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Global Markets Commentary – February 2019

NBKCapital Global Markets Commentary, latestNews

Kuwait: March 6, 2019

“NBKCapital”: Gulf markets record mixed performance in February

Kuwait Stock Exchange ranked fourth in the Gulf, up 0.49%

Kuwait, March 5, 2019: The performance of the GCC markets was mixed. The S&P GCC Composite Index retreated by around 0.74% in February after a stellar performance the previous month. The UAE markets were the best performers with the Dubai’s DFM Index and Abu Dhabi’s ADX advancing by 2.65% and 1.83% respectively. They were followed by Bahrain with a gain of 1.53% and Kuwait at 0.49%. The Qatar Exchange Index lost the most among its peers with a decline of 5.68% taking its performance for 2019 to a negative 1.82%. Oman remained weak as the MSM 30 Index retreated by 0.53% for a year-to-date loss of 4.15%. In the meantime, Saudi Arabia, the largest GCC market, saw a marginal decline of 0.79% for the month on profit taking but is still up 8.51% for the year. The broader S&P Pan Arab index was pressured by the GCC performance as it declined marginally by 0.69% despite the strong 4.79% advance of the EGX 30 in February.

Global markets continued their steady rise during February supported by encouraging signs from the trade negotiations between the US and China and an increasing conviction that the Fed will not raise rates during 2019. Recent comments by Chairman Powell and Vice Chairman Clarida suggest that the economy is in a good place and that further rate increases will be contingent on economic data. Within this context market watchers are expecting a further downgrade to the US outlook to be issued by the Fed at the March FOMC meeting.

The MSCI All Countries World Index ended February up 2.50%, bringing its year-to-date gains to 10.5% driven mainly by the robust performance of the US and European markets. Major US Indices continued their drive upwards for the second month of the year to reach double-digit returns. The Dow Jones Industrial Average led the pack with a gain of 4.24% for February, followed by the Nasdaq and the S&P 500 with gains of 3.44% and 2.97% respectively. The tech-heavy Nasdaq is now up 13.5% for 2019. Treasuries remained stable with the 10-year trading in a narrow range between 2.6 and 2.7% during most of February. It edged up to 2.75% after the release of the US GDP data and the Dollar strengthened.

GDP figures which were delayed by almost a month because of the partial US government shutdown, showed that the US economy cooled less than expected during the fourth quarter of 2018. US GDP grew by an annualized 2.6% during the last 3 months of 2018 compared to an estimate of 2.2-2.3% and a third quarter growth of 3.4%, which brings the full year figure to around 3.1%. Manufacturing activity decelerated in February as the ISM manufacturing PMI recorded 54.2 down from 56.6 in January and compared to estimates of 55.5. Inflation, on the other hand, remained well contained as core personal consumption expenditures rose by an annualized 1.7% during the fourth quarter.

Markets in developed Europe followed suit with major European indices ending the month in the green. The Stoxx Europe 600 Index added 3.94% in February for a 10.4% gain for 2019. The German Dax and French CAC40 added 3.07% and 4.96% respectively bringing their year-to-date gains to 9.1% and 10.8%. Industrial activity remained weak, however, as the Markit Manufacturing PMI declined below the 50.0 mark in February recording 49.3 compared to 50.5 in January. The preliminary numbers of the Markit Services PMI, on the other hand, showed a marked improvement at 52.3 up from 50.8 last month.

In the UK, the FTSE 100 underperformed its peers adding 1.52% during February to bring its total return this year to 5.15%. Industrial activity retreated marginally as the Markit Manufacturing PMI declined to 52.0 meeting expectations and compared to revised reading of 52.6 for January. Consumer confidence edged up to -13 compared to -14 for the previous month.

Japanese equities continued their recovery that started with the new year as the Nikkei 225 Index added 2.94% in February and is now up 6.85% for the year. The Nikkei Manufacturing PMI came in at 48.9 in February slightly above expectations of 48.5 but lower than the 50.3 recorded for January, while the unemployment rate edged up to 2.5% in February from 2.4% the previous month.

After a strong start of the year, emerging markets seem to have taken a breather during February as the MSCI EM index advanced marginally by 0.10% during February. Geopolitical tensions in Venezuela and the threat of war took a toll on Central and South American markets. Equity markets in Brazil and Mexico declined by 1.86% and 2.65% respectively. Other notable decliners included the Russian Stock exchange which lost 1.42% during February. Emerging Asia, on the other hand, had a nice run during the month as the MSCI Asia ex-Japan advanced by 2.21% bringing its year-to-date gains to 9.65%.

The OPEC+ agreement to curb oil production in a bid to stabilize oil markets seems to be working as oil prices continued to trend higher for most of February. Brent gained almost 6.6% for the month, while WTI gained around 6.4% during February which brings their total gain for 2019 to 22.7% and 26.0% respectively. Oil price recovery, however, was abruptly interrupted by comments by president Trump warning OPEC to “take it easy” in their supply cuts.

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