Market Insights & Strategy - Global Markets - First Abu Dhabi Bank
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Market
Insights &
Strategy
Morning news summary
Global Markets
Global News
1st October 2020
US private payrolls increase more than expected in Sept.; Govt.
says economy contracted at 31.4% annualised rate in Q2: US
private employers stepped up hiring in September, the ADP report
showed on Wednesday, but diminishing government financial
assistance and a resurgence in new COVID-19 cases in some parts
of the country could slow the labor market's recovery from the
pandemic. Private payrolls increased by 749,000 jobs this month, the
ADP National Employment Report showed on Wednesday. Data for
August was revised up to show 481,000 jobs added instead of the
initially reported 428,000. Economists polled by Reuters had forecast
private payrolls would rise by 650,000 in September. The ADP report
is jointly developed with Moody's Analytics. The government is
scheduled to publish its closely followed nonfarm payroll report on
Friday. According to a Reuters survey of economists, nonfarm payrolls
are forecast advancing by 850,000 in September after increasing
1.371 million in August. That would leave employment 10.7 million
below its level in February. Employment growth peaked in June when
payrolls jumped by a record 4.781 million jobs.
In another update, the government confirmed on Wednesday that the
US economy suffered its sharpest contraction in at least 73 years in
the second quarter because of the disruptions from the coronavirus.
Gross domestic product plunged at a 31.4% annualised rate last
quarter, the deepest drop in output since the government started
keeping records in 1947, the Commerce Department said in its third
estimate of GDP. Output was previously reported to have contracted
at a 31.7% pace in the second quarter.
Source: Reuters
Pelosi and Mnuchin make last-ditch bid for stimulus deal:
Democrats in the House of Representatives have delayed a vote on
their own $2.2tn stimulus package to give more time for negotiations
with the Trump administration, keeping alive hopes for a last-ditch
deal. Nancy Pelosi, the Democratic House speaker, decided to hold
off on the vote after saying she was seeking “further clarification” on a
new $1.5tn economic relief offer proposed on Wednesday by Steven
Mnuchin, the US Treasury secretary. The House vote was expected
on Wednesday night, but it was delayed until Thursday so talks could
Rakesh Sahu continue, according to one Democratic congressional aide. “Today,
Director, Market Insights & Strategy Secretary Mnuchin and I had an extensive conversation and we found
areas where we are seeking further clarification. Our conversation will
Chavan Bhogaita continue,” Ms Pelosi said. The House vote would “formalise our proffer
Managing Director & Head of Market to Republicans in the negotiations to address the health and economic
Insights & Strategy catastrophe in our country”.
Please click here to view our recent Pelosi’s comments came after Mnuchin told CNBC that a deal was
publications on MENA and Global Markets possible now that the Trump administration had bumped up its
proposal to $1.5tn, roughly the size of a package backed by a
bipartisan group of moderate House lawmakers known as the
“problem solvers caucus”. “We’re going to give it one more serious try
to get this done and I think we’re hopeful that we can get somethingproposal to $1.5tn, roughly the size of a package backed by a bipartisan group of moderate House
lawmakers known as the “problem solvers caucus”. “We’re going to give it one more serious try to get this
done and I think we’re hopeful that we can get something done. I think there’s a reasonable compromise
here,” Mnuchin said. The Trump administration’s offer still fell short of the more sweeping Democratic plan,
which includes new direct payments to US households, emergency unemployment benefits, federal aid to
businesses and assistance to cash-strapped state and local governments.
Source: Financial Times
Brexit prompts 7,500 finance jobs, $1.6tn to leave UK, says report: Financial services firms operating
in the UK have shifted about 7,500 employees and more than €1.2tn ($1.6tn) of assets to the European
Union ahead of Brexit – with more likely to follow in coming weeks, Bloomberg reported citing a report
from consultancy firm EY. About 400 relocations were announced in the past month alone, the consulting
firm said in a report on Thursday that tracks 222 of the largest financial firms with significant operations in
the UK. Since Britain voted to leave the bloc in 2016, the finance industry has added 2,850 positions in
the EU, with Dublin, Luxembourg and Frankfurt seeing the biggest gains. From next year, firms in Europe’s
financial capital will lose their passport to offer services across the EU. They will have to rely on the bloc
granting the U.K. so-called equivalence for them to do business with customers in the region, who account
for up to a quarter of all revenue in London. With the EU far from certain to grant that access, firms are
having to beef up their continental presence. The EY report also noted that as many as 24 financial
services firms have said they will transfer assets out of the UK amid uncertainty about the nature of the
City of London’s continued access to the bloc
Source: Bloomberg
India retains full-year borrowing target; country faces ballooning fiscal deficit as pandemic hits
taxes: India will borrow 4.34 trillion rupees ($59bn) via bonds in the second half of the current fiscal year
to March 2021, economic affairs secretary Tarun Bajaj said on Wednesday. The government will complete
the H2 borrowing in 16 weekly tranches of 270-280 billion rupees concluding in the last week of January,
he said. The government’s borrowing figure was lower than the 6 trillion-rupee estimate in a Bloomberg
survey. Separately, states will borrow 2.02 trillion rupees, also at the lower end of traders’ expectations. A
Bloomberg article said, the government numbers provide some relief to the bond market weighed down
by unprecedented debt supply, despite cash injections from the central bank and its purchases of paper.
India is staring at a ballooning fiscal deficit against an initial estimate of 3.5% of GDP in the current financial
year as the coronavirus shrinks jobs and hits tax collection. According to Reuters, economists expect fiscal
deficit to exceed 8% of GDP in the 2020/21 fiscal year, mainly due to a sharp economic contraction
triggered by the pandemic. Government data on Wednesday showed that the federal deficit hit 109% of
the full-year target in just five months and underwriters have rescued bond sales at four of the last seven
auctions. The federal fiscal deficit for the five months through August stood at 8.7 trillion rupees ($118bn),
or 109.3% of the budgeted target for the current fiscal year ending in March 2021. Net federal tax receipts
in the five months through August declined by about 30% year on year to 2.84 trillion rupees, even though
fuel taxes rose.
India’s central bank has tried a mix of conventional and unconventional tools to contain yields at about 6%
as inflation accelerated and concerns about the deficit grew. It has ensured a liquidity surplus and allowed
banks more room on their books to buy sovereign debt without marking losses. The yield on the benchmark
10-year bond declined 3 basis points to 6.01% on Wednesday. A 100 billion-rupee Operation Twist is
scheduled for Thursday and Bloomberg reported traders and economists saying this is insufficient.
Guidance is now awaited from the RBI’s monetary policy announcement, which was due Thursday but
abruptly postponed with authorities yet to name members for the rate-setting panel.
Source: Bloomberg; Reuters
Global shares extend gains on US stimulus, upbeat data; Oil holds gains above $40 after US crude
stockpiles shrink: Global shares tried to extend gains on Thursday on renewed hopes for fresh US
stimulus measures, but mounting uncertainty ahead of America’s presidential election and technical
problems in Japan kept gains in check. S&P 500 futures rose 0.5% in Asia as of 8:10am GST, extending
2Wall Street shares’ rebound overnight – S&P 500 rose 0.8% and Nasdaq added 0.7% – after strong
employment data and talk of progress on long-delayed COVID-19 relief legislation. But regional trade was
thinned by system glitches at the Tokyo Stock Exchange (TSE) and holidays in Greater China and South
Korea. Technical problems at the TSE prompted the suspension of all share trading in Japan. The TSE
said trading would be halted all day and said it was not sure when it can recover its systems. Australia’s
S&P/ASX 200 index was up 1.3% The yield on 10-year Treasuries ticked up one basis point to 0.694%,
after rising four basis points on Wednesday. Gold was at $1,893.12 an ounce, up 0.4%.
In the currency market, the robust US data and stimulus hopes helped to push down the US dollar against
riskier currencies. The euro rose 0.2% to $1.1742 while the Australian dollar also ticked up 0.2% to
$0.7176. The British pound bought $1.2936, up 1%. The offshore Chinese yuan gained 0.4% to 6.7583
per dollar, while the yen was little moved at 105.47 to the dollar. Oil held gains above $40 a barrel after a
surprise drop in US crude stockpiles and dollar weakness outweighed a worsening demand outlook.
American crude inventories fell by almost 2 million barrels last week to the lowest level since April and
distillates stockpiles also posted a surprise drop, the Energy Information Administration reported. The data
is providing some temporary respite from a steadily deteriorating demand backdrop. WTI crude futures for
November delivery was down just 4 cents to $40.18 per barrel in New York, after closing up 2.4% on
Wednesday, the most in two weeks. WTI lost 5.6% in September, the first drop since April. Brent for
December settlement was steady with 3 cent loss to trade at $42.27/bbl in London, after rising 1.8% in the
previous session.
Source: Reuters; Bloomberg
Middle East & Africa News
Saudi Arabia sees budget deficit soaring to 12% of GDP in 2020, economy shrinking 3.8% this year;
Officials expect GDP to grow 3.2% in 2021, and spending falling each year between 2021-2023:
Saudi officials expect the kingdom’s budget deficit to widen to 12% of gross domestic product in 2020 –
amounting SAR 298bn ($80bn) – and plans to cut spending for the following year by 7%, according to
preliminary figures published by the finance ministry. A pre-budget statement published on the Finance
Ministry’s website shows next year’s spending projected at SAR 990bn ($264bn), down from the SAR
1.07tn ($285bn) expected this year. The budget deficit is expected to narrow to 5.1% of economic output
next year, according to the statement. Spending is expected to decrease to SAR 955bn and SAR 941bn
in 2022 and 2023, respectively, with the deficit shrinking to 3% and 0.4% in those two years. The figures
were released without the press conference that’s accompanied them in recent years.
Saudi Arabia estimates total revenue to drop around 17% this year to SAR 770bn ($205bn) from SAR
927bn in 2019, and to bounce back to SAR 846bn ($225.6bn) in 2021. “The government has sought to
find more sustainable sources of revenue to reduce the negative impact of the crisis,” said the pre-budget
statement, citing a tripling of value-added tax in July to 15% and an increase in customs duties for some
goods. That tax however has lifted inflation and economists say will weigh on consumer demand,
dampening economic recovery.
According to the pre-budget statement, officials now expect the economy to shrink by 3.8% this year, a
more optimistic projection than the 6.8% contraction estimated by the International Monetary Fund. “The
outlook is better than what was anticipated during the first half,” the fiancé ministry said in the statement.
In 2021, the economy is expected to swing back to a 3.2% growth, partly because of the “continued
improvement in containing the pandemic,” the statement added. In 2021, “the government seeks to
preserve the fiscal and economic gains achieved in recent years and to achieve the goals of stability, fiscal
discipline and spending efficiency.”
Source: Bloomberg; Reuters
Saudi economy shrinks 7% yoy in Q2; Unemployment rate rises to 15.4%: Saudi Arabia’s economy
contracted 7% in the second quarter from a year earlier as citizen unemployment hit its highest level on
record, as lower oil price combined with the coronavirus pandemic took a hit on the economy. The oil
sector shrank an annual 5.3%, while the non-oil sector declined by 8.2%, according to data released on
3Wednesday by the statistics authority. The non-oil private sector – the engine of job creation – contracted
by more than 10%. Labor statistics released at the same time showed that citizen unemployment rose to
15.4% during April to June, the highest level recorded in data that goes back two decades. That, despite
a government stimulus program that covered 60% of salaries for many Saudi workers.
Source: Bloomberg
Sheikh Nawaf Al-Ahmad takes oath as Kuwait's Emir: Kuwait on Wednesday swore in its new Emir,
Sheikh Nawaf Al Ahmad Al Sabah, after the death of his half-brother, Sheikh Sabah, who died in the US.
Sheikh Nawaf was sworn in at the National Assembly in Kuwait City. Sheikh Nawaf addressed the National
Assembly a day after the death of Sheikh Sabah, an acclaimed diplomat and mediator who ruled for 14
years. "The precious confidence that the people of Kuwait have entrusted in us will be guarded with our
lives," Sheikh Nawaf said after taking the oath of office. He pledged to "serve the nation" in the address
before lawmakers. The country has begun a 40-day period of national mourning.
Source: Khaleej Times
S&P says COVID-19 shock will worsen Dubai's already high debt, expects economy to shrink 11%
in 2020: S&P Global Ratings said the COVID-19 shock will worsen Dubai's already high debt as its expects
the economy to shrink 11% this year and gross general government debt will reach about 77% of GDP,
compared with 61% of GDP in 2019. While S&P does not rate Dubai, in a statement released on
Wednesday the rating agency said: “S&P Global Ratings expects Dubai's economy will contract sharply
by around 11% in 2020, owing in part to its concentration in travel and tourism, two of the industries most
affected by COVID-19. We estimate, based on publicly available information, that Dubai's gross general
government debt will reach about 77% of GDP in 2020” S&P said its broader assessment of the public
sector, including government-related entity (GRE) debt, indicates a debt burden closer to 148% of GDP.
“Dubai's GRE-related debt is significant, and in our view poses a risk for the government's longer-term
debt sustainability.”
S&P said it expects economic growth to return to 2019 levels only by 2023 as Dubai's large exposures to
tourism and aviation place it in a relatively more vulnerable position to the effects of COVID-19. S&P said
it expects the Dubai government to post a historically large central government deficit of AED 12bn (3.2%
of GDP) this year, largely owing to the reduction in economic activity and the consequent expected 28%
decline in revenue. S&P also expects significant off-balance-sheet expenditure, resulting in the
government's net debt position worsening by more than what the headline deficit would imply, as has
occurred in previous years. S&P said it believes that the below-the-line expenditure which causes the
variance between headline deficits and the change in net debt mostly involves support for Dubai's
struggling government related entities (GREs) – an example of which is the recently disclosed AED 7.3bn
(1.9% of GDP) already provided to Emirates airline in 2020. Support for GREs will likely be appreciably
larger in 2020 than in the past, due to the broad cross-sector shock to Dubai's economy.
S&P expects Dubai’s new government bond issuance and loans to total around 7% of GDP in 2020.
According to S&P, the government has issued AED 8.4bn ($2.3bn or 2.2% of GDP) of public debt so far
in 2020, marking the biggest year for Dubai's debt issuance since 2009. “This, in combination with recently
disclosed new bilateral and syndicated facilities through June 2020 (facilities that have increased by AED
15bn (4% of GDP) since Dubai's previous end-2018 disclosures) supports our estimation that 2020 will be
another year where debt accumulation far exceeds the headline deficit,” S&P said. The rating agency said,
“Our base-line scenario does not include a situation where an external party would be required to step in
to support Dubai in its ability to service commercial debt obligations. We expect Abu Dhabi and the CBUAE
will continue to roll over the $20bn in loans they provided to Dubai in 2009 as they come due. These five-
year facilities, which comprise 25% of our estimate of Dubai's debt burden, were last rolled over in 2019.”
Source: S&PGR; Bloomberg
Abu Dhabi’s Mubadala takes stake in Silver Lake and invests $2bn in new fund: Abu Dhabi’s
sovereign wealth fund Mubadala has taken a stake in US private equity group Silver Lake and said it is
backing a new longer-term investing strategy from the firm with a further $2bn. As part of the deal
announced on Wednesday, Silver Lake is launching a new investment strategy that extends beyond the
4typical 10- to 12-year private equity horizon. With a 25-year time horizon, the firm said it would have
“significant added flexibility for Silver Lake to capitalise on a wide range of investment opportunities,
including those outside the mandates of our existing funds”. Mubadala said it was acquiring the stake in
Silver Lake from Dyal Capital Partners, a unit of US asset manager Neuberger Berman, that purchased a
holding of less than 10% in the technology-focused investor in 2016. In a statement on Wednesday,
Mubadala’s Chief Executive Khaldoon Al Mubarak said “our goal is to be well positioned to take advantage
of this accelerated digital transformation and its potential, and we believe Silver Lake is the right partner”.
Source: Financial Times
Arabtec shareholders vote to liquidate the Dubai construction firm: Arabtec Holding shareholders
authorised the board of the Dubai-listed construction company on Wednesday to file for liquidation due to
its untenable financial position following the fallout from the coronavirus pandemic, Reuters reported
Wednesday. Shareholders also authorised Arabtec to appoint AlixPartners and Matthew Wilde, or any
other person or persons the board considered fit, as liquidator, two sources told Reuters. “Unfortunately,
against a backdrop of adverse market conditions, we regret to inform you that Arabtec shareholders voted
to adopt a plan of liquidation and dissolution due to the company’s untenable financial situation,” the
company said in an email, claimed Reuters. Arabtec held a general assembly on Wednesday to decide
whether to continue operating or liquidate and dissolve the firm after the COVID-19 pandemic hit projects
and led to additional costs. Shares of Arabtec Holding had more than halved in value this year when they
were suspended pending the shareholder meeting. The company, which last month posted a first-half loss
of AED 794m ($216m) and total accumulated losses of AED 1.46bn, said on Sept. 9 that it was calling the
general assembly under an article of UAE company law. The law requires companies to vote on whether
they should continue operating if their accumulated losses amount to half of their issued share capital.
Source: Reuters
Dubai leads gains in Gulf as financial shares rise: Most stock markets in the Gulf ended higher on
Wednesday, with Dubai leading the gains on back of Emirates NBD Bank. Dubai's main share index
climbed 0.9%, with Emirates NBD Bank leaping 3.4% and logistic firm Aramex rising 1.9%. The Dubai
Financial Market said on Tuesday it plans to launch an equity derivatives platform as part of its
diversification strategy. The contracts include Emirates NBD Bank along with others. The Abu Dhabi index
closed up 0.5%, helped by a 0.5% gain in First Abu Dhabi Bank and a 0.7% increase in telecoms firm
Etisalat. Abu Dhabi National Oil Company for Distribution advanced 2% after approving payment of an
interim cash dividend of 10.285 fils per share for the first six months of 2020. Saudi Arabia's benchmark
index edged up 0.2%, with Saudi Kayan Petrochemical Company rising 6.8% and Saudi Arabian Mining
Company was up 2.6%. The index's gains, however, were capped by losses at oil behemoth Saudi
Aramco, which declined 0.8%. Rosneft and Saudi Aramco are unlikely to bid in the privatisation of Indian
refiner Bharat Petroleum Corp, Reuters reported on Wednesday, citing sources familiar with the matter,
as low oil prices and weak demand curb their investment plans. Kuwait’s stock market was closed following
the death of its Emir Sheikh Sabah al-Ahmad al-Sabah.
Source: Reuters
Market Insights & Strategy
FAB Global Markets
Email: Marketinsights&strategy@bankfab.com
Tel: +971 2 6110 127
Please click here to view our recent publications on MENA and Global Markets
5Disclaimer: To the fullest extent allowed by applicable laws and regulations, First Abu Dhabi Bank (the “Bank”) and
any other affiliate or subsidiary of the Bank, expressly disclaim all warranties and representations in respect of this
communication. The content is confidential and is provided for your information purposes only on an “as is” and “as
available” basis and no liability is accepted for or representation is made by the Bank in respect of the quality,
completeness or accuracy of the information and the Bank has undertaken no independent verification in relation
thereto nor is it under any duty to do so whether prepared in part or in full by the Bank or any third party. Furthermore,
the Bank shall be under no obligation to provide you with any change or update in relation to said content. It is not
intended for distribution to private investors or private clients and is not intended to be relied upon as advice; whether
financial, legal, tax or otherwise. To the extent that you deem necessary to obtain such advice, you should consult
with your independent advisors. Any content has been prepared by personnel of the Global Markets division at the
Bank and does not reflect the views of the Bank as a whole or other personnel of the Bank.
The Bank processes your personal data to provide you with information or promotional and advertising
communications on products, services, other events and campaigns. If you wish not to receive any emails from the
Market Insights team at the Bank, please click here to send us your request to unsubscribe, and you shall no longer
receive such information.
You are entitled according to the applicable laws to exercise your rights to access, to rectification, to erasure and to
portability of your personal data, to restrict the use of and to object to the processing of your personal data. You may
exercise your aforesaid rights by sending your request to FAB at the following address: privacy@bankfab.com.
6You can also read
