NBK Capital Global Markets Commentary – December 2017

Kuwait: January 10, 2018

Global equities continue their positive streak for the year, with the MSCI All Country World Index up 1.5% in December, bringing the full year performance to 21.6%. In the US, the Federal Reserve raised interest rates by 0.25%, as markets had anticipated, in their December meeting. President Trump has also officially signed the tax reform law, in an effort to lower rates on corporate and household taxes, and is expected to result in a $1.5 trillion tax cut. In Europe however, political uncertainty continues to take center stage, as the pro-independence parties won a majority in Catalonia’s regional election and Italy passed its 2018 budget, allowing for the dissolution of parliament and new elections. Commodities ended December in the green with Gold and Brent up 2.2% and 5.2%, respectively with full year performance at 13.5% and 17.7%. OPEC continues to be compliant with the output curbs, realizing 121% of their pledged cuts in December.

In the US, the Markit Manufacturing Purchasing Managers Index (PMI) came in at 55.1 for December, up 1.2 points from the previous month while the Services PMI came in at 53.7, below November’s reading of 54.5 due to a drop in new orders, hiring and business optimism. Initial Jobless Claims went up to 245,000 compared to the last reading of 238,000. Durable Goods Orders increased 1.3% in November compared to the 0.4% decrease in October, boosted by civilian aircraft orders, which rose 14.5% for the month to $12.5 billion. Housing Starts rose 3.3% to 1.297m in November, driven by starts for single-family homes up 5.3% to 930,000, the highest increase since 2007, while building permits fell 1.4% to 1.298m. Retails Sales is up 0.8% month-on-month in November, exceeding expectations of 0.3%, as consumers were getting ready for the holidays. Gross Domestic Product in the third quarter grew at 3.2% annualized, supported by strong business spending, specifically nonresidential fixed investment.

US equities were positive in December up 1.8% and 1.0% for the Dow Jones and S&P 500, respectively and full year are up 25.1% and 19.4%.

In the UK, manufacturing continues to witness above average growth despite the Markit Manufacturing PMI dropping to 56.3 in December compared to 58.2 in November. The Services PMI on the other hand came in higher than expected at 54.2, compared to November’s reading of 53.8. The Consumer Price Index (CPI) increased by 0.3% in November, putting the annual inflation rate at 3.1%, its strongest since March 2012. Retail Sales came in surprisingly strong in November, up 1.1%, indicating that the continuous drop in Consumer Confidence, currently at -13, has yet to impact household spending. The final reading for the Q3 GDP remained unchanged at 0.4%, with the annual rate revised up to 1.7%.

UK recovered from last month’s loss, up 4.9% in December, as measured by the FTSE 100 and is up 7.6% for the year.

In Europe, the Markit Manufacturing PMI went up slightly to 60.6 in December compared to 60.1 in November on the back of new orders driven by domestic and international demand. The Services PMI came in slightly higher at 56.6 compared to November’s reading of 56.2. Consumer Confidence is expected to continue to improve in December, on a preliminary basis at 0.5% compared to November’s reading of 0.1%.

European equities were positive, up 0.6% in December, recovering from the previous month’s loss, as measured by the Stoxx Europe 600. For the year, the index is up 7.7%.

In Japan, the trade surplus decreased to JPY 113B in November from JPY 285B in October as exports increased by 16.2% and imports slowed to 17.2%. The CPI increased in November by 0.7% month-on-month, however the annualized figure remains well below the Bank of Japan’s 2% inflation target. The Nikkei Manufacturing PMI came in at 54.2 in November higher than October’s figure of 53.6. Retail Trade recovered in November up 2.2%, following October’s loss of 0.2% while Housing Starts dropped 0.4% year-over-year in November.

Japanese equities ended the month and year up 0.2% and 19.1% respectively, as measured by the Nikkei 225.

In domestic currency terms, Chinese exports grew 10.3% in November from 6.1% in October, indicating stronger external demand in key markets, while imports slowed slightly to 15.6% from 15.9%. The trade surplus widened to CNY 263.6B in November from CNY 254.5B in October. The CPI was flat in November yet increased by 1.7% for the year. Retail Sales increased 10.2% year-on-year in November, largely due to communication equipment sales, which grew 33.9% for the year compared to 2.1% in October. The Caixin Manufacturing PMI for December came in at 51.7, higher than November’s reading of 50.8, while the Services PMI increased from 51.9 to 53.9 in December.

The MSCI Emerging Market Index ended the month of December in the green 3.4%. The index also registered gains of 34.4% for the year, proving to be the best performing global index. Chinese equities ended the month in the red for the second consecutive month, down slightly 0.3% in December however full year performance the index is up 6.6%.

The GCC equity markets performed well in December with the MSCI GCC Countries Index ending the month up 3.3% and the year up 0.7%. The best performing index for the month was Qatar’s DSM Index, up 10.5% followed by Bahrain up 3.7%, Saudi Arabia up 3.2%, and Abu Dhabi and Kuwait up 2.7% and 0.7% respectively. For the second consecutive month, Dubai was the worst performing GCC index, down 1.5% followed by Oman down 0.2%. For the full year performance, Bahrain was the best performing index, registering gains of 9.1%, followed by Kuwait up 5.6% and Saudi Arabia up 0.2%. The worst performing index in 2017 was Qatar down 18.3%, followed by Oman down 11.8% and Dubai and Abu Dhabi down 4.6% and 3.3% respectively. Egypt’s EGX 30 ended the month and year in the green 3.0% and 21.7% respectively.