DIFC Weekly Economic Commentary Aug 8th 2010 by linzhengnd


									DIFC Weekly Economic Commentary Mar 13th 2011
Global markets were down last week - MSCI World Index fell to the lowest level since Jan - with Japan’s
earthquake, China's inflation release and dip in US consumer confidence. Regional markets performed better -
recovering from previous lows after Gulf leaders announced new initiatives including housing and job provisions.
Sterling fell to a near two-week low after BoE kept interest rates on hold; the yen slumped to a two-week low on
Fri, after news of the quake before gaining ground later (similar to changes after the 1995 earthquake). Crude
prices retreated after hitting a 2.5 year high on Mon while gold prices also declined from previous highs.

Global Developments
 US Feb retail sales rose by 1.0% mom (Jan: 0.7%), boosted by auto sales, job gains and better temperatures.
 Trade deficit in the US widened to USD 46.3bn in Jan, recording the highest level in seven months (Dec: USD
  40.3bn) as a surge in imports (+5.2%, the highest since Mar 1993) overshadowed export growth (2.7%).
 US budget deficit recorded the largest monthly deficit ever of USD 222.5bn in Feb (Feb 2010: USD 220.9bn),
  reflecting increased spending, taking the deficit till date to USD 641.3bn.
 Initial jobless claims increased by 26k to 397k in the week ended March 5 in a weak labour market.
 German industrial orders rose 2.9% mom in Jan (Dec: -3.6%), on stronger domestic demand (4.5%) while
  foreign orders increased 1.6%. In year-on-year terms, industrial orders were up 16%.
 German industrial production rebounded sharply in Jan, rising by 1.8% mom (Dec: -0.6%) - caused by a
  strong 36.3% rise in the output of building sector (-24.2%). In contrast, Italy's Jan industrial production fell
  1.5% mom, with weak demand for Italian goods abroad being cited as the reason for the dismal performance.
Asia and Pacific:
 Of the three central bank meetings, South Korea and Thailand hiked policy rates by 25bps each to 3.0% and
   2.5% respectively while Malaysia held key policy rate unchanged and raised the statutory reserve requirement
   ratio to 2% from 1% effective April 1.
 Japan core machinery orders rose 4.2% mom in Jan on rising overseas demand, fueled by a 7.2% gain in
   demand from manufacturers, especially in chemical and non-automobile transport equipment sectors.
 Japan’s earthquake will likely lead to an increase in budget deficit (already @ 10%) but human & material
   losses to-date are less than in 1995 and 2004 earthquakes (see attached from Munich Re)
 China unexpectedly posted a $7.3 billion trade deficit in Feb as exports increased 2.4% yoy, the least since
   2009, and imports climbed 19.4% in a month where numbers were distorted by the Lunar New Year holidays.
 Inflation rose 4.9% in Feb in China, unchanged from Jan though food prices surged 11.3% accompanied by
   2.3% rise in non-food prices.
 China’s Jan-Feb industrial production was up 14.1% yoy, as output for heavy industries increased 14.4% and
   light industries grew 13.3%. Retail sales for the two months were up by 15.8% CNY2.9 trillion -
   however growth was lower than Dec data in spite of the spending for Lunar New Year holidays.
 India's industrial output grew 3.7% yoy in Jan (Dec: 2.5%) on higher exports and manufacturing. This however
   compares to the 16.8% rise in production in Jan 2010.
 Bottom line:
US continues to be held hostage by oil price rises, as seen from the trade deficit while consumer confidence hit a
5-month low. At the meeting of Eurozone leaders, focus remained on debt worries (especially for the PIIGS
countries) with one of the main decisions the extension of the repayment period for Greece’s EUR 110bn loan
package and lowering of the interest rate. Meanwhile, data confirm the two-speed growth within the Eurozone
with Germany surging ahead. Asia remains more worried about inflationary pressures vis-à-vis oil prices impact
on growth, with South Korean and Thailand central banks being the latest to tighten policy.

Prepared by DIFCA Economics
Regional Developments

 GCC countries introduced a Gulf Development Program – with a funding of USD 20bn - for Bahrain and
  Oman. A committee will be formed in next two weeks to put all necessary mechanisms for establishments.
 The Government of Bahrain has endorsed a housing plan costing USD 5bn to contain the recent uprising.
 Kuwait inflation rate slowed to 5.2% yoy in Jan 2011 from Dec’s 6%, which was the highest rate in the past
  two years.
 IMF mission to Qatar has released its concluding statement highlighting that the economy is expected to grow
  by 16% in 2010 and 20% in 2011, while the inflation rate will be moderate at 3% in 2011.
 Prince Al Waleed bin Talal, chairman of Kingdom Holding Co., announced that he had invested more than
  SAR 500mn in the Saudi stock market during the past two weeks, while also expressing his willingness to
  invest another SAR 500mn.
 The passing of the Saudi mortgage law faces more delays as one member of the appointed parliament raised
  objections. The mortgage law has been debated by Shura for more than two years now.

UAE Focus

 UAE banks’ provisions rose 3.2% mom in Jan 2011, with the provisions for non-performing loans reaching
  AED 45.7 bn – this is roughly 4.4% of total loans.
 Total trade in Dubai rose 18% yoy to reach AED 576bn in 2010.The exports clocked in at AED 68bn (30%),
  imports touched AED 364 bn (14%) and re-exports came in at AED 144bn (23%).
 Dubai inflation dropped 0.09% mom in Jan 2011, led by decline in food prices.
 DSC stated that Dubai GDP rose 2.5% yoy in the first nine months of 2010, led by wholesale & retail and
  transportation & communication sectors. It was not specified whether this was nominal or real GDP growth.
 Tea trading in the Dubai Multi-commodities Centre increased by 41% yoy in 2010 making Dubai one of the
  most important trading tea centres in the region.
 UAE insurance authority drafted a law to regulate the insurance activity in banking sector.
 The Investment Corporation of Dubai has asked banks to submit proposals on a new USD 4bn, 5-year loan
  refinancing, as reported by Reuters. The loan will refinance existing debt including a USD 6bn loan, some of
  which is due to mature in 2011.
 Mubadala has offered to buy shares in Dubal to form a holding company that includes Emirates Aluminum
  Company and create a production capacity of 2.5 mn tonnes annually, according to a top government official.

Prepared by DIFCA Economics
    Market Snapshot as of 03/13/2011 at 8:30am (All % figures are weekly changes from Mar 6th (MENA) & Mar 4th (Foreign))
                                               Stock Market Indices (% change)                                                                                           Exchange Rates (% Changes)
         10%                                                                                                                                EURO$                                               -0.6%

              8%                                                        7.2%
                                                                                                                                          EURYEN              -1.2%
                                                                                                                                          CHFAED                                                    -0.6%
              4%                                                                     3.5%
                    2.4%        2.3%
              2%                                                                                                                          GBPAED               -1.2%
                                                                                                                                          EURAED                                -0.9%
                   Bahrain   Kuwait       Oman     Qatar   Saudi         UAE       UAE       Egypt     Morocco                           KWDAED                                                                                   -0.1%
                                                                        (DFM)    (ADSE)

                                                                                                                                                      -1.4%        -1.2%       -1.0%        -0.8%     -0.6%        -0.4%         -0.2%       0.0%

                                       Performance of DFM sectors (% change)                                                                              World Stock Market Performance (% Change)
                   DFM Index                                             7.2%
                                                                                                                                                           -2.6%                                                             MSCI EM
                     Telecom                                                         9.2%

                     Materials    0.0%                                                                                                                                                                                5.0% MSCI GCC ex SA

                    Transport                                            7.3%
                                                                                                                                                              -2.2%                                                          DJ Euro 50
                   Real Estate                                                                 11.5%

                    Insurance           0.6%                                                                                                    -4.2%                                                                        TOPIX

                     Finance& …                                            7.8%
                                                                                                                                                                       -1.0%                                                 Dow Jones 30
                     Banking                           4.0%

                                                                                                                                     -6.0%            -4.0%           -2.0%      0.0%         2.0%          4.0%          6.0%       % chg w/w
                               0.0%       2.0%     4.0%       6.0%       8.0%        10.0%    12.0%         14.0%

                   Emirates interbank rates (Change in the term structure)                       112.0                                   Oil Prices                                1435.0
                                                                                                                                                                                                              Gold Price
        3.3                                                                                      110.0                                                                                                                                   3/5/2011
        3.1                                                                                                                                                                                                                              3/12/2011
                                                                                                 108.0                                   3/12/2011
                                                                                                 106.0                                                                             1425.0
        2.5                                                                                      104.0
        2.3                                                                                      102.0
        2.1                                                 3/5/2011
                                                                                                 100.0                                                                             1415.0
        1.9                                                 3/12/2011
        1.5                                                                                          96.0
                      1M                  3M               6M                   1Y                             West Texas Intermediate                  Dubai Fateh

         Source: Bloomberg, DIFC Economics.
Prepared by DIFCA Economics

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