Easing restrictions drive Middle East's post-pandemic rebound, says ICAEW - Arab News

Easing restrictions drive Middle East's post-pandemic rebound, says ICAEW - Arab News


Easing restrictions drive Middle East's post-pandemic rebound, says ICAEW - Arab News

Posted: 13 Jun 2021 02:46 AM PDT

DUBAI: The Middle East's regional GDP will grow by 2.4 percent this year according to a report commissioned by the Institute of Chartered Accountants in England and Wales (ICEAW).
It represents a similar rate to the region's average growth trajectory in the last decade, as countries double down on their pandemic exit strategies.
The report reveals that business confidence in the region has strengthened in recent months on the back of eased COVID-19-related restrictions and an energetic vaccine campaign.
Strong Purchasing Managers' Index (PMI) readings indicate a positive outlook throughout the year, the report said.
This shows a marked improvement from the 4.4 percent economic contraction felt across the region last year.
The region can particularly benefit from the expected surge of travel demand once the rest of the world opens up, the report noted, with major global events set to happen in Dubai and Qatar.
"The outlook for most Middle Eastern economies looks positive this quarter, but keeping coronavirus levels low will be essential to ensure economies can return to growth," the company's regional director, Michael Armstrong, said.
He highlighted the need to continue diversification strategies to reduce reliance in the oil industry, which has seen gradual recovery from its performance in 2020.
"The rise in the oil price has boosted revenue prospects for GCC producers," ICAEW Economic Adviser Scott Livermore, said.
"Higher oil revenue gives governments more scope to support post-pandemic recoveries without undermining efforts aimed at improving medium-term fiscal sustainability," he added.

ASX to lift but US markets play it safe - The Australian Financial Review

Posted: 14 Jun 2021 11:29 AM PDT

With anxiety about an imminent taper fading, bond yields have fallen to the bottom of recent trading ranges, providing a green light for risk-on sentiment that may last until at least August, according to Mizuho International strategists.

"The overarching theme should be of an environment for investors to put cash to work," Mizuho's head of multi-asset strategy Peter Chatwell and colleagues wrote in a note to clients. "With this backdrop most asset classes should be able to at least hold ground, if not rally. We doubt any major change in Fed rhetoric will materialise before" the Jackson Hole symposium in August.

Bethany Beckett from Capital Economics said, "Data due on Tuesday may provide further evidence that shortages and rapidly rising prices are starting to weigh on real activity.

"We expect retail sales to have fallen by about 2 per cent m/m in May, largely due to a plunge in auto sales. Meanwhile, we forecast that industrial production picked up last month, but it probably remained below its level at the start of this year – in large part because of the ongoing production shutdowns in the autos sector stemming from the semiconductor shortage."

Today's agenda

Local: RBA minutes; ABS house prices Q1; NZ credit card spending

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Overseas data: UK ILO unemployment rate April; Euro zone CPI May final; Euro zone trade balance April; US retail sales May, PPI final May, NY Empire manufacturing June, industrial production May, NAHB housing market index June.

Market highlights

ASX futures up 10 points or +0.13 per cent to 7312.30 near 4.18am AEST

  • AUD flat to 77.07 US cents
  • Bitcoin on bitstamp.net $US40,066.35
  • On Wall St: Dow -0.75 per cent S&P 500 -0.23 per cent Nasdaq +0.46 per cent
  • In Europe: Stoxx 50 +0.14 per cent FTSE +0.18 per cent DAX -0.13 per cent CAC +0.24 per cent
  • In New York: BHP -0.47 per cent Rio -0.62 per cent Atlassian +2.40 per cent
  • Spot gold -0.74 per cent to $US1,863.60 an ounce at 2.07pm New York time
  • Brent crude +0.25 per cent to $US72.87 a barrel
  • US oil flat to $US70.90 a barrel
  • Iron ore +0.68 per cent to $US220.77 a tonne
  • 2-year yield: US 0.16 per cent Australia -0.01 per cent
  • 5-year yield: US 0.79 per cent Australia 0.69 per cent
  • 10-year yield: US 1.50 per cent Australia 1.48 per cent Germany -0.25 per cent
  • US prices as of 2.15pm in New York

From today's Financial Review

Morrison to seal UK trade deal: Scott Morrison and Boris Johnson are set to sign an in-principle deal today but the Nationals fear it could exacerbate Australia's shortage of farm labour.

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No going back to pre-virus business world: Dell: The US tech titan says COVID-19 has changed corporate life forever, and warns an increasing reliance on tech makes the global chip shortage a huge problem.

Aussie house prices rise at fourth-fastest rate in OECD over 20 years: The OECD says planning and zoning restrictions are a key contributor to the fact it takes six years longer to afford a home in Australia than in the world's other advanced economies.

Read today's paper, exactly as it was printed, here

United States

The S&P 500 and the Dow dipped, with the former coming off a record closing high in the previous session as a lack of catalysts ahead of this week's Federal Reserve meeting kept investors from making new significant bets.

The technology-heavy Nasdaq rose for the sixth time in the past seven sessions, lifted by gains in shares of Tesla, Apple and Amazon.

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Investors are seeking new cues from the central bank this week on its inflation outlook, after recent data indicated the US economy is regaining momentum but not overheating. This has eased investor worries about inflation.

While the Fed has reassured that any spike in inflation would be transitory, policymakers could begin discussing the tapering of bond buying at the Tuesday-Wednesday meeting. Most analysts, however, do not expect a decision before the central bank's annual Jackson Hole, Wyoming, conference in August.

Any shift in the Fed's dovish rhetoric could upend equity markets. The S&P benchmark has climbed 13 per cent this year, while the Dow and the Nasdaq have risen 12 per cent and 9.6 per cent, respectively.

"As we get closer to the end of the summer, they (the Fed) are going to want to start talking about taper and telegraphing when they're going to raise rates and that's where we do have a potential for a misstep," said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors in Newport Beach, California.

Europe

European shares ended at a record high on Monday as energy stocks surged on strength in the oil market, while expectations of accommodative monetary policy grew even as a global economic recovery picked up speed.

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The pan-European STOXX 600 rose 0.2 per cent to a record-high close of 458.32 points. The index had touched an all-time high of 460.51 earlier in the session.

Energy stocks were the best performers, surging 2 per cent as oil prices surged to an over two-year peak on expectations of strong global demand this year.

Royal Dutch Shell was the top boost to the sector, rising 2.7 per cent after Reuters reported the firm was reviewing its holdings in the largest US oil field for a potential sale.

"Oil's resilience in the face of warming US-Iran relations suggests that the supply dynamic continues to play second fiddle to the expectation that demand will keep building into the second half of the year," said Chris Beauchamp, chief market analyst at IG.

Germany's DAX came off a record high, while the UK's FTSE 100 scaled its highest level since February 2020, but trimmed some gains as investors awaited an update on Britain's COVID-19 lockdown measures.

Denmark's first meme stock has prompted one of the Nordic region's main retail brokers to warn clients to start adapting their investment strategies if they're to navigate the new market reality.

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The American depositary shares in Orphazyme, a tiny biotechnology firm, soared nearly 1400 per cent at one point on Thursday before adding 137 per cent in Denmark on Friday. When trading started in Copenhagen on Monday, the shares plunged as much as 37 per cent and were down about 16 per cent by 3:20 p.m. local time.

Orphazyme, which has yet to produce a viable treatment or make money, says it has no idea what's behind the moves.

Asia

MSCI's broadest index of Asia-Pacific shares outside Japan was last up 0.38 per cent. Japan's Nikkei swung between small gains and losses before finishing a hair lower.

"Last night's print is just one in a long string of evidence that inflation is not just rising, but is more than just transitory base effects," said Rob Carnell, Asia-Pacific chief economist at ING in Singapore.

"But the Fed, which meets next week, can still point to no deviation of inflation expectations to back up its continued mantra of transitory inflation. The market is buying that for now."

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Elsewhere in Asia, Seoul's Kospi rose 0.69 per cent, Australian shares added 0.16 per cent and Hong Kong's Hang Seng index gained 0.49 per cent. Chinese blue-chip shares were down 0.69 per cent as consumer staples firms retreated following two days of gains.

Broad credit growth in China continued to slow in May, as the country's central bank seeks to slowly unwind emergency pandemic measures and contain rising debt in the world's second-largest economy.

"Because of very strong external demand the negative impact from credit deceleration should be OK in the next three to six months, mainly thanks to the strong demand from the US," said Larry Hu, economist at Macquarie in Hong Kong.

"[But] once the demand from the US is back to normal then I think the Chinese economy is going to feel more pain from the credit tightening."

Currencies

After a volatile weekend, Bitcoin has once again surpassed $US40,000, reaching its highest level in more than two weeks.

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The world's largest crypto gained as much as 3.9 per cent Monday to trade around $US 40,795, extending its rally to a second day. The coin has rallied roughly 9 per cent since Friday.

With Bitcoin crossing the $US40,000 threshold, many chartists are looking at $US42,500 as its next important level to breach. That number roughly represents its 200-day moving average and topping it could mean the coin rallies toward $US50,000.

"Bitcoin is always going to be volatile and the manic run-up we had was never sustainable. The question is where do we settle? What is the new floor in Bitcoin?," said Tom Essaye, a former Merrill Lynch trader who founded "The Sevens Report" newsletter. "In order for Bitcoin to resume that rally, I think you're going to need to see more widespread legitimate adoption."

Jeffrey Halley from OANDA writes that Indonesia's central bank is expected to keep rates unchanged this week. At 3.50 per cent, rates in Indonesia are about as low as the BOI can push them without imperilling the Rupiah.

If COVID-19 cases rush higher, and the US bond market yields turn higher after the FOMC, the BOI will be between a rock and a hard place. The same could be said for much of Asia, with rates at rock bottom levels. The inevitable casualty will likely be the Rupiah. Readers should watch developments closely in Indonesia over the coming week.

Commodities

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Oil extended a run of three weekly gains on optimism that economic reopenings will boost summer demand in the US and Europe. Hedge funds boosted net-bullish positions to a nearly three-year high, according to the latest Commodity Futures Trading Commission data.

"Any rallies leading up to Wednesday are going to be short-lived," said Edward Moya, senior market analyst at Oanda. "You're not going to have a whole lot of conviction behind any of these moves higher."

US crude futures have surged about 8 per cent so far this month as air travel and road traffic picks up in parts of the world like the US and Europe amid an acceleration in COVID-19 vaccination programs. In the US, daily air travellers topped 2 million for the first time since the pandemic began. Speculators are the most bullish on the US crude benchmark in about three years.

However, technical indicators are showing crude oil in overbought territory, signaling a pullback may be in store. WTI's 14-day Relative Strength Index is above 70 for the first time since March.

The US Supreme Court rejected an appeal by oil companies including BP and Exxon Mobil, leaving intact an important procedural ruling favouring two California cities suing for billions of dollars to address the impact of climate change.

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Surging Inflation No Problem, Junk Bond Yields Drop to Record Low, Dish out Negative “Real” Yields to Fed-Whacked Investors - WOLF STREET

Posted: 11 Jun 2021 12:20 PM PDT

The market is broken. "Raging mania" rules.

By Wolf Richter for WOLF STREET.

In these wondrous credit markets were everything is now completely out of whack, the first thing that happened, after the freak show of CPI inflation hitting 5.0%, was that junk-bond yields fell to new record lows. Even the average yield of B-rated junk bonds – considered "highly speculative," per my cheat sheet of corporate bond credit ratings – dropped below the rate of CPI. When bond yields drop, bond prices rise, and a good time was had by all.

The average yield of CCC-and-below-rated bonds – ranging from "extremely speculative" to "default is imminent with little prospect for recovery" – dropped to a new record low of 6.83% as of the close yesterday, as investors apparently don't mind exposing their capital to the massive credit risks offered up by CCC-and-below-rated junk bonds, for a "real yield" (adjusted for CPI inflation) of just 1.83%.

Those CCC-and-below-rated bonds are the only category in the US corporate bond spectrum whose average yield is above the rate of inflation.

Everything else has negative real yields, where the purchasing power of capital is being destroyed by inflation, while yields are too low to compensate for that loss of purchasing power. And there is nothing, zilch, nada in terms of compensation for the substantial risk of default and getting mostly wiped out during a debt restructuring.

The average yield of B-rated bonds – "highly speculative" – dropped to a record low of 4.46%, or to a negative real yield of -0.53%. And the average yield of BB-rated bonds – "non-investment grade speculative" – dropped to a record low of 3.27%, or a negative real yield of -1.73%.

Even if CPI inflation, after averaging maybe 5% this year, comes back down next year, as the Fed keeps promising, the purchasing power of the capital plowed into these bonds would be reduced by 5% for the year, and the yield from those bonds purchased at today's prices would be below that, and the investor would be in the hole in real terms. And that doesn't even consider the risks of default:

So, on average, these are very unappetizing substances, except perhaps for leveraged short-term speculators who bet on yields to drop even further, despite the surge in inflation, and who could then sell the bonds for more (when yields drop, bond prices rise) to the greater fool down the road.

But long-term investors – bond funds, pension funds, or insurance companies – buy bonds to hold them, usually to maturity. And those junk bonds at these yields today, given the credit risks of the companies that have issued them, are a shitty deal even if CPI inflation were at 2% for the remainder of their maturity.

But now inflation has been unleashed. The Fed is officially surprised by how fast it jumped, having totally underestimated this in their earlier pronouncements. And they're still saying it's just temporary, it'll pass next year. And if it doesn't pass next year, and if inflation doesn't magically go back to 2%, then the Fed will act surprised again.

What is permanent is that the purchasing power of those bonds is getting chopped down by the current rate of inflation, and that purchasing power won't ever bounce back. It's just a question of how fast the purchasing power declines further next year, 5% or 3% or 2% or whatever.

The yield from interest payments is supposed to compensate investors for that loss of purchasing power, and also for the risk of default – where they could lose much or all of their capital. But investors aren't getting compensated for hardly anything.

What it has come down to is this: In the Fed-engineered out-of-whack credit markets that are drowning in a sea of Fed-created cash that is now causing all kinds of issues in the banking system, the Fed is trying to control it with it via overnight reverse repos, while investors are trying to find a place to put this cash, and some accept zero yields or negative yields in the repo market, while others are vigorously chasing yield wherever they can find it regardless of the risks.

With so much excess cash floating around, what else are investors supposed to do with their cash – even as inflation is eating it up on a daily basis? That was a rhetorical question. Everyone is trying to find a place for it, but all assets are already overpriced, and yields are already repressed below the rate of inflation for most bonds, in markets that have aptly been described as "raging mania."

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