global asset allocation | 2q 2019 - mashreq …...real estate has been an important pillar of the...

Quarterly Report

GLOBAL ASSET ALLOCATION | 2Q 2019

Contents Overview ....................................................................................................................................................................1

Macro Backdrop .........................................................................................................................................................1

Asset Allocation Strategy ..........................................................................................................................................1

Chart of the Quarter ..................................................................................................................................................3

Equities

US equities: Back in business ........................................................................................................................... 4

Economic indicators paint a mixed picture ........................................................................................................ 4

No change in view ............................................................................................................................................ 4

Europe: In tow with the rest ............................................................................................................................ 4

UK: Brexit postponed ........................................................................................................................................ 5

EMs: Chinese equities enjoy marathon run ..................................................................................................... 5

Saudi, Kuwait top performers .......................................................................................................................... 5

Fixed Income

Treasuries rally on Fed caution ........................................................................................................................ 6

Bond yields plunge across Europe ................................................................................................................... 6

Dovish Fed and Brexit angst lift UK Gilts ........................................................................................................ 6

A favourable environment to nurture EM debt .............................................................................................. 7

GCC debt: Outperformance continues ............................................................................................................ 7

Corporate bonds recuperate losses ................................................................................................................. 7

Commodities

Oil price marches up ......................................................................................................................................... 8

OPEC compliance highest since 2017 ............................................................................................................. 8

US oil production slows down ......................................................................................................................... 8

Gold to move sideways .................................................................................................................................... 8

Palladium soars to record high ........................................................................................................................ 9

Natural gas prices decline ................................................................................................................................ 9

Base metals trade marginally high................................................................................................................... 9

Currencies

Dovish Fed to put pressure on USD ............................................................................................................... 10

EUR retains a firm undertone ......................................................................................................................... 10

Brexit headlines to dominate GBP ................................................................................................................. 10

EM currencies to move higher ....................................................................................................................... 11

RUB hits seven-month high vs. USD .............................................................................................................. 11

MXN continues to gain traction .................................................................................................................... 11

TRY worst performer amongst EMs ............................................................................................................... 11

Charts ...................................................................................................................................................................... 12

Tables ...................................................................................................................................................................... 14

Glossary................................................................................................................................................................... 17

Quarterly Report – 2Q 2019

GLOBAL ASSET ALLOCATION

Mashreq Private Banking Page | 1

OVERVIEW Markets have rallied quite sharply through 1Q19 in anticipation of a US-China trade deal and more prominently from the stance of major central banks exhibiting patience on monetary policy tightening. Gains in equities were persistent with improving liquidity conditions mainly in the US and emerging markets. Moreover, demand for high-yielding risky corporate bonds picked up steam. Furthermore, with the major central banks delaying their normalisation process and extending another round of helping hand, the market tail risks (Brexit, political risk in the Eurozone, US-China trade conflict) could be somewhat mitigated. However, it is still imperative to monitor these risks due to their systemic importance. For instance, an unresolved US-China trade dispute could inhibit global growth prospects and trigger market volatility. In this context, equity markets may perform well should labour market conditions remain solid with subdued inflationary pressures and low interest rate environment. However looming uncertainties remain a major drag. Bond markets may see a mild rise in yields as risk appetite improves. Meanwhile, the deteriorating outlook for the USD, especially after the Fed took a dramatic reversal in its policy during March meeting, may prove to be a major tailwind for emerging market assets.

MACRO BACKDROP In the US, macro indicators are providing mixed signals on the health of the economy.

Retail sales, though stabilised at 0.2% in January, still suggest weak consumer spending. Also, manufacturing activity succumbed to trade tensions. However, the recent trade deficit for January declined sharply by 15% on strong exports.

The Eurozone economy continues to face challenges, with German and French manufacturing PMI contracting to 44.7 and 49.8, respectively, in March. PMI for Eurozone fell to 49.3% in February, suggesting a contraction alongside slowing wages (2.3% y/y: 4Q 2018) and muted inflation (1.5% y/y in February) in the region.

The UK economy remained afloat despite the Brexit gloom. GDP staged an unexpected rebound in January but remained at a sluggish pace of 0.2% q/q during the three-month period. Jobs market exhibited strength with the unemployment rate at the lowest level in 44 years and wages growing at a healthy rate of 3.4%.

ASSET ALLOCATION STRATEGY Concerns regarding the US-China trade war have moderated to a large extent,

while Brexit risks remain really high. We see increasing risks of slowdown in global markets. As a result, we keep our outlook unchanged: Neutral with a Positive Tilt in the US and EMs, and Neutral in Europe, the UK and GCC.

We expect the potential moderation in global growth and delay in monetary policy normalisation by the central banks to support demand for safe-haven sovereign bonds. Meanwhile, the low interest rate environment should fuel risk appetite resulting in increased capital flows into emerging market debt.

We see an upside potential in oil prices given the oil production cuts and US sanctions on Iran and Venezuela. Hence, the prices are expected to trade in the range of $65-$75/bbl. Amongst precious metals, we prefer gold but suggest not adding a fresh position. We also remain Positive on base metals.

We hold a Cautious tone on USD as a dovish Fed and a moderating US economy would create downward pressure. This should help support the EUR. GBP’s direction is expected to be guided by the Brexit developments in the near future. Meanwhile, compelling asset valuations, and soft USD should provide some support to EM currencies, albeit external and domestic risks still persist.

Hazem Fouad, CFA

Head of Investments ------------------------------------

Kashif Arbab

Senior Investment Advisor ------------------------------------

Wesam Al Farraj

Senior Investment Advisor ------------------------------------

Omer Murad, CFA

Investment Advisor ------------------------------------

Rana Besada


Sanjeev Ravindran


Sandeep Jadwani

Investment Advisor -----------------------------------

Walid Dahdal


Ibrahim Al Zinati


Yogesh Tibrewala, CFA


Siddhartha S. Banerjee


Gurpreet Singh

Product Manager, Funds ------------------------------------

Nadine Soubra, CFA

Product Manager ------------------------------------

Jai Mohan

Product Manager ------------------------------------

Gavin Savio Fernandes

Product Support

------------------------------------

Hesham Bakry

Equity Sales Manager

Contact: +971 4363 2323

Quarterly Report – 2Q 2019

ASSET CLASS VIEWS CHART


*▲ Positive, = Neutral, ▼ Cautious, =▲Neutral with a Positive Tilt #IG – Investment grade, HY – High yield; EMs – Emerging Markets

Asset Allocation

Strategic Tactical

Source: Mashreq Bank Source: Mashreq Bank

45%

30%

10%

15%

Equities Fixed Income Commodities Cash

45%

30%

15%

10%

Equities Fixed Income Commodities Cash

.Asset class Sub-class View* Rationale

Main Asset Classes

Equities =▲

Potential slowdown in global economic growth a major risk for equities; US economy moderating yet healthy; trade war resolution likely; China outperforms among EMs; anaemic growth in Europe; Brexit outcome holds significance

Fixed Income = Global economic growth and central banks moves to guide rates; Dovish Federal Reserve stance and de-escalating US-China trade tension to benefit EM debt

Commodities =▲ Oil production cuts and US sanctions on Iran and Venezuela should lift prices. Geopolitical tensions to favour gold. Any spike in trade worries could lend support to industrial metal prices

Currencies = USD to soften as it loses support due to the Fed’s shift to a more dovish tone; Compelling asset valuations and China’s progressive monetary stimulus to benefit EM currencies

Equities

US =▲ Strong earnings growth, robust economy crucial for market performance; trade deal likely to materialise to some extent

Europe ex-UK = Diminishing trade war risks positive for European markets; Potential Brexit delay boosts markets; but economic growth contraction in Germany a key threat

UK = Delay of Brexit possible; sluggish economy; investments dry up

EM ex-GCC =▲ Chinese stimulus to help boost economy; Market friendly reforms key for Brazil, Indian markets hinge on general election results; attractive valuations persist

GCC = Recovery in oil prices key and inclusion of Tadawul in MSCI EM index to benefit GCC markets; property sector drags UAE stocks

Fixed Income

US Treasuries =▲ Treasuries to remain supported by the Fed’s caution on economic outlook and dovish policy

Euro (Bunds) = ECB’s accommodative policy to support the weak economy amidst political risks to further sustain demand for Bunds

UK Gilts ▼ Extension of Brexit timeline possible but not guaranteed; consensus views over economic prospects could change dramatically

US IG# ▲ Low volatility, solid fundamentals and pause in interest rates US HY# = Uptick in energy prices; however spreads are tight Europe IG = Favourable valuations ; ECB’s TLTRO support to favour EU credits

EMs# ▲ Receding US-China trade tensions and easing central bank policies to be the turning point for EM debt

Commodities Oil ▲ Reduction in supply glut and EIA’s downward projection of US oil

production to boost oil prices

Precious Metals ▲ Prevailing geopolitical worries and a potential weakening in USD to favour gold

Currencies

USD ▼ Dovish Fed signalling no rate hikes in 2019 to put some pressure on USD

EUR = Weak PMI eliminates all hopes that ECB could tighten in 2019; dovish Fed to give EURUSD some support

GBP = GBP to continue to be news-driven. BOE to maintain status-quo until Brexit outcome is known

EMs# =▲ Compelling asset valuations, China’s efforts to stimulate the economy and soft USD to underpin EM currencies.

Quarterly Report | 2Q 2019

CHART OF THE QUARTER


UAE REAL ESTATE MARKET IN FOCUS AFTER FACING YEARS OF DOLDRUMS Real estate has been an important pillar of the UAE’s economy, contributing roughly 16% to its non-oil GDP in FY18. Dubai and Abu Dhabi remain the key markets, which together contribute around 65% to the UAE’s economy. The UAE’s real estate is directly related to the economic performance of these emirates, which again depend on the performance of the oil market. Post the global financial turmoil of 2008, real estate prices took a sizable dent, plummeting roughly 30–50% between 2007 and 2008. Housing projects were left in jeopardy due to the highly levered balance sheet built up by real estate developers and to the repressed demand. However, the real estate prices displayed a strong revival post 2010 as oil prices recovered to around $100/bbl, fuelling economic growth of roughly 4–5% annually until late 2014 just before oil prices took a hard hit. The introduction of mortgage caps, two-fold increase in property registration fees along with excess inventories created during the boom period led to a pervasive downturn in the regional real estate market, knocking-off prices by 21–25% from the 2014 highs in Dubai and Abu Dhabi. Rental yields also declined from 7.5% and 7.6% in 4Q15 to a trough of 6.8% each in Abu Dhabi and Dubai, respectively.

Exhibit 1: UAE Real Estate Companies Look Attractive Compared To Global Peers (12M Forward P/E)

Source: Mashreq, Bloomberg

MEDIUM-TERM OUTLOOK FOR UAE REAL ESTATE IMPROVES The UAE’s real estate sector has been hogging the limelight since recent months with a myriad of views on its outlook. The near-term outlook looks painful as an array of new projects, which were commissioned for Expo 2020, are anticipated to come online in a market that is already plagued by oversupply. In the first nine months of 2018, the total value of transactions, as reported by Dubai Land Department, came in at AED162bn, 21% lower y/y, while the number of units sold was 24% lower y/y to 39,802 units. However, we view that the sector would benefit over the medium term from the government’s push to boost infrastructure investment ahead of the Dubai Expo 2020 and following the decision allowing 100% FDI in UAE-based companies. Dubai Expo is expected to lure about $100bn of foreign investment. The sector is also likely to get support from higher oil prices and expectations of better demand–supply dynamics in the UAE real estate market.

WHAT SHOULD INVESTORS DO? Investors looking for value-buying opportunities with a medium to long term outlook may find the current position of the large UAE real estate companies quite lucrative as 12-month forward PE is currently below 5x, near about 2009-levels. However, for more risk-averse investors with a longer term horizon, it would be prudent to see how various policies deployed by the government to propel demand will play out. On another note, the International Monetary Fund (IMF) expects the UAE economy to recover from 2018 onwards, owing to higher oil prices and strong government support through higher spending. This should provide some solace to investors who remained patient throughout the sector’s downturn.


EQUITIES


The equity markets around the globe kicked off the year with a remarkable performance, following the massive corrections of 2018 year-end. Developed markets, particularly the US, recovered sharply despite slowdown concerns, with the MSCI World and MSCI US indices rising ~11% and ~12%, respectively, during 1Q19. Emerging markets too picked up with the MSCI Emerging Markets index rising ~8% during this period. However, the growth has been sporadic within markets, with China gaining handsomely while the rest of the markets weighed down by slowdown concerns in the US. Concerns regarding the US-China trade war have moderated to a large extent, yet the final outcome is still subject to uncertainty. Brexit risks remain very high, with the UK rejecting for the third time May’s Brexit deal. We see increasing risks of slowdown concerns on global equity markets. As a result, we keep our outlook unchanged: Neutral with a Positive Tilt in the US and emerging markets, and Neutral in Europe, the UK and GCC.

US EQUITIES: BACK IN BUSINESS After the late whipping received towards the end of 2018, ending the year with the worst performance in a decade, the US equities have bounced back remarkably this year. The US equities have been one of the best performing markets across the globe, with the S&P 500 index gaining 11.6% since the start of this year. Amongst sectors, the tech stocks were the best performers, with the S&P 500 Information & Technology Index gaining ~18% YTD, comprehensively beating the broader market. Volatility too has seen a marked reduction, with the VIX index trading at ~16.1 compared to ~23.2 at the beginning of the year. Equity markets continue to receive support from the underlying economy, although recently some cracks started to appear. In fact the US economy is not expected to repeat previous two years’ performance (GDP growth at 2.5% in 2019 and 1.8% in 2020 according to the IMF).

Exhibit 2: Major MSCI Indices

Source: Bloomberg, Rebased as on 1st January 2019

ECONOMIC INDICATORS PAINT A MIXED PICTURE While economic support remains decisive for markets’ upward journey, recent economic indicators have nevertheless cast some shadow of doubt in respect of sustained growth momentum. The number of jobs added in February dropped to paltry 20,000, lowest since September 2017 and way behind economists’ forecasts. The wage

growth, however, remained solid at 3.4% y/y. The fourth quarter GDP growth fell to 2.6%, -0.8% vs. 3Q18, but still ahead of consensus 2.2% as the housing market remained weak while trade deficits widened, presumably from the impact of the tariff war. Business confidence remained strong as companies’ capital expenditure increased, while firms continued to build their inventories. The manufacturing sector has been under stress, with manufacturing PMI falling to a 21-month low in March.

NO CHANGE IN VIEW Overall, the US markets seem to deal with balanced forces, with a robust economy and a favourable monetary policy from Fed against slowing global growth and prevailing geopolitical issues. The trade war with China is showing signs of steady progress towards some resolution, although the final terms are still uncertain. Meanwhile, the Fed vowed to keep interest rates unchanged this year in its March meeting, implying a decreased confidence in US economic growth. We still acknowledge the resilience of US markets, and hence maintain a Neutral view with a Positive Tilt.

EUROPE: IN TOW WITH THE REST The European equity markets broadly remained at par with their US peers in 1Q19. Europe has largely struggled with its anaemic economic growth, particularly in larger economies such as Germany, Italy and Spain. Germany experienced manufacturing contraction for the third successive month in March, as the bloc’s largest economy has been hit by uncertainty in US-China trade relations and by weak economic growth in the Eurozone. The ECB significantly downgraded Eurozone’s GDP growth for 2019 and 2020 to 1.1% and 1.6%, respectively (earlier 1.7% each). The OECD too cut its economic forecast for Europe, citing inadequacy of the dovish monetary policy on growth prospects. The ECB, which had ended the long-standing QE program in 2018, has now indicated another round of stimulus through ‘targeted longer-term

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1-Jan 12-Jan 23-Jan 3-Feb 14-Feb 25-Feb 8-Mar 19-Mar

MSCI World MSCI Emerging MarketMSCI US MSCI Europe


EQUITIES


refinancing operations’ (TLTRO), a form of bank funding programme it initiated in 2016-17.

While the equity markets performed very well, with the STOXX 600 Index climbing ~10.9% YTD, Europe remains susceptible to a twin shock; US-China trade war and Brexit. Thus, we maintain our Neutral outlook.

UK: BREXIT POSTPONED The ruling party managed to temporarily dodge the bullet of exiting Euro on 29 March without any concrete deal. After ruling out no-deal Brexit, Prime Minister Theresa May successfully negotiated delaying the Brexit deadline till 22 May, although subject to the passing of the original bill by the British Parliament which it had earlier rejected. Meanwhile, there has been increasing clamour amongst UK citizens for a second referendum, demonstrating frustration on government’s increasingly chaotic handling of the Brexit saga. The UK economy continues to be sluggish, with quarterly growth at 0.2% for the three months ending January, although growth picked up to some extent in month of January on the back of manufacturing and retail sales. The equity markets managed to clock resilient gains of 6.7% YTD despite the political mess. We maintain our Neutral rating, mindful of tough economic conditions, yet anticipating a relief rally should a satisfactory Brexit outcome materialize.

Exhibit 3: China Leads EM Equities

Source: Bloomberg, Rebased as on 1st January 2019

EMS: CHINESE EQUITIES ENJOY MARATHON RUN Even as the debate on the sustainability of Chinese growth goes on, the Shanghai Composite index (+22.0% YTD) outperformed every other major index in the world by a wide margin. Much of this growth is attributed to the Chinese government’s monetary and fiscal policies to shore up economic growth. The relief over a possible resolution of the long standing tariff spat with the US has also supported sentiment. Furthermore, Chinese equities could also benefit from the possible increase in

inflows (est. >USD 100bn) on MSCI’s plans to increase its weighting of Chinese A-shares in its emerging markets index from 0.7% currently to 3.3% by 2019 end.

Elsewhere, Brazil equities too enjoyed a good run before giving up gains partially, with IBOVESPA gaining 6.6% YTD. Investors have been optimistic over Brazilian President’s promised market-friendly agenda, starting with the complex pension reforms, thereby managing Brazil’s budget deficit. In India, the equity markets rallied briefly in March in anticipation of a favourable outcome in the general elections scheduled in April and May (Nifty 50 YTD: +4.5%). Turkish markets performed well (+8.8%) but remain under the overarching threat of recession and excessive inflation. Overall, we maintain our Neutral view with a Positive Tilt as we believe EMs are poised to gain as investors will scout these markets in search of better returns amidst slowing growth in developed markets.

SAUDI, KUWAIT TOP PERFORMERS Saudi’s Tadawul index gained 10.7% during the first quarter of 2019, buoyed by its inclusion in international indexes including FTSE Russell and S&P Dow Jones emerging markets. Elsewhere, Abu Dhabi and Dubai gained 4.1% YTD each, rising on the back of stronger banking and property stocks. Kuwait and Bahrain too recorded YTD gains of 12.8% and 5.9%, respectively. The economic growth of the region is expected to be driven through conscious efforts of major nations such as Saudi and the UAE to reorient their economies on non-oil based trajectories. In this context, IMF has pegged Saudi and UAE’s 2019 GDP growth at 2.4% and 3.7%, respectively (2018: 2.2% and 2.9%, respectively). The markets could further receive broad support from improving oil prices and improved budget deficits. We nevertheless maintain our Neutral outlook on GCC equities as global economic slowdown could trigger potential slide in oil prices, thereby impacting the regional equity markets that still depend heavily on crude oil revenues.

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90

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China India BrazilTurkey Russia


FIXED INCOME


Fixed income market remained well supported as the central banks of both developed as well as emerging economies increasingly sought recourse to accommodative monetary policies. We expect the potential moderation in global growth to support safe-haven sovereign bond barring Gilts. Meanwhile, the low interest rate environment and more tamed uncertainties could keep volatility low and boost risk appetite. Accordingly, the demand for corporate credits should remain supported driven by decent earnings growth. Investment flows into emerging market debt will also gain traction given the compelling valuations and supportive external conditions despite prevailing domestic risks.

TREASURIES RALLY ON FED CAUTION The 10-year benchmark Treasury rallied in 1Q19, sending the yields 29bps down sharply to 2.40%, below the upper bound of the Fed funds rate. Demand for Treasuries was more pronounced post the Federal Reserve’s dovish posture at the March policy meeting. The policymaker’s decision not only signalled a complete pause in rate hikes for 2019, but also announced a slower pace in balance sheet reduction. Furthermore, having assessed the mixed US economic data amidst global weakness, the economic growth projections were revised downwards to 2.1% for 2019 and 1.9% for 2020. Yet, overall, the central bank delivered a balanced message acknowledging the strong labour market and keeping the outlook positive with core PCE hovering around its 2% target (1.9% y/y: January).

Exhibit 4: 2-10 Year US Government Bond Yield Spread

Source: Bloomberg

As a result, the short-term 2-year yield grinded 8bps tighter post the meeting and 25bps to 2.24% for 1Q19, which kept the 2 and 10-year yield spread at 16bps. More importantly, the yield curve showed a part brief inversion indicated by the 3-month and 10-year yields spread at -4bps. However, this brief inversion should not be interpreted as a major concern, given that the labour market is at its tightest level and historical evidence shows that the market tends to get more support ahead of the election in the US (Gubernatorial elections in Kentucky, Louisiana and Mississippi in November 2019). Against this backdrop, the implied future probability of a rate hike turned zero and instead chances of a rate cut (~25%) increased for the last quarter of 2019. We retain our Neutral view with a Positive Tilt on US Treasuries.

BOND YIELDS PLUNGE ACROSS EUROPE European sovereign bonds extended a strong rally towards the end of 1Q19 after the European Central Bank (ECB) and the Federal Reserve hinted at an increasingly dovish shift in their respective monetary policies amidst mounting evidence of slowing growth. The dimming prospects of the economic outlook in the Eurozone became more prominent after the German manufacturing activity had the swiftest contraction in more than six and a half years, and French factory as well as services sector growth both slumped back into contraction. Accordingly, in 1Q19, the safest 10-year bund yield dived into negative territory (27bps to -0.03%) for the first time in three years and French, Italian and Portuguese bonds outperformed with yields tightening 35bps, 24bps and 36bps, respectively. Looking ahead, peripheral bonds may extend gains, despite significant on-going political risk in Italy, offset to some extent by the ultra-loose ECB policy that hints to push back rate hike to 2020. The demand for Bunds could also sustain further if incoming economic data continues to surprise on the downside. Hence, we change our stance on German Bunds from Cautious to Neutral.

DOVISH FED AND BREXIT ANGST LIFT UK GILTS UK Gilts have been the best performers amongst the major debt markets in 1Q19. The 10-year benchmark yield declined 29bps to below 1% at 0.99% and the 30-year yield touched the lowest level (1.55%) since 2016 driven by the Fed’s decision to no longer raise interest rates this year and Bank of England’s hint at a more gradual limited tightening. Further, BOE is expected to maintain status quo until it gets more clarity on the Brexit which should continue to lend support to Gilts. With talks on Brexit getting messier, BOE warned that more companies are factoring in a possibility of a no-deal Brexit plan, fuelling more safe-haven demand. Despite the uncertainty, we maintain Caution on UK Gilts, given the likelihood the EU will postpone the Brexit deadline. As markets get some clarity over Brexit, consensus views over the economic prospects of the UK could change dramatically.

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Mar-17 Sep-17 Mar-18 Sep-18 Mar-19

bps


FIXED INCOME


A FAVOURABLE ENVIRONMENT TO NURTURE EM DEBT Emerging market debt rebounded this year as investors flocked to fetch higher yields in the region. Amongst EMs, Mexico has been the best performer in 1Q19 with 10-year benchmark yield tightening 80bps to 7.86%, followed by Russia (50bps to 8.20%) and Indonesia (38bps to 7.65%). Turkish bond yield was the worst performer with yield widening 93bps to 17.35% mainly after the economy entered into a recession in the last quarter of 2018.

Emerging market debt appears attractive. Last year’s rout resulted in improved valuations. Also a dovish Fed and prospects of weaker dollar are all supportive for EM debt this year. Simultaneously, we see a turning point with inflationary pressures dropping across several economies. This has resulted in several central banks ready to cut back on interest rates after having raised them to support respective local currencies. Moreover, the overall economic growth across EMs, though slowing, is unlikely to stall and the softening Sino-US trade rhetoric should fuel appetite for the yield-starved investors for EM assets. We continue to hold a Positive view on EM debt.

Exhibit 5: Sovereign Benchmark Yields- 10 Year: Ems

Source: Bloomberg

GCC DEBT: OUTPERFORMANCE CONTINUES The ongoing inclusion of most of the GCC sovereign and quasi-sovereign credit into the international indexes continued to boost investor confidence for GCC debt. In 1Q19, the sovereign bonds extended the gains across the region with Oman’s 10-year benchmark yield tightening 80bps to 6.15%, followed by Bahrain (80bps to 5.61%), Saudi Arabia (54bps to 3.62%) and Abu Dhabi (49bps to 3.07%). Amidst fears of an economic slowdown, the oil price will play a key role within the GCC region, while

fiscal deficits could widen, given the budgeted rise in spending. Furthermore, with a major portion of public debt maturing and funding governments’ deficit, we may see an increase in fresh issuances with little increase in cost of borrowing’s, given the Fed’s decision to halt interest rate hikes this year.

CORPORATE BONDS RECUPERATE LOSSES Despite rising fears of corporate leverage, soft earnings and moderating economic growth, the modest increase in risk appetite was visible as the corporate bond market rallied driven by foreign demand. This is largely attributed to the dovish signals sent by both the ECB and Fed. For 1Q19, the US Investment Grade (IG) OAS narrowed 34bps to +119bps and High Yield (HY) tightened 124bps to +402bps. Likewise, Eurozone IG rallied 28bps to +124bps and interestingly HY tightened 109bps at +386bps, touching the tightest level for the year and falling below the US HY risk premium.

Exhibit 6: Corporate Bonds: US and EU HY-OAS

Source: Bloomberg

We believe low volatility, solid fundamentals although moderating, pause in interest rates hikes and relatively higher yields will lend support to US IG credits. In the HY space, uptick in energy prices will play as a catalyst. However, credit spreads have tightened significantly. Hence, we hold a Neutral view on HY credits while being Positive on IG. In the EU, investors need to be mindful of trade woes, political risks and upcoming Parliamentary election in May. However, more monetary support in terms of ECB’s targeted longer-term refinancing operations (TLTRO) liquidity extensions, favourable valuations and decent earnings will support the fundamental backdrop for EU credits. Hence, we remove the Negative Tilt and hold our Neutral view on EU credits.

3.13

8.76

7.36

16.08

8.01

0

6

12

18

24

Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19

%

China Brazil India

Turkey Mexico

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US HY EU HY


COMMODITIES


Production cuts by the OPEC+ together with US sanctions on Iran and Venezuela impacted the global oil supply, driving Brent prices higher during the quarter. On the demand side, moderate global growth also supported the oil prices. The downward revision of the US oil production growth by the EIA is expected to further support oil prices in the near future. Thus, we remain Positive on Brent oil and expect the prices to hover in the range of $65-$75/bbl. Amongst precious metals, we prefer gold due to its safe haven appeal, but suggest not adding a fresh position. We remain Positive on base metals due to continuous supply shortfall in the global markets.

OIL PRICE MARCHES UP Supply cuts in the oil market propelled the prices higher in 1Q19, with Brent and WTI crude gaining 25.3% and 29.4% to $66.6/bbl and $58.8/bbl, respectively. Oil prices have rallied since the start of the year after the OPEC pledged to withhold supply totalling 1.2MMbpd, as per the agreement reached last year, and the US enforced sanctions on Venezuela and Iran. The OPEC and its allies, in the Joint Ministerial Monitoring Committee (JMMC) meeting, decided to continue with the production cuts until at least June, while signalling an extension of the cuts in 2H19. In addition, the committee cancelled the April meeting stating it would be too early to reassess its decision on the output policy and re-scheduled it in May, while the OPEC conference will be held on 25 June. Moreover, the likelihood of additional “tougher” sanction imposition on Venezuela by President Trump may further push the prices to the upside.

Exhibit 7: Brent and WTI Price Movement

Source: Bloomberg

OPEC COMPLIANCE HIGHEST SINCE 2017 Despite the constant pressure exerted by President Trump requesting a more “relaxed” approach to curbing supply, the OPEC+ compliance level reached almost 90% in February, according to the Monthly Oil Market Report (MOMR) in respect of the agreed 1.2MMbpd output cuts. The cartel stated that oil markets were far from being balanced as the crude oil stockpiles continued to surge despite all the supply constraints. The stockpiles grew 7 billion barrels in 1Q19 to 449 billion barrels. Moreover, OPEC’s MOMR stated that average OPEC production declined 0.56MMbpd in February to 30.5MMbpd,

mainly led by the 0.1MMbpd cut by Saudi Arabia. Notably, Oman gave up its place in the JMMC while Iraq, Kazakhstan, Nigeria and the UAE were added as new members. Given the OPEC’s de facto leader aiming to rebalance the oil markets, we continue to maintain our Positive stance on Brent oil, expecting it to trade in the range of $65-$75/bbl.

US OIL PRODUCTION SLOWS DOWN The US oil production rose to a record level of 12.1MMbpd during 1Q19. However, the EIA reported that average production levels came down to 11.9MMbpd in February. Notably, the latest EIA estimates revised the oil production expectation downwards for 2019 by 0.9% from 12.41MMbpd to 12.3MMbpd and lowered the output forecast by 1.3% for 2020 from 13.2MMbpd to 13.03MMbpd. The agency also forecasts that the US will be a net exporter of oil and petroleum products by 0.9MMbpd. Meanwhile, the active oil rigs count reached a 10-month low at 833, further supporting the EIA’s downward revision of production.

Exhibit 8: Oil Inventory Vs. Rig Count

Source: Bloomberg

GOLD TO MOVE SIDEWAYS Gold prices rose 3.1% in 1Q19 to $1,322/oz, as forecasted in our annual report, driven by global growth concerns along with uncertainties around the US-China trade talks and Brexit. Going forward, the expected softening in the US dollar may drive the demand of gold higher in the near future, although receding uncertainties should keep a lid on the prices. Therefore, we believe gold prices will be range bound. However, we favor gold as a safe

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US Crude Oil stocks Oil Rig count


COMMODITIES


haven investment but recommend limiting any additional exposure to the yellow metal.

Exhibit 9: Gold Price Movement

Source: Bloomberg

PALLADIUM SOARS TO RECORD HIGH Amongst other precious metals, palladium prices rallied 24.6% in 1Q19 to close at $1,571/oz. This was driven by higher demand from the automobile industry, particularly in China, and from tightening global supply. Given that palladium is primarily used in petrol-powered engines, and with the shift in the auto industry towards producing less high-polluting vehicles, the outlook for the metal looks positive. Moreover, substitution for palladium is yet to be materialised, thereby supporting the Positive outlook for the metal.

Exhibit 10: Movement of Platinum and Palladium Prices

Source: Bloomberg

Following the palladium price spike, Platinum’s prices also advanced 7.9% in 1Q19 to close at $858.6/oz. However, the weak demand for diesel cars in the EU due to Brexit uncertainty and implementation of new stringent emission tests adversely impacted the demand for platinum. The World Platinum Investment Council (WPIC) has predicted an investment demand of 530,000 ounces, the most since 2016, driven by hopes of a shrinking surplus and stabilising sales of diesel cars. The WPIC also expects a surplus of 680,000 ounces in 2019.

We expect platinum prices to rise gradually as it follows the spike in Palladium.

NATURAL GAS PRICES DECLINE NYMEX Henry Hub Natural Gas prices plunged 14.7% to $2.72 per MMBtu during 1Q19, mainly as the milder-than-expected temperatures combined with ample global supply overhauled demand, negatively affecting prices. However, prices soared mid-quarter for a short-lived period, after extreme cold weather in the US mid-west led to higher demand of natural gas. A 15-year low inventory level in the US had spurred concerns over supply, pushing prices higher. Meanwhile, the US natural gas production grew 11% YoY to 101.3Bcf per day, reaching a record high.

BASE METALS TRADE MARGINALLY HIGH Positive developments on the US-China trade talks along with monetary and fiscal measures taken by the Chinese government to revive its economy were the prime factors driving base metal prices higher during the quarter. Copper prices moved 6.5% on the upside to settle at $6,337/ton as the supply deficit widened. Moreover, we expect copper prices to trend upwards in the future as major economies rotate towards the copper-intensive renewable energy industry. China is expected to head this transition with the help of electric vehicles (EVs), as Bloomberg estimates the Chinese to nearly cover 40% of the global EV market. We are Positive on copper due to eroding concerns on Chinese economic growth and progress on the US-China trade front. Aluminium prices ended virtually flat in the quarter at $1,854/ton mainly after the US lifted sanctions on the Russian aluminium giant Rusal, and due to an organic increase in Chinese demand. We expect base metal prices to rise due to the continuous supply deficit in the global market.

Exhibit 11: Movement of Aluminium and Copper Prices

Source: Bloomberg

1322

1,270

1,290

1,310

1,330

1,350


$/oz

1250

1340

1430

1520

1610

770

800

830

860

890

Dec-18 Jan-19 Feb-19 Mar-19 Mar-19

$/oz

$ /o

z

Platinum Palladium (RHS)

5650

5900

6150

6400

6650

1,795

1,828

1,860

1,893

1,925


$/to

n

$ /t

on

Aluminium Copper (RHS)


CURRENCIES


The USD ended the quarter on a marginally stronger note as macro fundamentals remained strong and brisk uncertainties around US-China trade talks weighed on investor appetite. However, dovish Fed stance along with expectations of a slowdown in the US economy should put downward pressure on the US dollar. As a result, we remain Cautious on the USD. A cautious tone on USD should be supportive for the EURUSD pair, however easy ECB policy and rising political risks should put a cap on Euro strength. Hence, EUR is expected to remain range-bound. Major EM currencies displayed resilience given compelling asset valuations and rising oil prices. The recovery is expected to continue underpinned by a potential softening in USD.

DOVISH FED TO PUT PRESSUE ON USD US dollar index (DXY) underwent a volatile session during 1Q19 before ending 0.4% higher in March. The index has been alternating gains with losses in the range of 95-98 due to the lack of a clear direction in global markets. The USD rebounded and peaked at 97.6 amidst the Brexit developments and US-China trade talks. However, the Fed’s increasing dovish tone and weak macro data led to a sharp downfall to 95.6 before clinging back to 96.56.

Exhibit 12: Dollar Index (DXY) 3-Month Movement

Source: Bloomberg

The US economy remains on a healthy footing backed by solid labour market conditions. However, late cycle growth is poised to slowdown. This is evident from the latest flash US manufacturing PMI data that came in at nearly two year low at 52.5, showing broad signs of economic weakness. In this context, the USD outlook seems tilted to the downside, primarily driven by the Fed’s cautious tone on the economic outlook and the shift to dovish monetary policy. Also, the US twin deficits will come more into focus, as well as rhetoric of the debt ceiling and border wall funding. These headlines should create more volatility in the USD, which leads us to maintain our Cautious stance on the USD.

EUR RETAINS A FIRM UNDERTONE The EUR remained range bound against the USD, depreciating 1.2% in 1Q19 due to bleak economic data and ECB’s decision to deliver fresh stimulus while downgrading growth projections. The sluggish growth, stubbornly low inflation and regional tensions including popular protests in France and a simultaneous Italian government’s fiscal policy

stand-off with the EU - also fuelled the weakening in EUR. Moreover, a soft manufacturing PMI for March at 47.6, contracting at its fastest pace in nearly six years, weakened the currency further. Fragile economic prospects and the impending European parliamentary elections will be the key drag on the EUR, especially if the power of the traditional centrist parties is diluted. However, a weakening USD outlook should lend some support to the Euro currency. Given these mixed scenarios, we keep our Neutral view on the EUR.

Exhibit 13: G-10 Currencies (YTD Change)

Source: Bloomberg

BREXIT HEADLINES TO DOMINATE GBP The GBP had a strong ride in 1Q19, appreciating ~4.0% against the USD. The rally in GBP was supported by positive developments over Brexit and BOE’s status-quo on interest rates. The UK Parliament decided to take control of the Brexit from the government, thus reducing uncertainty after two deals framed by PM Theresa May were rejected. Moreover, with the extension to the Article 50 being almost imminent, the GBP gained in the recent past. Improving macro data in the labour market, retail sales and the public finances have also been supportive of the GBP. The BOE kept interest rates unchanged amidst the Brexit uncertainty and reinstated that if the economy proceeds smoothly without any Brexit shock, the tight labour conditions and signs of higher domestic wages are likely to help meet its 2% inflation target. However, we do not expect any rate hikes in 2019 by the BOE given that Brexit outcome remains unknown. Hence, we hold Neutral view on GBP, expecting it to be more news-driven.

96.56

94

95

96

97

98


-2.9%

-2.0%

-1.7%

-1.2%

-1.0%

-0.3%

0.8%

2.7%

3.9%

-4% -2% 0% 2% 4%

USD/NZD

USD/NOK

USD/CAD

EUR/USD

USD/AUD

USD/JPY

USD/CHF

USD/SEK

GBP/USD


CURRENCIES


EM CURRENCIES TO MOVE HIGHER Dovish communication from the Federal Reserve, moderating global growth worries and progress over the US-China trade negotiations boosted demand for risky assets including EM currencies. Most of the EM currencies appreciated against the USD during 1Q19 supported by robust fund inflows. The Russian Ruble (RUB) and the Mexican Peso (MXN) outperformed other regional currencies. The Chinese Yuan (CNY) also pocketed some gains amid trade war worries and stimulus package unravelled by the PBOC. On the contrary, the Turkish Lira (TRY) underperformed during the quarter, depreciating 5.3% against the USD.

Exhibit 14: EM Currencies vs. USD (YTD Change)

Source: Bloomberg

RUB HITS SEVEN-MONTH HIGH VS. USD The RUB led the pack among EM currencies appreciating 8% against the USD, primarily driven by rising oil prices and increase in demand for sovereign bonds. Reduced supply in the oil markets led to a rally in Brent oil prices, a global benchmark for Russia’s main export. This lent significant support to the RUB. Appreciation of the RUB was also underpinned by increase in foreign holdings of the Russia’s OFZ government bonds along with month-end tax payments by the export-focused companies, which prompts them to convert their foreign currency to meet local liabilities. Investors have also shown interest in Russian bonds as concerns about a potential new round of U.S. sanctions abated. Moreover, the Central Bank of Russia (CBR) in its policy meeting stated that it may change its course to easing monetary policy in 2019 while keeping rates unchanged at 7.75%. The Central Bank also stated that interest rates will not get back to its neutral level of 6%-7% until 2020. Against this backdrop, combined with strong support from the rising oil prices, we expect RUB to continue to perform in the near future.

MXN CONTINUES TO GAIN TRACTION The MXN appreciated ~3.2% in 1Q19. The Peso benefited mainly from internal factors including

optimism around the term of newly elected Mexican President Andrés Manuel López Obrador (AMLO) and from external factors such as Federal Reserve’s dovish standpoint. The 2019 economic package announced by AMLO, the government’s deal with the bondholders of the cancelled $13 billion New Mexico International Airport (NAIM) project, along with a well-received budget plan by the Congress helped the peso to gain support during the quarter. The Mexican central bank held its benchmark rate at 8.25% in February 2019 in an attempt to anchor inflationary expectations. The policymakers remained cautious amidst inflation risks including pressure on energy prices, global trade tensions and deterioration in domestic public finances. They also noted that the economic slowdown may continue into early 2019 based on the global environment and weakness in domestic demand. The existing slowdown of Mexican economy combined with a slowdown in the inflation leaves limited room for further appreciation of the MXN, however attractive interest rates and expected softening of dollar could lend support to the MXN.

TRY WORST PERFORMER AMONGST EMS The Turkish Lira came under significant pressure over the past quarter, losing 5.3% against the USD. This was mainly due to deteriorating GDP growth, stubbornly high inflation and weak domestic demand. This deterioration led Turkey to sink into technical recession. Amidst the weak macro conditions, the TRY suffered a 6.5% decline in one day versus USD due to an unexpected plunge in Turkish foreign reserves by $6.3 billion in two weeks to $28.5 billion. Moreover, geopolitical tensions involving Golan Heights have also hurt the Lira. Meanwhile, the Central Bank of the Republic of Turkey (CBRT) kept its benchmark rates on hold at 24% to curb its annual consumer price inflation. The CPI, though came down from 25% in October, still remained high at 19.7% in February. CBRT maintained its hawkish bias and repeated its promise to uphold a “tight monetary policy stance” and indicated that it will not shy away from further hikes, if necessary. With a technical recession lurking on Turkish economy, the upcoming elections will decide the fate of Lira in the near future.

-8.0%

-3.2%

-2.5%

-1.4%

-0.9%

-0.6%

5.3%

-10% -6% -2% 2% 6%

USD/RUB

USD/MXN

USD/CNY

USD/INR

USD/ZAR

USD/BRL

USD/TRY


CHARTS


Exhibit 15: US-GDP Growth (q/q annualised) Exhibit 16: US-CPI and PPI (y/y change)

Source: Bloomberg, GDP- Gross Domestic Product Source: Bloomberg, CPI- Consumer Price Index, PPI- Producer Price Index

Exhibit 17: US-Unemployment Rate Exhibit 18: US-Avg. Hourly Earnings (y/y change)

Source: Bloomberg Source: Bloomberg

Exhibit 19: US-Foreign Exchange Reserve Exhibit 20: US-Current Account Balance & Fiscal Deficit as % of GDP


Exhibit 21: US-Retail Sales (m/m change) Exhibit 22: US-Industrial Output (m/m change)


1.8 1.8

32.8

2.3 2.2

4.2

3.4

2.6

0.0

1.1

2.2

3.3

4.4

4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

%

1.5

1.9

0

1

2

3

4

Feb-18 May-18 Aug-18 Nov-18 Feb-19

%

CPI PPI

4.1

4

3.9

3.8

4

3.9

3.8

3.7

3.8

3.7

3.9

4

3.8

3.6

3.8

3.9

4.1

4.2

Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19

%

3.4

2.4

2.7

2.9

3.2

3.4


%

4141

4141

4242 42 42

42 42 42 41 42

39

40

41

42

43

Nov-18 Dec-18 Dec-18 Jan-19 Feb-19 Mar-19 Mar-19

USD

bn

-2.3

-3.8-4

-3.5

-3

-2.5

-2

3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

%

Current Account Balance % of GDPFiscal Deficit % of GDP

0.2

-1.6

-0.9

-0.2

0.5

1.2

Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19

% 0.15

-0.8

-0.3

0.2

0.7

1.2


%


CHARTS


Exhibit 23: Eurozone-GDP Growth (y/y change) Exhibit 24: Eurozone-CPI and PPI (y/y change)

Source: Bloomberg, GDP- Gross Domestic Product Source: Bloomberg, CPI- Consumer Price Index, PPI- Producer Price Index

Exhibit 25: Eurozone-Unemployment Rate Exhibit 26: UK-GDP Growth (y/y change)


Exhibit 27: UK-CPI and PPI (y/y change) Exhibit 28: UK-Unemployment Rate


Exhibit 29: UK-Current Account Balance as % of GDP Exhibit 30: UK-Debt as % of GDP


2.1 2.1

2.5

2.82.7

2.4

2.1

1.6

1.1

1.0

1.5

2.0

2.5

3.0

4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

%

1.5

3

0.0

1.5

3.0

4.5

6.0


%

CPI PPI

7.8

7.7

8.0

8.2

8.5

8.7

Jan-18 Apr-18 Jul-18 Oct-18 Jan-19

%

1.7

1.8

1.9

2.0

1.6

1.3

1.4

1.6

1.3

1.2

1.4

1.7

1.9

2.1

4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

%

1.9

2.2

1.7

2.2

2.7

3.2

3.7


%

CPI PPI

3.9

3.8

4.0

4.1

4.3

4.4

Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19

%

-3.8

-6.0

-5.2

-4.5

-3.7

-3.0

Sep-16 Mar-17 Sep-17 Mar-18 Sep-18

%

87

75

80

85

90

95

2010 2011 2012 2013 2014 2015 2016 2017

%


TABLES


Key Forecasts

March 2018# 12-month forward

estimates (Bloomberg)

Change

S&P 500 Index 2,798 3,079 ▲+10.06%

Stoxx Europe 600 Index 374 413 ▲+10.33%

FTSE 100 Index 7,177 8,009 ▲+11.59%

10-Year US Treasury (Yield) 2.40% 2.98% ▲+58bps

10-Year UK Gilt (Yield) 0.99% 1.73% ▲+74bps

10-Year German Bund (Yield) 0.03% 0.49% ▲+46bps Brent ($/bbl) 66.6 64.6 ▼-2.97% WTI ($/bbl) 59.9 58.4 ▼-2.60% Gold ($/oz) 1,322 1,352 ▲+2.28% Silver ($/kg) 15.5 16.0 ▲+3.23% GBP/EUR 1.1724 1.1600 ▼-1.05% GBP/USD 1.3212 1.4300 ▲+8.24% EUR/USD 1.1313 1.2200 ▲+7.85% USD/JPY 110.6330 105.0000 ▼-5.09%

Source: Bloomberg * As of 25th March 2019

Global Equity Indices

Close# 1 Month

3 Month

YTD Y/Y 10-Year Avg. PE

BEst PE

Developed Markets Indices

S&P 500 Index 2,855 2.53% 13.88% 13.88% 10.30% 17.83x 17.17x Stoxx Europe 600 Index 381 2.12% 12.75% 12.75% 4.06% 20.87x 14.12x FTSE 100 Index 7,355 3.97% 9.32% 9.32% 6.26% 23.86x 13.11x DAX Index 1,550 0.30% 9.39% 9.39% -2.83% 18.30x 12.67x CAC 40 Index 5,379 2.64% 13.70% 13.70% 5.57% 18.52x 13.96x Nikkei Index 21,609 1.05% 7.96% 7.96% 4.81% 20.49x 15.75x ASX 200 Index 6,167 -0.03% 9.22% 9.22% 5.95% 20.17x 15.96x Emerging Markets Indices ex MENA

Hang Seng Index 29,072 1.53% 12.48% 12.48% -4.08% 12.08x 11.24x Shanghai Composite Index 3,101 5.46% 24.36% 24.36% -1.63% 16.06x 11.52x Korea Stock Exchange Index 2,185 -0.48% 7.05% 7.05% -9.59% 16.12x 11.23x BSE Sensex 38,387 7.02% 6.43% 6.43% 17.76% 19.88x 23.86x Taiwan SE Index 10,610 2.12% 9.07% 9.07% -1.98% 22.70x 15.02x Ibovespa Brasil Index 96,729 1.20% 10.06% 10.06% 14.64% 152.81x 12.04x Micex Index 2,508 0.91% 5.84% 5.84% 9.73% 7.61x 5.79x JSE Africa All Share Index 56,146 0.26% 6.46% 6.46% -0.46% 18.93x 13.63x MENA Indices Abu Dhabi Securities Market Index

5,127 -0.2% 4.32% 4.32% 11.10% 13.54x 12.68x

Dubai Financial Market Index

2,629 -0.3% 3.91% 3.91% -15.61% 20.44x 6.49x

Egyptian Exchange 14,783 -0.1% 13.40% 13.40% -12.96% 50.37x 9.83x Tadawul All Share Index 8,709 2.5% 11.27% 11.27% 11.04% 17.08x 15.51x Qatar Exchange 9,954 -1.6% -3.35% -3.35% 13.72% 13.00x 12.74x Bahrain Bourse 1,426 1.0% 6.65% 6.65% 6.84% 28.74x NA Muscat Securities 4,153 0.2% -3.96% -3.96% -13.53% 11.83x 6.38x

Source: Bloomberg * As of 25th March 2019, NA- Not Available


TABLES


Upcoming Macroeconomic Indicators*

Date of Release

Country/ Region

Indicator Period Bloomberg Survey

Last Imp act

08-Apr-19 Japan BoP Current Account Balance

Feb -- ¥600.4b Low

09-Apr-19 United States PPI Final Demand YoY Mar -- 1.90% Medium 10-Apr-19 Japan PPI YoY Mar -- 0.80% Medium

10-Apr-19 United Kingdom

Trade Balance Feb -- -£3825m Low


GDP (MoM) Feb -- 0.50% High

10-Apr-19 United States CPI YoY Mar -- 1.50% High 17-Apr-19 Eurozone Trade Balance NSA Feb -- 1.5b Low 17-Apr-19 Eurozone CPI YoY Mar F -- 1.50% High 17-Apr-19 Japan Trade Balance Adj Mar -- ¥116.1b Low


CPI YoY Mar -- 1.90% High


PPI Output NSA MoM Mar -- 0.10% Medium

17-Apr-19 United States Trade Balance Feb -- -$51.1b Low 19-Apr-19 Japan Natl CPI YoY Mar -- 0.20% High 22-Apr-19 United States PCE Core YoY Feb -- -- High 26-Apr-19 Japan Jobless Rate Mar -- -- Medium 26-Apr-19 United States GDP Annualised QoQ 1Q A -- -- High 30-Apr-19 Eurozone GDP SA YoY 1Q A -- 1.10% High 03-May-19 Eurozone PPI YoY Mar -- -- Medium 04-May-19 United States Unemployment Rate Mar 3.80% 3.80% Medium

Source: Bloomberg, *Table covers select economic indicators, #F: First estimate, T: Third estimate, A: Advance

Economic events*

Date Critical Events What to watch out for / Anticipated action

Estimated impact

10-Apr-19 ECB interest rate decision Status quo High 25-Apr-19 BoJ interest rate decision Status quo High

28-Apr-19 Spanish general elections Polls show PM Pedro Sanchez to stay in power with left-wing coalition

High

April/May-19

Indian general elections Pew survey shows 54% people are satisfied with the government

High

01-May-19 FOMC rate decision Status quo High 02-May-19 BOE rate decision Status quo High

Source: Bloomberg, *Table covers select economic events


TABLES


Corporate Credit Total Returns

Close# 1 Month 3 Month YTD Y/Y

US IG Corp 2968 2.16% 4.98% 5.49% 4.90% US HY Corp 2039 0.96% 7.44% 5.60% 6.80% EUR IG Corp 251 1.01% 2.91% 2.11% 2.84% EUR HY Corp 320 1.39% 4.82% 1.42% 4.80% USD EM Index 1125 1.48% 5.43% 4.80% 5.25% USD UAE Liquid Index 123 1.09% 3.49% 5.54% 3.44%


Commodity Performance


Brent ($/bbl) 66.60 0.12% 33.92% 25.26% -4.67% WTI ($/bbl) 58.77 2.91% 38.84% 29.42% -10.72% Natural Gas ($/MMBtu) 2.72 -0.73% -23.81% -14.67% 5.43% Gold ($/oz) 1,321.90 -0.56% 4.15% 3.07% -1.89% Silver ($/kg) 15.54 -2.42% 5.17% 0.28% -6.21% Platinum ($/oz) 858.63 1.87% 9.26% 7.92% -9.51% Aluminium ($/ton) 1,854.00 -1.90% -2.31% -0.47% -8.52%


G-10 Currencies Performance


EUR/USD 1.1312 -0.2% -0.7% -1.2% -8.4% USD/CHF 0.9924 -0.8% 0.5% 0.8% 4.7% USD/JPY 109.970 -0.7% -0.3% -0.3% 5.0% GBP/USD 1.3195 1.1% 4.1% 3.9% -6.6% USD/AUD 1.406 0.2% -1.1% -1.0% 8.2% USD/NZD 1.4478 -0.9% -2.6% -2.9% 4.8% USD/CAD 1.3404 2.0% -1.4% -1.7% 3.9% USD/SEK 9.2399 -1.1% 2.0% 2.7% 12.0% USD/NOK 8.5343 -0.9% -2.6% -2.0% 10.0%


EM Currencies Performance


USD/CNY 6.7094 -0.06% -2.58% -2.5% 6.2% USD/INR 68.9362 -3.10% -1.72% -1.4% 6.0% USD/TRY 5.5503 4.37% 4.65% 5.3% 39.4% USD/BRL 3.8549 2.89% -1.27% -0.6% 16.4% USD/MXN 19.0198 -0.65% -4.50% -3.2% 2.7% USD/ZAR 14.3073 2.19% -2.03% -0.9% 21.8% USD/RUB 63.9879 -2.13% -6.86% -8.0% 11.7%


Glossary

BEst: Bloomberg Estimated Ratio – Consensus estimates from various analysts contributing to Bloomberg;

Credit Spread: The difference in yield between two bonds of similar maturity;

DM: Developed Markets – Group of countries that are most developed in terms of their economy and capital markets;

EM: Emerging Markets – Group of countries that have some characteristics of developed market but do not meet the standards to be developed market;

Duration: A measure of price sensitivity related to an interest rate change;

DXY: Dollar Index – measures the value of USD relative to a basket of foreign currencies;

EPS: Earning Per Share – calculated by dividing the company's net income with its total number of outstanding shares;

FOMC: Federal Open Market Committee – US Fed’s committee which takes key decisions on interest rates and the US’ money supply growth;

HY: High Yield – High return bond with a low credit rating than IG bonds;

IG: Investment Grade – An IG bond has a relatively low risk of default, so low risk with low returns;

Maturity Date: The date on which principal amount of the bond will be paid to the investors;

PE Ratio: Price to Earnings Ratio – Measure of the company’s share price with respect to its EPS;

YTM: Yield to Maturity – The total interest rate earned by an investor, who buys and holds the bond until maturity;

YTW: Yield to Worst – The lowest potential yield that investor receives on a bond, that has callable, puttable, exchangeable, or any other features;

Sharpe Ratio: A measure of return earned in excess of the risk-free rate per unit of volatility;

GDP: Gross Domestic Product – The monetary value of all the finished goods and services produced within a country's borders in a specific time period;

IHS Markit Composite PMI: The Purchasing Managers’ Index (PMI) calculated by IHS Markit based on monthly surveys of carefully selected companies representing major and developing economies worldwide;

General Disclaimer This report was prepared by the Private Banking Unit of Mashreq Bank PSC (“Mashreq”) in the United Arab Emirates (“U.A.E.”). Mashreq is regulated by the Central Bank of the U.A.E. This report is provided for informational purposes and private circulation only and should not be construed as an offer to sell or a solicitation to buy any security or any other financial instrument or adopt any hedging, trading or investment strategy. Prior to investing in any product, we recommend that you consult with a professional financial advisor, taking into consideration investment objectives, financial circumstances and tax implication. While based on information believed to be reliable, we do not guarantee and make no express or implied representation as to the accuracy of this report or complete description of the securities markets or developments referred to in this report. The information, opinions, forecasts (if any), assumptions or estimates contained in this report are as of the date indicated and are subject to change at any time without prior notice. The stated price of any securities mentioned in this report is as of the date indicated and is not a representation that any transaction can be effected at this price. The risks related to investment products described in this report are not all encompassing and investors should refer to the relevant investment offer document for detailed information and applicable terms and conditions. Investment products, including treasury products, are not guaranteed by Mashreq or any of its affiliates or subsidiaries unless stated otherwise and are subject to investment risk, including loss of principal. Investment products are not government insured. Past performance is not an indicator of future performance. US persons (US Citizens; US Green Card Holders; Resident Aliens subject to US income taxes for IRS purposes) are not eligible for any of the investment products introduced by Mashreq unless stated otherwise. This report is for distribution only under such circumstances as may be permitted by applicable law. Neither Mashreq nor its officers, directors or shareholders or other persons shall be liable for any direct, indirect, incidental or other damages including loss of profits arising in any way from the information contained in this report. This report is intended solely for the use by the intended recipients and the contents shall not be reproduced, redistributed or copied in whole or in part for any purpose without Mashreq’s prior express consent.

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