Posted on September 30, 2014
- Global investors turned nervous last week following sell-off in the US stock markets on Thursday, with European and Asian shares recovering some of their earlier losses on Friday. Several justifications were given for such a performance: (i) a late response to recent data pointing to slowdown in China; (ii) markets are growing more concerned about expectations of a rate increase by the Federal Reserve next year; (iii) the strong dollar is weighing down on the outlook for US companies; and/or (iv) some sellers emerged in a thin market with stretched valuations. Whatever it is, it has become clear that perpetual monetary easing cannot alone fix the global economy, even with the European Central Bank (ECB) and Bank of Japan (BOJ) witnessing economic data that should force them to run their own monetary easing campaigns.
- In the US, Q2 2014 economic growth was revised slightly higher at +4.6% vs. +4.2% for the second estimate. August housing reports showed a drop in existing home sales, while new home sales rose strongly. Though initial jobless claims rose, the 4-week moving average fell slightly. August durable goods orders dropped, but core orders, excluding the volatile transportation sector, rose. Several economic data are due this week, but particular focus will be on the ECB meeting and non-farm payrolls. An update on how the UK economy is performing at the end of Q3 2014 is given by construction, manufacturing and services PMI releases. August data signaled an acceleration of economic growth, but the upturn became more dependent on the domestic services and construction sectors as growth in the goods-producing sector slowed further.
- In Japan, the national consumer price index rose just 1.1% YoY in August, after adjustments were made to strip the effect of an April sales tax and volatile food prices. That is less than the 1.3% core inflation rate posted in July and below the 1.2% that economists had forecast. The data suggest that the BOJ is losing its battle to achieve its inflation target of 2% and may have to do more in the way of bond purchases to boost the economy. Meanwhile, China manufacturing sector picked up some momentum in September, but an employment gauge was reported at a 5-year low. Hence, China figures will be closely watched to see if there is reason for further caution there.
- Qatar Exchange (QE) has been negatively affected over the past few weeks (down 3.3% last week alone), as a result of the unofficial statements released by a FIFA Executive Committee Member, regarding his “personal doubts” that World Cup 2022 will be held in Qatar due to the problem of extreme hot weather. On the other hand, Qatar affirmed its capabilities of holding the cup under any circumstances.
- The UAE is looking for a further expansion of its stock markets, by revealing some anticipated initial public offerings (IPOs). CEO of Abu Dhabi Exchange (ADX) expected two companies to list their shares on ADX by end of 2014, following a three-year gap. Additionally, he expected the first government bond to be listed on ADX before end of 2014. Moreover, a second financial market, which will exclusively trade shares in private companies, is set to start operating in the UAE within the next few months. In our opinion, this is yet another positive step towards developing the UAE's capital markets further. We believe the "second market" will act as a platform for private (mostly family-owned) firms to test the waters before making their milestone decision to go public through an IPO. In other words, the second market will groom more companies into becoming publicly listed which will eventually enrich the UAE capital markets breadth with a market capitalization less than 60% of nominal GDP versus around 80% for other Asian markets.
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