Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Weekly Economic Review - UAE,India & Global Macro

|Includes: INR, iShares MSCI UAE Capped ETF (UAE)

Week ending May 30, 2015


Current Week

Previous Week



Current Week

Previous Week














































US 10 yr




S&P 500









As per data from the UAE Central Bank, Deposits in the Banking system fell by Dhs. 8.10 billon ($735 million) in April, loans on the other hand increased by Dhs. 9.00 billion ($817 million). In the first four months of the year Domestic deposits have increased by Dhs. 19.90 billion ($5.42 billion) & Loans have increased by Dhs. 35 billion ($9.53 billion). Since February this year the UAE Central Bank has been computing the Loan's to Deposit ratio for the system as a whole and this stands at 98.6% at the end of April. The Loans to Deposit ratio touched a low of 94.8% in July 2014 and has been steadily increasing since. The lift off that we have seen in the economy since middle of 2013 is now resulting in increased demands for loans. Revenue from Crude Oil exports is the key driver of liquidity in the Gulf Countries & with Oil prices low for several months now is impacting the flow of liquidity in these countries and we are witnessing the same impact of this in deposit accretion.

The slight tightening of liquidity in the UAE market can be gauged from the move higher in the interbank Eibor rates. The 3 month Eibor rate had bottomed out at 0.67714 in January this year and has inched up to 0.73857 currently. January's low could mark the bottom of the easing cycle post the crisis, when rates had peaked at 4.68750 in October 2008 and then gradually eased as liquidity conditions slowly improved over a period of time.

Equities in UAE and Qatar were hit hard after the arrest of top FIFA officials this week by US authorities with the 2022 FIFA world cup scheduled in Qatar. Dubai's DFM Index traded below the key 4,000 level but managed to claw back some gains to close just above. In the Sukuk markets the craving for higher yield in a low yield global environment continued with Dubai Islamic Bank's $750 million Sukuk getting oversubscribed with the order book topping $1.6 billion. Though by recent standards oversubscription of about 2.13 times is lower than most issuances we have seen this year. The pricing of this Sukuk was at the lower end of the initial guidance of 125-135 bps over mid-swaps due to the large demand. This issuance was priced at a profit rate of 2.921% at a spread of 125 bps.

As per data from India's Central Statistical Office, GDP growth for fiscal year 2014-15 at constant prices (2011-12) was estimated at 7.3%, which makes India the fastest growing major economy in the world. The sectors that showed strong growth were finance, real estate & professional services which grew at 11.5%, trade, hotels, transport, communication and services related to broadcasting which grew by 10.7%, Electricity, gas, water supply and other utility services grew by 7.9%. The two sectors that really pulled this number lower were agriculture, forestry & fishing which grew by 0.2% & mining & quarrying which grew by 2.4%. These numbers which use the new methodology and a new base year for calculation has propelled Indian into one of the fastest growing economies in the world. There is a bit of a disconnect between these numbers and overall macroeconomic numbers. For e.g. bank credit grew for the fiscal year has grown by 12.6% which is the lowest growth rate posted in about 2 decades. Manufacturing output has been sluggish right through the fiscal year and has not been able to break out with the Index of Industrial Production posting growth of 2.4% on average through the fiscal year.

Foreign Institutional Investor (NYSE:FII) investment has appreciably slowed down with only $15.79 & $47.57 flowing into the equity & debt markets respectively. Indian equities posted their first weekly loss after 4 consecutive weeks of gains. The Indian Rupee was relatively volatile this week as it fell sharply on Tuesday & Wednesday in the wake of US Dollar strength globally and weak sentiment locally trading a low of 64.16. It retraced some of the losses in the latter part of the weak to close firmer. Next week we could expect both equities and the Indian Rupee to trade volatile as there are mixed expectations of a rate cut from the Reserve Bank of India at the monetary policy meeting on June 2.

In China stocks fell 6.5% on Thursday, after Chinese sovereign funds selling led to a sell-off in banking stocks and brokerage houses tightened margin lending. Overall Chinese equities for the month it is up 32% and YTD up 53.79%, which means that this is a correction in a vastly overheated market. The Japanese Yen plummeted to eight year lows on the back of a strong US Dollar. The minutes of Bank of Japan's April meeting indicated that the time frame for achieving its target of 2% inflation could be delayed. The minutes also indicated that the BoJ did not see a need for further easing now.

The Euro started the week lower after comments over the weekend from Greek Ministers that they may not be able to make the repayment of the next installment due of Euro 305 million due to IMF on June 5. It was also pulled down by the wins posted by Spain's anti-austerity parties in local elections across the country. Strong US Data on Monday sent the Euro further lower and we could see the pressure on the Euro increase through next week with no appreciable progress in the talks that Greek Government is having with the EU. On Thursday, after the end of negotiations for the day we had different sound bites from Greece and the Troika. The Greek Government came out with a statement that a deal is expected by Sunday. IMF Chair Christine Lagarde stated "Things have moved, but there is still a lot of work to do." EC spokeswoman Annika Breidthardt also dowsed hopes for a early deal by stating that negotiators still have several "open issues" to address before a deal is reached. The down move in Euro had been triggered by expectations of continued deflation in the Eurozone, in recent weeks we have seen deflationary pressures ease off in the Eurozone, in another sign of this Italian CPI for May edged higher to 0.2%. While it is still too early to say that the deflationary spiral in Eurozone has come to an end, the pace of downward spiral has certainly abated. As per data from European Commission, Business & Consumer Survey for May was upbeat at 103.8, beating analyst expectations at 103.8. Sentiment in the Services sector was also upbeat at 8.0 up from 7.0 in April. What was lagging was Consumer Confidence which was further down to minus 0.6 from April's minus 4.6. In June Greece has about Euro 1.6 million of repayments due to IMF & we could finally see the endgame emerge on the negotiations that have conducted for over 100 days since the Syriza Party assumed office.

US economic data was quite upbeat this week. Core Durable goods orders excluding the volatile transportation sector increased higher than expected at 0.5%. The housing sector had 3 bits of strong data with the CaseShiller 20 city Index increasing by 5% which was above market consensus at 4.7%. New Home Sales for April at an annual pace of 517 million was well above March's 481 million. Pending Home sales grew 3.4% in April well above the market consensus of 0.8%. Housing sector data has been above expectations in April and with Housing contributing to about 15% of GDP we could see a boost from this important sector if the trend continues in Q2. US Q1 GDP was revised lower as expected to minus 0.7% in the first revision to the preliminary number which was reported at +0.2% last month. The strength of the US Dollar had a big role to play in the lower GDP number with lower exports contributing minus 1.03% & higher imports contributing minus 0.87% to the overall number. The sector that contributed positively to this number was Personal Consumption expenditure on services which was up 1.13%. Strong US data resulted in moves of different degrees in various markets. In the Bond Markets which should have been more sensitive to strong US economic data, interest rates rallied higher in expectations of higher rates, but by the end of the week had given up most gains and closed lower. In the FX markets the US Dollar strengthened massively across the board hitting multi year highs against several currencies. Equity markets which have quite rich valuations sold off. US companies like Nike, Apple, Procter & Gamble, Microsoft, Google, etc have seen overseas earnings hit in Q4 2014 & Q1 2015 due to the strength of the US Dollar and further US Dollar strength sent US equities sharply lower.

Fed talk was a bit muted, FOMC non-voting member Loretta Mester who has a hawkish bias stated "accelerating inflation & strong employment are pushing the US economy close to the point where it can support higher interest rates. In her view a rate hike is on the table every meeting & the FOMC has another employment report to look at as well as other data before the next meeting. Fed Vice Chairman Stanley Fischer expects the Fed to follow a "gradual & relatively slow" trajectory of short term interest rate increases over the next three to four years to bring borrowing costs to normal levels. FOMC voting member Jeffery Lacker who also has a hawkish bias was a bit more open ended stating " I haven't made up mind yet about June. I am going to wait and see what the data reveals."

Compiled & Researched by: Shailesh N. Mulki

Disclaimer: The views and information contained herein are the personal views of the author. These should not be taken to constitute advice or recommendation.