Last week maintained the trend of the previous fortnight in developed markets with US 10-year Treasury yields again marginally down a further 1.3bps from 2.874% to 2.861% and the dollar DXY Index holding around the 96-something range. The US Treasury curve was only marginally flatter after the US achieved a successful sale of nearly $100bn of short term paper. After falling most of 2018 gold may have found a floor after plummeting almost 4% in the first half of the week before recovering half of this to finish the week down -2.2% at 1184.
However, in emerging markets the Turkish economy and lira continued to be highly volatile but eventually encountered some respite as its currency bounced 6.45% on the week after curbing FX short selling - but the country remains vulnerable and fundamentally weak. Gross external debt currently stands around $467billion, partly on the back of foreign debt fuelled speculative developments and profligate infrastructure projects. Now net inflows of FDI have fallen to around $10billion – half the levels seen back in 2006-08 – and the lira depreciation is causing hard-currency repayments to balloon in domestic terms. With $3bn in bonds maturing this October and around $100bn due in the coming year across its dollar and euro government debt, any prolonging of the current slowdown and depreciation raises serious concerns about its ability to pay without some of the reprieves it had through the banking crisis of 2001.
Contrastingly, last week the World Economic Forum, IFC and World Bank published ‘The Arab World Competitiveness Report 2018’. The GCC states have certainly made progress with their development plans e.g. UAE’s Vision 2021 which focuses on encouraging trade and investment, enhancing international competitiveness, investing in education and innovation and technology. Along with Vision 2030 in Saudi Arabia, and Qatar National Vision 2030. Investment in infrastructure has increased: the value of infrastructure projects in planning or delivery stages across the GCC is estimated at US$2.7tn in 2017. Plus, member states have established funds to try and seed start-ups: Saudi Arabia established a fund (USD1bn) to invest in SMEs, Qatar Development Bank provides seed capital and the UAE has also seen equity investment in start-ups rise to USD1.7bn in 2016 from only USD100m in 2014. Nevertheless, there is still room for improvement particularly in areas of education and spreading the latest digital technologies.
Looking ahead, this week tariffs kick-in and bailouts kick-out: as US starts charging China 25% on another $16bn of imports from Thursday, and as Greece reaches the end of its third and final bailout programme leaving it with ongoing austerity and €322bn to repay over the next 42 years. Looking to the economic calendar: on Wednesday we have Fed minutes, EIA crude inventories and home sales; followed on Thursday by a full spectrum of PMI’s, US home sales and jobless claims, ECB minutes and Eurozone consumer confidence; and Friday rounding off the week with US durable goods, Japan’s CPI and the annual Jackson Hole central bankers’ jamboree with Fed Chair Jerome Powell delivering a speech in the morning (full schedule of speakers is to be released on Thursday).