down activity and tightening financial conditions caused by a massive outflow of funds to save-
haven assets such as US Treasuries.
Source: Bloomberg; Reuters
Trump temporarily halts US payments to WHO, citing reliance on China: President Donald Trump
said he instructed his administration to temporarily halt funding to the World Health Organization for taking
China’s claims about the coronavirus “at face value” and failing to share information about the pandemic
as it spread. “The WHO failed in its basic duty and must be held accountable,” Trump said Tuesday at a
White House press conference. “The outbreak could have been contained at its source” if the organisation
had correctly responded early on, he added. A Bloomberg News article reported that it was unclear when
any halt in payments would take effect or how much authority Trump has to suspend disbursements, which
are authorised by Congress. The US has contributed $893m to the WHO’s operations during its current
two-year funding cycle, according to the organisation. Administration officials signalled the suspension
would be for 60 days. In a statement Tuesday, UN Secretary General Antonio Guterres said the chance
to investigate how the disease spread around the world would come later. “As it is not that time, it also not
the time to reduce the resources for the operations of the World Health Organization or any other
humanitarian organization in the fight against the virus,” he said.
Source: Bloomberg
China adds cash to banking system, cuts interest rate on loans: China’s central bank cut interest
rates and injected $14bn into the financial system, bolstering measures aimed at countering the economic
fallout from the coronavirus pandemic. The People’s Bank of China offered CNY 100bn via the one-year
medium-term lending facility, cutting the rate to 2.95% from 3.15%. Though there were no loans coming
due Wednesday, some CNY 200bn will mature on Friday. The central bank refrained from injecting liquidity
with short-term reverse repurchase agreements for a 10th straight day. The move follows the PBOC’s
surprise announcement earlier this month that it will cut the interest rate it pays on banks’ excess reserves
and reduce the amount of cash that selected lenders need to hold. The latter, the first phase of which is
effective from Wednesday, will free up about CNY 400bn of liquidity in the financial system.
Source: Bloomberg
Global stocks slip with earnings season underway; JP Morgan & Wells Fargo offer glum outlook
for coronavirus recession; Oil regains some ground: Asian stocks retreated Wednesday alongside
futures in the US and Europe as investors scoured earnings reports for evidence of the impact of the
coronavirus outbreak. Two big US banks, JPMorgan Chase & Co and Wells Fargo & Co on Tuesday
reported major profit declines, offering a glum outlook for coronavirus recession. The fall in profits at both
banks was primarily due to the creation of reserves for future loan losses, and executives said the worst
is yet to come. “In my mind, there’s more downside than there is upside at this point,” said Wells Fargo
Chief Executive Officer Charles Scharf. Wells Fargo predicts sustained unemployment and flat economic
growth in the United States through 2021. JPMorgan’s economists predict US gross domestic product
2could fall 40% during the second quarter at an annualised rate, with unemployment spiking to 20%. CEO
Jamie Dimon thinks GDP could fall as much as 35% in the second quarter and unemployment peak at
14% later on, only in a worst-case scenario. Both management teams cautioned that loan-loss reserves
could rise substantially in future quarters if the economy worsens.
Futures on the S&P 500 slid 0.6% as of 8:20 a.m. in Abu Dhabi, after the underlying index increased 3.1%
on Tuesday. Japan's Nikkei 225 index was down 0.2%, while Hong Kong's Hang Seng slipped 0.1%,
China’s blue-chip CSI 300 index fell 0.3%. Australia's S&P/ASX 200 Index dropped 0.7%. In currencies,
the euro was little changed as it bought $1.0975, while the yen was at 107.10 per dollar, up 0.1%. The
yield on 10-year Treasuries fell a little more than a basis points to 0.7393%, after falling two basis points
in the previous trading session.
Oil eked out a small gain after tumbling 10% on Tuesday as concerns over virus-driven demand destruction
overshadowed a historic deal by the world’s biggest producers slash output. WTI crude futures added
2.5% in New York to trade at $20.61 a barrel. WTI has declined almost 20% in the past three sessions.
Brent futures gained 1.4% to $30.00 on London’s ICE Futures Europe exchange after closing 6.7% lower
Tuesday. While Saudi Arabia and other Gulf producers have pledged to cut supply starting next month,
they continue to flood the market, swelling global stockpiles and testing capacity limits. The world is still
choking on too much oil and will run out of places to store it within a month, according to trading giant
Gunvor Group Ltd
Source: Bloomberg
Middle East & Africa News
Saudi Arabia announces guidance for a 3-tranche US$ bond deal that includes a 40-year bond, its
longest ever bond offering: Saudi Arabia announced its initial price thoughts (IPTs) for a 3-tranche US
dollar bond deal. According to Bloomberg data, the sovereign is marketing a 5.5-year bond at 315 basis
points area over benchmark US treasury (T+315bps area), while the IPTs for the 10.5-year bond was set
at T+325bps area. The Kingdom is also marketing a 40-year bond, its longest ever international bond
offering, and the IPT was announced at 5.15% area. According to the Bloomberg update, global
coordinators and bookrunners for the deal are Citi, Goldman Sachs International and HSBC, while Bank
of China, Mizuho, MUFG, SMBC and Samba Capital acting as the passive joint lead managers.
Source: Bloomberg; FAB
IMF forecasts negative real GDP growth for GCC in 2020: In tandem with the global economy slipping
into recession following the COVID-19, GCC economies are projected to record overall negative real GDP
growth in 2020, the IMF said in its latest World Economic Outlook report. The Middle East and Central
Asia region is projected to record a negative 2.8% growth this year. The oil exporters on the region,
primarily the GCC, is expected to post an aggregate negative growth of negative 3.9%.
Saudi Arabia’s growth is forecast at -2.3%, with non-oil GDP contracting by 4%. In the UAE, real GDP
growth is forecast to slip to -3.5% compared to 1.3% recorded last year. Oman’s is projected to fall to -
2.8% compared to 0.5% last year. Kuwait is relatively better off in terms of growth outlook in the GCC with
a projected growth of -1.1% compared to 0.7% in 2019.
Despite the gloomy projections, the IMF has forecast a relatively stronger rebound in the region with the
overall real GDP growth 4.6% next year with the UAE, Saudi Arabia and Kuwait bouncing back with 3.3%,
2.9% and 3.4%, respectively, in 2021. Oman is forecast to growth by 3%.
Source: Gulf News
Saudi Aramco said to be in talks with banks to borrow about $10bn: Saudi Aramco, the world’s largest
oil producer, is in early talks with banks for a loan of about $10bn to help finance its acquisition of a 70%
stake in Saudi Basic Industries Corp (SABIC), Reuters reported Monday citing three banking sources.
Aramco agreed last year to buy the controlling stake in SABIC from the kingdom’s wealth fund for $69.1bn,
sealing one of the biggest-ever deals in the global chemical industry. “The financing would be for the
3SABIC deal, but the borrower is Aramco,” said one of the sources, adding that the discussions were at an
initial stage, with the company sounding out banks. “Ten billion dollars is where they want to get to, (it’s)
not clear if, in this market, they’ll manage to reach that.” In response to a Reuters request for comment
about whether it was seeking such a loan, Saudi Aramco said: “The company continues to review its
financial options as part of its normal course of business, while prudently preserving its pristine balance
sheet and its resilience.” Aramco was also looking to borrow in US dollars because it was cheaper than in
Saudi riyals, in terms of interest, and to avoid pressuring Saudi banks’ liquidity, Reuters reported citing a
banker source.
Source: Reuters
Kuwait committee lists ways to raise funds as debt law in doubt: The Kuwaiti parliament’s budgetary
committee on Tuesday discussed a long list of alternative ways to raise funds after the speaker of
parliament said a proposed public debt law had “almost non-existent” chances of approval. Kuwait has
suffered from a deep fall in the oil price as the novel coronavirus has destroyed demand, which has made
finding ways to allow increased borrowing more urgent. The head of the Kuwait National Assembly’s
budgetary committee expressed reservations over the proposed law that would make the maximum public
debt KWD 20bn ($64.82bn), a statement on the parliament’s website said.
The alternatives discussed in parliament included suspending the transfer of 10% of state revenues to
Kuwait’s Future Generations Fund, the committee head Adnan Abdulsamad said. He added that KWD
12bn ($38.3bn) had been transferred over the past five years to the fund, which is meant to conserve oil
wealth for the long term. Kuwait has only ever drawn down the Future Generations Fund once, during the
first Gulf War. Kuwait’s sovereign wealth fund the Kuwait Investment Authority also manages a large
General Reserve Fund, which acts as the main treasurer for the government and receives all revenues.
Kuwait has already dipped into the General Reserve Fund to cover its deficit and has around KWD 14bn
($44.65bn) left, a government source told Reuters on condition of anonymity. Abdulsamad said the Future
Generations Fund could also buy illiquid assets held by the General Reserve, instead of the General
Reserve selling its assets at low prices. The committee head said costs received by the state Kuwait
Petroleum Corporation (KPC) from the government should also be reviewed, saying it had received KWD
3.75bn in the last fiscal year, “which the committee considers high and exaggerated”.
Source: Reuters
Oman orders government agencies to cut spending by at least 10%: Oman’s finance ministry has told
all government agencies to cut their operating budgets by at least 10% this year to counter a slide in oil
prices, including by reviewing salaries and benefits. The move comes after the government cut the budget
allocated to government agencies for 2020 by 5% last month in response to the financial challenges the
oil-exporting nation faces. The ministry said the decision was being taken as part of efforts “to deal with
the financial and economic conditions affecting the Sultanate as a result of the sharp drop in oil prices”,
state media reported on Tuesday. All operational budgets would be reviewed and exceptional bonuses for
state employees would be halted, according to the finance ministry. It said the decision applied to all
ministries, agencies and public entities, as well as security and military bodies.
Source: Reuters
Gulf indexes end higher on hopes pandemic is reaching peak: Major Gulf bourses rebounded on
Tuesday on hopes the coronavirus pandemic was nearing a peak and governments were taking more
stringent measures to contain the outbreak. Saudi Arabia's benchmark index gained 1%, snapping two
days of losses, with Al Rajhi Bank gaining 1.3% and Saudi Telecom rising 2.8%. On Monday, Saudi
Telecom extended its agreement for a period of 90 days with Vodafone to acquire the group's shareholding
in Vodafone Egypt. Saudi Arabia, which extended coronavirus curfew indefinitely, has reported 4,934
confirmed cases of COVID-19 as of Monday, with 65 deaths. Dubai's benchmark index climbed 2.9%, led
by a 3.5% rise in Emirates NBD Bank and a 3.6% increase in sharia-compliant lender Dubai Islamic Bank.
In Abu Dhabi, the index increased 1.1% as International Holding surged 13.1%. Early this week, the United
Arab Emirates central bank urged commercial lenders to use the $70bn worth of capital and liquidity
measures launched by the regulator to support the economy during the coronavirus outbreak. The UAE,
4which as of April 13 had registered 4,521 virus cases, has sought to stem the spread of the disease by
bringing vital sectors such as tourism and transport to a near halt. Elsewhere in the Gulf, the Kuwait index
rallied 4.2%, the Bahrain index advanced 1.8% and the Oman index gained 1.7%. Outside the Gulf, Egypt's
blue-chip index gained 1%, with 28 of the 30 stocks on the index rising. The Arab world's most populous
country has enforced a nightly curfew, banned large public gatherings and closed schools and universities
in a bid to curb the spread of the virus.
Source: Reuters
Market Insights & Strategy
FAB Global Markets
Email: Marketinsights&strategy@bankfab.com
Tel: +971 2 6110 127
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