Download NBAD morning news summary (09-August-2016)

NBAD morning news summary (09-August-2016)
Global News

BOE’s McCafferty advocates gradual approach in Brexit response: Bank of England
policy maker Ian McCafferty said the central bank should follow a gradual approach
in how it responds to Brexit given that information on the UK economy’s exact
reaction to the vote “is still very limited." The central bank’s monetary policy
committee "faces a set of economic circumstances that make assessing the
appropriate amount of policy stimulus more difficult”, McCafferty said in an
opinion piece published in The Times newspaper. “I prefer to learn as we go.” If the
UK economy slows “in line with the initial survey signals, I believe that more easing
is likely to be required, but that can easily be delivered in coming months,” he wrote.
The BOE reduced its key interest rate to a record low 0.25% last week and restarted
government-bond purchases to counter the impact of the country’s decision to leave
the European Union. While McCafferty was in favour of the rate cut, he was one of
three officials to vote against more QE. Opposing the move, those policy makers said
recent surveys “may overstate the weakness of the economy” and more bond
purchases could cause inflation to overshoot their 2% target. According to the
minutes of the BOE meeting, McCafferty also said any decision to revive QE could
be made at future meetings once the nine-member Monetary Policy Committee had
more information. The central bank’s rate cut last week was its first in more than
seven years, and the QE program had been dormant since 2012. The BOE also cut its
economic growth forecasts last week and Governor Mark Carney said more easing
could come later this year.
Source: Bloomberg

German industry output rounds out weak Q2 with rebound in June: German
industrial output rose slightly more than expected in June, but a subdued order
intake and a manufacturing outlook clouded by the Brexit vote has kept the onus on
private consumption to drive growth in Europe’s largest economy. Industrial output
rose 0.8% on the month, data from the Economy Ministry showed on Monday, above
the consensus forecast of 0.7% in a Reuters poll. The May reading was revised up to
a fall of 0.9%. The June rebound rounded out a weak second quarter when a
slowdown in construction — after a mild winter — held back output. In the second
quarter as a whole, industrial output contracted by 1.0%. “Given a subdued
development in incoming orders, a rather moderate upward development in the
industrial sector is to be expected in the coming months,” the Economy Ministry said
in a statement. The German economy expanded by 0.7% in the first quarter, more
than doubling its growth rate as higher state and household spending, as well as
rising investment on construction and capital goods offset a drag from foreign trade.
A Reuters poll points to 0.3% growth in the German economy in the second quarter,
figures for which are due to be released on Aug. 12. The Economy Ministry said a
4.3% drop in construction output in the second quarter was weather-related after a
mild winter, but that the conditions for the sector remained positive.
Source: Reuters

China July consumer inflation cools on slower food prices; July imports suggest
cooling domestic demand: China's consumer price inflation accelerated at its
weakest pace in six months as food prices rose at a slower pace, although the long
decline in upstream prices continued to moderate. The consumer price index (CPI)
rose 1.8% in July from a year earlier, compared with a 1.9% increase in June, the
National Bureau of Statistics said on Tuesday, the slowest pace since January's 1.8%.
Analysts polled by Reuters had expected a 1.8% gain. Food prices were up 3.3% in
July, compared with a 4.6% gain in the previous month. Non-food prices rose 1.4%,
compared with June's 1.2% gain. Consumer inflation has remained well below
China's official target of around 3% in 2016. China's July trade data published on
Monday showed domestic demand from industrial sectors was weaker than
previously expected, while exports continued to fall as global demand slumped.
Imports fell 12.5% from a year earlier, the biggest decline since February. Exports fell
4.4% on-year. China’s imports have now declined for 21 straight months, while
exports have fallen for 12 of 13 months, helping to drag economic growth to its
slowest in a quarter of a century. Tuesday’s data showed that the producer price
index (PPI) fell 1.7% in July from a year earlier, vs analysts’ expectation of 2% drop.
Low inflation means Beijing has room to loosen monetary policy if needed, but
policymakers appear to have disparate views over how much stimulus is needed to
stoke economic growth. Strengthening producer prices mean there is likely less need
to ease in the short-term. China's central bank has not adjusted interest rates since
October 2015. Producer prices for mining fell 5.6% in July on-year, while raw
materials dropped 4.5%.
Source: Reuters

Asian stocks near one-year high as yield hunt drives record flows, pound slips,
yen drops as safety demand wanes: Asian shares traded near a one-year high as
investors' desperate search for yield drove a record inflow into emerging market
funds, while the pound slipped a fifth day to one-month lows on speculation of
further policy easing in the UK. The MSCI Asia Pacific Index edged up 0.1%, after
climbing 1.3% on Monday by the most in four weeks. Japan’s Topix index rose 0.2%
after gaining 2% yesterday, while the Nikkei 225 was also attempting a fourth
session of gains with a tentative rise of 0.1%, following Monday’s gain of 2.4%. Hong
Kong’s Hang Seng Index retreated 0.3% from its highest close since November as it
gained 1.6% on Monday. The Hang Seng China Enterprises measure was down 0.2%
following Monday’s gain of 1.6%. The Shanghai Composite Index was up 0.2% after
jumping 0.9% yesterday. Financial markets in Singapore were shut for a holiday. The
S&P/ASX 200 Index in Australia increased 0.1%, 0.7% 0.5% while New Zealand’s
S&P/NZX 50 Index was up 0.3%. The indices gained 0.7% and 0.6% respectively
yesterday. The Kospi index in Seoul added 0.3% after gaining 0.7% last session. Gold
for immediate delivery fell 0.1% to about $1,335 an ounce. The pound sank 0.4%
versus the dollar, contributing to a five-day loss of 2.8%. The yen was little changed
at 102.35 per dollar after sinking 1.2% over the past two sessions, its worst two-day
decline since mid-July. Hedge funds and other large speculators cut bullish yen bets
last week to the lowest in two months, with the better-than-expected US payrolls
data also weighing on the Japanese currency. Taiwan’s dollar rose as much as 0.35%
to its strongest level in a year.
Source: Bloomberg

Demand drives $3bn Mexico bond deal at record rate as EM debt benefits from
yield hunt amid negative rates; Spanish 10-year yield below 1% for first time:
Mexico sold nearly $3bn of debt on Monday at record low rates, as emerging market
portfolio managers seek to put billions of dollars that have flowed into the asset class
to work. Orders for the two-part US dollar bond deal surpassed $9bn as Mexico
readied to refinance debts coming due early next year with lower cost paper, a
Financial times article reported citing four people familiar with sale. Mexico sold a
$760m of 10-year bond priced with a yield of roughly 3.04% - 145 basis points above
the benchmark US Treasury. According to the FT, people familiar with the sale said
the new 10-year debt priced two basis points above the country’s existing yield
curve, underscoring the intense demand for a piece of the transaction. The country
also tapped strong appetite for new 30-year paper, pricing it with a yield 205 basis
points above similarly maturing Treasuries – or at 4.37%. The final pricing was 20
basis points tighter than the yield marketed to portfolio managers earlier in the day.
Appetising yields on emerging market debt have proven a hook for investors
searching out income in a world with nearly $13tn of debt trading with a yield below
zero. More than $16bn has flowed to mutual funds and exchange traded funds
invested in emerging market debt since Britain voted to leave the EU in June, as
investors prepare for central bank stimulus that is expected to suppress rates across
developed markets, the FT article reported. In another sign of yield hunt, the yield
for 10-year Spanish government bonds fell below 1% for the first time on Monday. It
fell three basis points to a record low of 0.99%. The extra yield, or spread, investors
demand for holding the securities instead of similar-maturity German bunds
narrowed to the lowest since December. Investors in government debt are favouring
so-called peripheral countries in Europe in search for positive returns, when more
than one-third of all industrial-country securities now yields less than zero, or $8.9bn
of a total $25.4bn of debt in the Bloomberg Global Developed Sovereign Bond Index.
10-year US treasury yield was at 1.58% today after jumping 9 basis point on Friday.
Source: Bloomberg

OPEC president says oil market on path to rebalancing; oil halts gains as OPEC
talks seen unlikely to tighten supply: Qatar's energy minister, and current OPEC
president, said on Monday the oil market is on the path to rebalancing despite the
recent decline in global oil prices, adding that OPEC was in continuous talks to
stabilise the market. "The recent decline observed in oil prices and the current
market volatility is only temporary," Mohammad bin Saleh al-Sada, Qatar's minister
of energy and industry said in a statement. "OPEC continues to monitor
developments closely, and is in constant deliberations with all member states on
ways and means to help restore stability and order to the oil market." However, oil
prices fell slightly today paring gains of nearly 3% from a day earlier, as worries over
a global oil glut tempered speculation that OPEC would try to restrain output. OPEC
members are to have an informal meeting on the sidelines of the International
Energy Forum, which groups producers and consumers, in Algeria from Sept. 26-28.
Some OPEC officials had said a revival of talks on a global oil production freeze
could be discussed at the meeting if oil prices weaken. The upward momentum was
offset by news that the Louisiana Offshore Oil Port in the United States will have an
additional 2.5 million barrels in oil capacity by April 2017. WTI crude for September
delivery lost 27 cents or 0.6% to $42.73 a barrel on the New York Mercantile
Exchange after increasing $1.22 or 2.9% to settle at $43.02 a barrel on Monday, the
highest close since July 25. Brent for October settlement lost 29 cents, or 0.6%, to
$45.10 a barrel on the London-based ICE Futures Europe exchange. Prices gained
2.5% to settle at $45.39 a barrel on Monday, the highest close since July 22.
Source: Reuters; Bloomberg
Middle East & Africa News

S&P upgrades Aldar Properties to 'BBB/A-2'; outlook stable: S&P Global Ratings
on Monday raised its long- and short-term corporate credit ratings on Abu Dhabibased property developer Aldar Properties PJSC to 'BBB/A-2' from 'BBB-/A-3'. The
outlook is stable. S&P also raised to 'BBB' from 'BBB-' its issue rating on the $750m
4.348% senior unsecured sukuk certificates due December 2018, issued by Aldar's
subsidiary Sukuk Funding (No. 3) Ltd. According to S&P, the upgrade reflects the
transition in Aldar's business model, which now generates significant profitability
from more stable rental activities. S&P said Aldar continues to improve its operating
performance, on the back of steady recurring income from its rental portfolio, which
has strengthened its financial and business risk profiles. Since the opening of the Yas
Mall 18 months ago, Aldar's investment property portfolio has strengthened
significantly, generating about 50% of the company's profitability. S&P Global
Ratings' adjusted EBITDA margins improved to 52.9% as of June 30, 2016, from
23.2% in Dec. 31, 2014, despite softening market conditions. S&P thus revised
upward its assessment of Aldar's business risk profile to fair from weak and its
financial risk profile to modest from intermediate. S&P in its statement said: “The
'BBB' rating on Aldar is based on our view of the company's stand-alone credit
profile (SACP), which we now assess at 'bbb-', up from 'bb'. These positive
developments are partly offset by our view that there is now a moderate likelihood
that the government of the Emirate of Abu Dhabi (AA/Stable/A-1+) would provide
timely and sufficient extraordinary support to Aldar in the event of financial
distress, compared with moderately high previously. As a result, our 'BBB' rating on
Aldar now incorporates one notch of uplift instead of two notches.” S&P also said it
believes that Aldar will focus more on its commercial operations as its public policy
role diminishes. The led S&P to remove one notch of uplift for government support
from the ratings. The stable outlook on the ratings reflects S&P’s view that Aldar's
credit metrics will remain solid, with debt to EBITDA of below 2x and funds from
operations to debt of more than 45%, while the company maintains a significant
share of income from rental activities.
Source: Bloomberg

Bahrain said to seek a third visit to international bond markets; aiming to issue
Eurobond later this year: Bahrain plans a third visit to the debt-capital markets this
year as it sounds out bankers to pitch for arranger roles in a benchmark sale of
Eurobonds, Bloomberg News reported Monday citing two people with knowledge
of the deal. The issuance from the government, which was downgraded to junk this
year by all the major rating companies for the first time since 1999, may take place
any time after August, the people told Bloomberg. Investors typically classify
benchmark size as a deal of at least $500m. Bahrain is struggling to shore up finances
hit hard by sliding oil prices. That’s pushed the sovereign to tap both the domestic
and international markets to fund its expenses. Bahrain sold $435m of privately
placed dollar sukuk in May. In February, it raised $600m via five- and 10-year bond
retaps. The precipitous decline in finances – despite support from Saudi Arabia – has
intensified Bahrain’s fiscal vulnerabilities and raised the country’s cost of capital.
While the government has already increased water and electricity prices, lower
projected oil prices in 2016 imply that the overall fiscal deficit will remain at more
than 15% of gross domestic product, according to the IMF in January.
Source: Bloomberg

Saudi raises visa fees, traffic fines to boost revenues: Saudi Arabia's cabinet,
seeking to boost state revenues in an era of low oil prices, approved proposals to
raise a range of government fees including visa charges and fines for some traffic
violations, the official SPA news agency said on Monday. Cheap oil has slashed the
government's revenues from oil exports, saddling it with a budget deficit that
totalled nearly $100bn last year and forcing it to find new ways to raise money. New
visa fees approved by the cabinet include a charge of 8,000 riyals ($2,133) for a twoyear multiple entry permit. A three-month multiple exit and re-entry visa will cost
500 riyals; previously, such a visa cost 500 riyals for six months. The cabinet also
approved changes to civil aviation fees, SPA said without giving details, and set
heavy fines for "drifting", in which thrill-seeking Saudi motorists spin and skid their
cars at high speed. SPA did not say how much money the government expected to
raise with the new fees, which could affect business travel to Saudi Arabia and visits
by family members of the nearly 10 million foreigners estimated to live and work in
the kingdom.
Source: Reuters

Saudi Arabia contract awards down 75% on a year ago: Contract awards in Saudi
Arabia dropped by 27% quarter-on-quarter in the second quarter to just SAR 20.3bn
($5.4bn), and are 75% lower than the SAR 82.8bn ($22.1bn) awarded in the
corresponding period last year. According to an article by The National, research
from the kingdom’s National Commercial Bank (NCB) stated that the decline was
mainly owing to the lack of large contract awards by the Saudi government as it
attempts its fiscal restructuring. NCB said that in May, just SAR 3.1bn of new
contracts were awarded, which was the lowest figure experienced since April 2010.
Momentum on proposed new metro projects in cities such as Jeddah, Medina and
Dammam were stalling, it said, with most of the work that was awarded from the
energy and petrochemicals sectors. One single contract award during the quarter – a
SAR 6.5bn deal on a joint venture between India’s Larsen & Toubro and Singapore’s
Emas for an offshore gas project for Saudi Aramco – made up 32% of the total value.
Contract awards for the first half of 2016 total SAR 48.2bn, which is two-thirds lower
than the SAR 140bn awarded a year earlier. NCB said that the slowdown is likely to
continue for the remainder of this year and into 2017. "Given the vital role the
projects market plays in keeping the economy growing, a further suspension of
contract awards would have an adverse impact on the construction sector," it said.
Source: The National

Dubai's Amlak posts big H1 net profit rise despite Q2 delinquencies: Islamic
mortgage lender Amlak Finance on Monday announced that it made a net profit of
AED 87.4m in first six months of 2016, compared to AED 14.6m for the same period
last year. The results were supported by strong revenue growth in the first quarter of
the year generated from one-off sale of land plots, the company said in a statement.
The results were also impacted by increased provisioning in Q2 caused by a number
of customer accounts becoming delinquent as well as a general fall in real estate
prices against mortgage assets giving rise to a reported net loss of AED 35.5m in the
second quarter of 2016. Amlak said total revenue reached AED 465m in H1
compared to AED 214m in the year-earlier period. The company recorded a total
impairment charge of AED 29.7m recognised from non-performing accounts in H1,
with AED 24m in the second quarter. Total assets stood at just under AED 6.8bn,
representing a 2% decrease from the same period last year. Arif Alharmi, managing
director of Amlak said: "Our overall H1 profitability remains strong. We reported
strong results in Q1, however the second quarter’s operating performance was
impacted by the higher than anticipated provisioning in Q2. We follow and strictly
abide with a prudent provisioning policy to reduce balance sheet risk and enhance
financial reporting transparency to the highest levels. "Additionally, despite a
marked slowdown in the real estate market particularly during the summer season,
we anticipate making further sales and recording additional income in the remaining
part of 2016," Alharmi added.
Source: Arabian Business

Nasdaq Dubai to open equities futures market: The Nasdaq Dubai exchange will
open an equity futures market next month to trade single-stock futures on the shares
of some of the United Arab Emirates' biggest companies, the bourse's chief executive
said on Monday. The introduction of stock futures could be a major development for
equity markets in the UAE, where short-selling is restricted and a lack of
opportunities to hedge has been a concern of foreign investors. "The futures market
will provide opportunities to hedge or leverage on the underlying market. We saw a
gap in the market and think there is good demand," Hamed Ahmed Ali said in an
interview, according to Reuters. Nasdaq Dubai originally launched equity
derivatives in 2008 but this coincided with the global financial crisis and trading
failed to gain critical mass; activity petered out after 2011. Since then, however, UAE
bourses have attracted more foreign money. International index compiler upgraded
the UAE to emerging market status from frontier market in May 2014. From Sept. 1,
Nasdaq Dubai will initially trade futures agreements to buy or sell shares at an
agreed price on a future date in 10 UAE stocks which accounted for about 55% of the
traded value of all listed equities in the country. The 10 stocks are Aldar Properties,
Arabtec, DAMAC Properties, DP World, Dubai Islamic Bank, Dubai Parks and
Resorts, Emaar Properties, Etisalat, First Gulf Bank and Union Properties. Futures
contracts will have maturities of one, two or three months and be settled in cash.
Each contract will provide exposure to 100 underlying shares, with Shuaa Capital
providing market-making services. Ali said Nasdaq Dubai aimed eventually to
develop futures based on UAE stock indexes as well as single-stock futures on shares
of other countries in the region.
Source: Reuters

Egypt reserves drop to 16-month low in July amid IMF talks: Egypt’s foreigncurrency reserves dropped to the lowest level in 16 months in July after authorities
repaid about $2bn in debt, highlighting the pressure the government is facing as it
seeks a $12bn International Monetary Fund loan. Net international reserves dropped
by more than 11%, the most in 16 years, to $15.5bn, official data show. The central
bank said it repaid $1.02bn for Qatar’s holding of Egypt’s sovereign Eurobonds,
$714.4m to Paris Club creditors as well as the first installment of a Libyan deposit
with the regulator. The drop adds to the urgency of Egypt’s talks with the IMF to
finance a government program designed to secure additional aid and attract foreign
investors. The administration is attempting to revive an economy that has struggled
to recover since the 2011 revolt that ousted Hosni Mubarak. The dollar crunch that
has gripped Egypt since then has hampered business activity and created a black
market where the pound is trading almost 30% below its official rate. Reserves now
make up the equivalent of about three months of imports, according to Bloomberg
calculations. That compares with almost nine months at the end of Mubarak’s rule.
Source: Bloomberg

Qatar, Egypt rise to multi-month highs; petchems support Saudi: Stock markets in
Qatar and Egypt closed at multi-month highs on Monday on the back of firm global
bourses, while Saudi Arabia's stock market was supported by a recovery in oil
prices. Qatar's index rose 1.2% to 10,920 points, a nine-month high. Vodafone Qatar
jumped 6.0% in unusually heavy trade and the largest listed stock, Qatar National
Bank, added 2.3%. Abu Dhabi's index reversed an early decline to add 0.1% as some
mid-cap shares advanced. Abu Dhabi National Energy Co surged 8.0%. First Gulf
Bank rose 0.4% but most other large-cap lenders lagged, with Abu Dhabi
Commercial Bank dropping 0.6%. Dubai's index ended the session flat in thin trade
with just under half of traded shares declining and a little over a fifth gaining.
Builder Arabtec, which climbed 3.4% on Sunday, retreated 1.3%. Abu Dhabi index
added 0.1%. Kuwait's Agility climbed as much as 1.0% but ultimately closed flat
after the logistics company reported an 11% rise in second-quarter net profit.
Kuwait's main index advanced 0.5%, supported by banking shares. Boubyan Bank
rose 1.3% and Al Ahli Bank of Kuwait added 1.6%. Riyadh's main index rose 0.5%
with the petrochemical sector gaining for a third session in a row as Brent oil traded
above $44 a barrel, recovering from a four-month low of $41.51 hit on Aug. 2.
Industry bellwether Saudi Basic Industries added 0.3% and an affiliate of SABIC,
Saudi Kayan Petrochemical, jumped 4.5%. Some domestic demand-driven
companies also advanced with retailer Fawaz Abdulaziz Alhokair climbing 5.0%.
Kuwait index gained 0.5%, Oman index edged up 0.2% but Bahrain index slipped
0.2%. In Egypt, the main index edged up 0.6% to a 13-month closing high of 8,273
points. Trading volumes almost doubled from Sunday to its highest level since midApril as both local and foreign institutions accumulated shares, bourse data showed.
Source: Reuters

Nigeria seeks managers, adviser for $1bn of Eurobonds: Nigeria is seeking two
lead managers and a financial adviser to organise the issuance of $1bn of Eurobonds
this year, according to the nation’s Debt Management Office. The sale is the first
tranche of a $4.5bn Nigeria Global Medium-Term Notes Issuance Programme that
runs through 2018, the department said in a statement published in the UK’s
Financial Times newspaper on Monday. The government wants to appoint two
international banks as joint lead managers and a local lender as financial adviser for
the whole program, according to the statement. Bids are to be submitted by noon on
Sept. 19 in the capital, Abuja. The move will “enable Nigeria to have the flexibility of
quickly taking advantage of favourable market conditions in the international capital
market to raise funds if and only when the need arises,” according to the statement.
The Eurobond sales this year would be the first since Nigeria tapped the market in
July 2013 and an inaugural issue in 2011. President Muhammadu Buhari approved a
record 6.1 trillion naira ($19.3bn) spending plan this year and the Treasury intends to
borrow to plug the budget’s 2.2 trillion naira ($7bn) deficit. The Nigerian
government is increasing spending to stimulate Africa’s largest economy after it
contracted by 0.4% in the first quarter as revenue dwindled amid lower oil prices
and a decline in output. The economy could shrink 1.8% in 2016, according to the
International Monetary Fund.
Source: Reuters

Uganda cuts interest rates again as inflationary pressures ease: Uganda's central
bank cut interest rates on Monday, saying a stable shilling had dampened inflation
as it faced calls to also bring down debt auction yields to help the monetary easing
feed through to the broader economy. Making its third cut since April and signalling
further reductions ahead, the central Bank of Uganda (BoU) lowered the benchmark
policy rate by 100 basis points to 14%, stepping up efforts to boost growth after the
economy shrank in the first quarter from the previous one, hurt by a fall in
agricultural output. BoU governor Emmanuel Tumusiime-Mutebile said the bank
expected growth to accelerate to 5.5% in the fiscal year ending June 2017, from a
forecast 4.6% in 2015/16. Annual headline and core inflation were likely to drop by
the end of 2016. "Given that inflation is forecast to stabilise around the policy target
(of 5%)... over the next six months, the Bank of Uganda believes that a continued
easing of monetary policy is warranted," he said. That would also help to support a
recovery of private sector credit, he added. Year-on-year headline inflation fell to
5.1% in July, from 5.9% the previous month, helped by slowing fuel prices. Core
inflation, which strips out food, fuel and metered water, dropped to 5.7% from a
revised 6.8%. The central bank, which uses the core reading as its monetary policy
yardstick, holds its next policy meeting in October.
Source: Reuters
Rakesh Sahu
Chavan Bhogaita
Market Insights & Strategy
Global Markets
National Bank of Abu Dhabi
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