Find anything about our products, search our faqs, and more.
Type your query in the search above and press enter to see the results
Try typing "Card activation"
Chief Investment Officer's team, 24.11.2019
2019 so far has been a great year for markets, with all the major asset classes posting positive returns, half of them at double digit. To put it clearly, we believe that most, if not all, of this performance should be preserved in the last weeks of the year, but the near-term is as binary as ever: it’s all about the US and China agreeing on a tangible “Phase 1” trade deal.
Last week delivered mixed messages on that front. Bottom line, Mr Trump stated that both countries want a deal to be signed, but that the Hong-Kong protests were complicating the situation. This could be seen as a way to prepare markets that a deal might not be absolutely imminent, even more so as it appears that the December 15th deadline for some planned tariffs could be postponed.
Markets are holding their breath, and so are central banks. The Fed minutes released Wednesday indicate that they are comfortable with their “wait and see” stance. Economic data (flash PMIs released on Friday) also didn’t change the picture, with some stabilization in manufacturing but also deceleration in consumption.
Our positioning is unchanged, with a slight overweight in both equities and cash, against a slight underweight in fixed income and real estate. Barring a last-minute crash in the trade negotiations, markets should end the year close to their current levels. We obviously focus on the Year Ahead, currently working on our end 2020 fair values for major asset classes.
In her first policy speech since replacing Mario Draghi as ECB president, Ms Lagarde urged governments to increase public investments for the region to thrive under growing uncertainty as monetary policy “should not be the only game in town”. Europe, the world’s second largest economy, has a checkered record in terms of economic dynamism, with headwinds to business activity growing significantly on trade-war tensions that hit export-oriented Germany harshly.
Protracted weakness of the domestic currency is just another symptom of the same malaise. Although the euro is undervalued against the US dollar according to most long-term equilibrium models, its low single-digit negative carry versus the dollar alongside weaker corporate earnings prove considerable hurdles to investors looking to park money in growth assets. The global economy will need to push well past the current green-shoots of recovery for the euro to be considered a currency worth investing in. Hence, the fate of the euro, as well as that of the whole area, ultimately lies in the hands of the global cycle.
Ms Lagarde is driving the right point home, by suggesting that more public expenditure would be increasing demand and at the same time mitigating Europe’s dependency on external forces. This would be very much akin to what China has been striving for in the past decade, by steering the economy more towards internal consumption to decrease its sensitivity to exports. In Europe, it would not even be a matter of replicating the gigantic Chinese efforts, but rather just starting to make up for insufficient private demand wherever need be.
Indeed, this kind of predicament is running on a global scale, where reliance on monetary policy has been excessive as compared to inaction on the fiscal side, with the exception of the US where tax cuts were enacted in place of more government outlays. It is also expected that fiscal stimulus will naturally pick the baton considering the adverse impact of negative yields for prolonged periods of time. Yet, a world where public spending comes to the foreground and central banks play less of a pivotal role would not just be a matter of replacing one kind of instrument with another to support the economy.
Investors may shudder at the prospect. Fiscal policy eventually boosts inflation and yields, monetary stimulus propels financial assets higher by depressing yields. Asset markets could in the beginning have to pay a high price for much coveted economic growth. As much as public outlays would increase the natural growth rate of the economy, they would also push bond yields higher, a mere reflection of improved macro conditions. So, risk assets would be off to a bad start if world governments suddenly did wake up to Ms Lagarde’s call, to be boosted higher by stronger growth only further down the road.
Fixed Income Update
FOMC Minutes highlighted that the policymakers are not ready to finalize whether the FED should have a standing repo facility or a modestly sized frequent repo offering to control the Fed Funds Rate. The central bank's overnight repo operation on Wednesday was undersubscribed, with dealers submitting USD 74.4Bn of securities, below the maximum 120Bn limit. The US treasuries ended stronger with yields down from 1.81% to 1.77% while Euro-area benchmark yields edged also lower anywhere between 2 to 5 bps after Services PMI across the region were lower than analyst expectations. UK Gilts were the top performer on the back of the lowest Markit composite PMI data print since July 2016.
In a sign of lower market confidence in risky bonds, US CCC rated bonds' spreads widened above 1,000 bps for the first time in the last three years. The Bloomberg Barclays Index had Option Adjusted Spreads of 1,020 bps and overall YTW of 11.98%. However, US HY Index excluding CCC rated bonds has rallied significantly this year with spreads decreasing by more than 160 bps YTD. This reinforces our strategy on exposure to the subinvestment asset class whereby committing to prefer quality credit within the category.
The macroeconomic data were mixed with retail numbers disappointing while manufacturing and services data improved in November. The IHS Markit US flash manufacturing sector PMI index rose to 52.2 in November from 51.3 in October. This is the fastest rate since April meanwhile the U.S. flash services sector PMI index rose to 51.6 from 50.6. US Macro data is going to dominate this week with markets keenly awaiting the Chicago FED activity index and Dallas Fed Manufacturing activity due today and GDP, personal consumption, MBA mortgage applications, Capital goods orders due on Wednesday.
Chinese 10-year sovereign yields had the biggest weekly decline since August post central bank decision to lower the cost it charges on short-term open-market operations for the first time since October 2015. The PBOC had also injected 300 billion yuan of cash into the financial system last week. We consider the change in the monetary policy stance to be more of a signal rather than a material shift, and this rally may be short-lived since the geopolitical risks remain elevated on the backdrop of US congress supporting Hong Kong protests and the ongoing trade flip-flop.
Primary bond activity across emerging markets have topped USD 657bn surpassing last year’s USD 538bn. It was a decent week in terms of GCC's primary issuance. Arabian Centres Company, priced USD 500 Mn of their debut Sukuk at 5.375%. National Bank of Kuwait issued the lowest yielding perpetual in the GCC region. NBK sold USD 750 Mn of Non-Call 6Y bond at 4.50%. Books were more than $1.75bn. ONGC of India announced a possible issuance of 10-Year bonds. ONGC's farthest maturity bonds in 2026 yield 3.1%. Considering the comps within the oil sector, we foresee the upcoming bond to be priced around 3.4% to 3.5%.
U.S. markets are well oriented this quarter, as the 3Q corporate earnings season point to flat growth, beating consensus expectations of a 4% drop. The health care sector is a standout, posting double-digit revenue growth and +8% rise in profits. US indices, however slightly fell last week, after 6 straight weeks of gains, as the U.S.- China "phase one" trade deal delay dampened positive news from the manufacturing front. Earnings were mixed in the retail sector. Target Corp was a standout, on increasing ecommerce sales. In Asia, Alibaba’s secondary listing was successful but the Hang Seng Index has lost all its gains for 2019, with no signs of the Protests abating.
The KSA markets had a good week with the Index back above the 8000 mark. The Saudi Aramco IPO is being well received by institutional and retail investors according to the lead managers. The company is expected to list on the Tadawul exchange in the second week of December and enter the EM indices soon after, attracting passive inflows. In the UAE, the logistics sector (we are overweight) is rallying. Tourism and commercial travel are growing, as evident with Air Arabia placing a 120 aircraft order with Airbus. FOLs(Foreign ownership Limit) are being ramped up by the banks. Emirates NBD recently raised its FOL and its rights issue was subscribed 2.8X.
The Electric Vehicle industry is making some noise. Tesla’s Cybertruck’s glass window shattered when its strength was tested with a metal ball. The failed launch dented the 40% rise in share price since Teslas’ surprise third-quarter profit last month, but the futuristic truck is said to have gathered 200k orders already. The auto industry (still dependent on the combustion engine for 95%+ of sales) is focused on a makeover with several EV launches. Ford unveiled an all-electric SUV, the Mustang Mach-E, priced at $45,000 much cheaper than Porsche's Taycan, at $150,000. 50% of all Porsche sports cars sold by 2025 will have an electric engine. Weak market momentum is weighing on the automotive sector, according to S&P Global Ratings with pressure coming from trade disputes, increased competition and higher costs, “We expect no revenue growth for the industry in 2020 and 2021. Any recovery hinges on a potential modest revival of the Chinese market, and would come no earlier than 2021 in our view.” S&P expects light vehicle sales worldwide will fall about 8 mn next year.
China may not be home to the world’s largest tech companies, but is leading on innovation. China’s one billion Internet users are helping drive e-commerce growth with the streaming technology being used to gain consumers attention. 7.5% of overall sales on Alibaba’s Singles Day ($38.4 bn) were on account of live streaming, the modern version of cable TV shopping platforms. Live streaming, which combines shopping with entertainment, includes recommendations from key opinion leaders, real time comments from peers to help consumers make decisions faster and limited-time offers. Voice shopping is also gaining traction. Over one million orders were placed and paid through voice command using Tmall Genie, the smart speaker from Alibaba Labs.
Written By:Maurice Gravier Chief Investment Officer, MauriceG@EmiratesNBD.com
Emirates NBD Bank PJSC (“Emirates NBD”) is licensed and regulated by the UAE Central Bank and this website aims at providing Internet users with information concerning Emirates NBD Private Banking, its products and activities. Persons having access to information made available by Emirates NBD on this website accept the following rules:
Emirates NBD uses reasonable efforts to obtain information from sources which it believes to be reliable, however Emirates NBD makes no representation that the information or opinions contained in publications on this website are accurate, reliable or complete. Published information may include data/information from stock exchanges and other sources from around the world and Emirates NBD does not guarantee the sequence, accuracy, completeness, or timeliness of information contained on this website provided thereto by unaffiliated third parties. Anyone proposing to rely on or use the information contained on this website should independently verify and check the accuracy, completeness, reliability and suitability of the information and should obtain independent and specific advice from appropriate professionals or experts. Further, references to any financial instrument or investment product are not intended to imply that an actual trading market exists for such instrument or product. Emirates NBD is not acting in the capacity of a fiduciary or financial advisor. Any publications on this website are provided for informational purposes only and are not intended for trading purposes. Data/information provided herein is intended to serve for illustrative purposes and is not designed to initiate or conclude any transaction. The information available on this website is not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be contrary to law or regulation. This website and anything contained herein, is provided "as is" and "as available," and that Emirates NBD makes no warranty of any kind, express or implied, as to this website, including, but not limited to, merchantability, non-infringement, title, or fitness for a particular purpose or use.
The provision of certain data/information on this website is subject to the terms and conditions of other agreements to which Emirates NBD is a party. Emirates NBD reserves the right to make changes and additions to the information provided at any time without prior notice. The information may be modified or removed without prior notice. No buy or sell orders submitted via the internet or email will be accepted. In addition, the data/information contained on this website is prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors relevant to the determination of whether a particular investment activity is advisable.
Information contained on this website is believed by Emirates NBD to be accurate and true, in all material respects. Emirates NBD accepts no responsibility whatsoever for any loss or damage caused by any act or omission taken as a result of the information contained on this website. Further Emirates NBD accepts no liability for the information and opinions published on the website and is under no obligation to remove outdated information from its website or to mark it clearly as such. The information given on this website may not be distributed or forwarded in whole or in part. Accordingly, anything to the contrary herein set forth notwithstanding, Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries shall not, directly or indirectly, be liable, in any way, to you or any other person for any: (a) inaccuracies or errors in or omissions from the information available on this website including, but not limited to, quotes and financial data; or (b) loss or damage arising from the use of this publication, including, but not limited to any investment decision occasioned thereby. or (c) under no circumstances, including but not limited to negligence, shall Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries be liable to you for direct, indirect, incidental, consequential, special, punitive, or exemplary damages even if Emirates NBD has been advised specifically of the possibility of such damages, arising from the use of the information on this website, including but not limited to, loss of revenue, opportunity, or anticipated profits or lost business. Emirates NBD expressly accepts no liability for losses or damages of any kind arising from using or accessing this website or links to third-party websites or from viewing information on any of its web pages. Furthermore, Emirates NBD accepts no liability for any unauthorized manipulation of users IT systems. Emirates NBD expressly draws user’s attention to the risk of viruses and the threat of hacker attacks
Third Party Website:
Users may be aware that Emirates NBD has no control whatsoever over third-party websites linked to or from this website and therefore accepts no liability for the content of such websites being correct, complete and legally valid for the products and services offered on such websites. Emirates NBD’s express written permission must always be sought before including a link to this website on a third-party website.
None of the information on this website in any way constitutes a solicitation, offer, opinion, or recommendation by Emirates NBD to buy or sell any security, or to provide legal, tax, accounting, or investment advice or services regarding the profitability or suitability of any security or investment.
The information contained on this website does not purport to contain all matters relevant to any particular investment or financial instrument and all statements as to future matters are not guaranteed to be accurate. Certain matters in this publication on the website are about the future performance of Emirates NBD or members of its group (the Group), including without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, constitute “forward-looking statements”. Such forward-looking statements are based on current expectations or beliefs, as well as assumptions about future events, made from information currently available. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “seek”, “believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning. Undue reliance should not be placed on any such statements in making an investment decision, as forward-looking statements, by their nature, are subject to known and unknown risks and uncertainties that could cause actual results, as well as the Group’s plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized.
Risk: In addition, before entering into any transaction, the risks should be fully understood and a determination made as to whether a transaction is appropriate given the person’s investment objectives, financial and operational resources, experiences and other relevant circumstances. The obligations relating to a particular transaction (and contractual relationship) including, without limitation, the nature and extent of their exposure to risk should be known as well as any regulatory requirements and restrictions applicable thereto. Data included on this website may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, and credit risk. Emirates NBD may use different models, make valuation adjustments, or use different methodologies when determining prices at which Emirates NBD is willing to trade financial instruments and/or when valuing its own inventory positions for its books and records.
Investment in financial instruments involves risks and returns may vary. Before making such an investment, investors should consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment.
The information on this website has been developed, compiled, prepared, revised, selected, and arranged by Emirates NBD and others (including certain other information sources) through the application of methods and standards of judgment developed and applied through the expenditure of substantial time, effort, and money and constitutes valuable intellectual property of Emirates NBD and all present and future rights in and to trade secrets, patents, copyrights, trademarks, service marks, know-how, and other proprietary rights of any type under the laws of any governmental authority, domestic or foreign, shall at all times be and remain the sole and exclusive property of Emirates NBD and/or other lawful parties and you acknowledge that you have no ownership rights in and to any of such items. Except as specifically permitted in writing, the information provided in this website shall not be copied or make any use of any information on this website or any portion of the intellectual property rights connected with this website, or the names of any individual participant in, or contributor to, the content of this website, or any variations or derivatives thereof, for any purpose. Further you shall not use any of the trademarks, trade names, service marks, copyrights, or logos of Emirates NBD or its subsidiaries in any manner which creates the impression that such items belong to or are associated with you or, except as otherwise provided with Emirates NBD’s prior written consent,
The information on this website solely for non-commercial use and benefit and the use of this information is not intended for resale or other transfer or disposition to, or use by or for the benefit of, any other person or entity. Information contained in this website shall not be used, transferred, distributed, reproduced, published, displayed, modified, create derivative works from any data contained on this website or disposed of in any manner that could compete with the business interests of Emirates NBD. Any part of this website may not be offered for sale or distribute it over any medium including but not limited to over-the-air television or radio broadcast, a computer network or hyperlink framing on the internet without the prior written consent of Emirates NBD. The information contained on this website may not be used to construct a database of any kind. The data on this website shall not be used in any way to improve the quality of any data sold or contributed by you to any third party.
In accessing this website, you acknowledge and agree that there are risks associated with investment activities. Moreover, you agree that your use of this publication is at your sole risk and acknowledge that the responsibility to obtain and carefully read and understand the content of documents relating to any investment activity described on this website and to seek separate, independent financial advice if required to assess whether a particular investment activity described herein is suitable, lies exclusively with you.
Markets hold their breath
A week for risk takers
Time for a pause?
Earlier this year, in our Global Investment Outlook, we expressed concerns on the investment landscape for the next decade, and highlighted the keys to successfully navigate it. We emphasised one in particular: the ability to quickly add or reduce risk, when volatility generates opportunity.Know More
Subscribe and stay updated!
Get exclusive deals, latest promotions and important information
All this and more in the Emirates NBD newsletter
You will now be redirected to an external website to view this content. Emirates NBD or any of its subsidiaries does not bear liability/responsibility for any other information published by the website owner or publisher.
You will be redirected in 5 Seconds