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GLOBAL MARKETS COMMENTARY – MAY 2019

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Kuwait: June 11, 2019

NBKCapital: Boursa Kuwait the Only GCC Market to Profit in May

KUWAIT- June 2019: Weak oil prices, geopolitical tensions in the region, and the waning effect of the MSCI upgrade of Saudi Arabia, in addition to the global market declines exerted pressures on the performance of the equity markets in the GCC and the Middle East regions. The S&P GCC Composite saw declines of 5.81% during the month led by significant losses in Saudi Arabia which declined by 8.47%. Equity markets in the UAE also posted losses with the DFM General Index in Dubai and the ADX General Index in Abu Dhabi retreating by 5.3% and 4.84% respectively. Declines in Qatar were generally less severe with the Qatar Exchange Index down 1.0%, so were the declines in Oman and Bahrain with -0.29% for Muscat Securities Market (MSM) 30 Index and -0.03% for the Bahrain Bourse All Share Index. Kuwait, on the other hand, was the only GCC market to post profits during the month as the Boursa Kuwait All Share Index managed to finish the month up 1.81%. Elsewhere in the region, Egypt’s EGX30 recorded a sharp decline of 7.70%, while Morocco’s MADEX and Jordan’s ASE Indices declined by 1.65% and 0.27% respectively.

The market rally which started at the beginning of the year came crashing down in May after the US-China trade talks broke down and tariff rhetoric regained central stage. President Trump suddenly imposed new tariffs on Chinese imports, China retaliated, and trade tensions escalated sending investors into a risk-off mode and safe havens. Global equity markets went into a downward spiral fueled by concerns over global growth and bond markets rallied. Most equity markets recorded high single-digit losses during May sending their returns for the second quarter into negative territory. The MSCI AC World Index lost 6.23% during the month while losses for the MSCI Emerging markets Index were about 7.53%.

Minutes of the April 30-May 01 FOMC meeting were released on May 22 and showed more members calling for patience before making further interest rate moves, while some members were worried about persistently low inflation. Core Personal Consumption Expenditures (PCE) recorded 1.6% in April, well below the Fed’s target of 2.0%, while preliminary Q1 2019 figures released at the end of May showed the measure at 1.0% compared to expectations of 1.3%. Weak inflation along with the effects of trade tensions over both global and US growth have increased market expectations of seeing multiple rate cuts during the year. Manufacturing activity continued to weaken during the month in the US. The May preliminary Markit Manufacturing PMI estimates came in at 50.6 versus expectations of 52.5 and a previous reading of 52.6 for April, which is very close to contraction territory amid concerns about an export slowdown caused by trade tensions.

US Indices trended down during the month erasing gains of the past three months. The S&P 500 and the Dow Jones Industrial Average were down 6.58% and 6.69%, while the tech heavy Nasdaq lost 7.93%. All three indices are now in negative territory for the second quarter at -2.91% and -4.30% for the S&P 500 and the Dow and 3.57% for the Nasdaq. The Dow fell more than 300 points on the last trading day of May posting a sixth straight week of declines which is its longest losing streak since 2011 according to the Wall Street Journal. Treasury yields were in free fall during the month. The 10-year yield dropped from 2.50% at end of April to 2.14% at the end of May going back to levels last seen in September 2017.

European Indices followed suite with the Stoxx Europe 600 erasing 5.70% of its value and turning its Q2 2019 performance into a negative 2.65%. The German DAX was down 5.0% and the French CAC40 retreated by 6.78%. Manufacturing activity in Europe continued to trend down since the beginning of 2018 with the May preliminary Markit Manufacturing PMI reaching 47.7 compared to estimates of 48.1 and a previous reading of 47.9 for April.

Over in the UK, the FTSE 100 ended the month down 3.46% and down 1.61% for the second quarter so far. Prime Minister Theresa May announced her departure from office after failing to bring a closure to Brexit and her party’s loss in the European elections which brings a host of new uncertainties to the whole Brexit resolution issue. Earlier in the month preliminary UK GDP figures showed a growth of 1.8% for the first quarter 2019.
In Asia, the Japanese economy surprised on the upside with Q1 2019 preliminary GDP growth recorded 2.1% up from a revised 1.6% for the fourth quarter 2018. The Nikkei 225 Index, however, was hit hard by the global slump in equities as it retreated by 7.45% during the month bringing its second quarter return to a negative 2.85% as at the end of May.

Emerging markets also broke their winning streak with a widespread retreat across indices. The MSCI EM Index was down 7.53% during May led by losses in Emerging Asia as the MSCI Asia ex-Japan Index lost 8.94% during the month. Notable losers included Turkey’s Borsa Istanbul Index which declined 5.06%, Shanghai Composite with a decline of 5.84%, and Taiwan Stock Exchange with -4.28%.

Record compliance with the OPEC+ production cuts, which reached 150% in April, and supplies from Venezuela and Iran declining sharply, in addition to OECD oil stock continuing to trend downwards and the intensifying geopolitical risks in the Middle East, weren’t enough to support oil prices during May. Concerns of intensifying trade wars, especially after President Trump threatening to impose trade tariffs on Mexico, and fears of a global economic slowdown caused a sharp decline in oil prices during the month. Brent was down 11.41% to $64.49/ bbl., while WTI declined 16.29% to $53.50/ bbl.

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