NBK Capital Global Markets Commentary – January 2017

Kuwait: February 6, 2017

Global equities ended the first month of the new year on a positive note up 2.7%. The rally was led by emerging markets, which was up 5.45%. US equities closed the month of January up 1.8% as measured by the S&P500, as Donald Trump took power as the 45th president of the United States on January 20th. Within the MENA region, Kuwait’s equities were the top performer up 12.4%, while Saudi’s Tadawul All Share Index closed in the red, down 1.51%. Commodities were mixed in January, with Gold up 5.5% and Brent Oil down 2.0%. Although OPEC and 11 non-OPEC producers cut production by 1.5 million barrels a day, production picked up in other regions, including U.S. shale oil, weighing down on prices.

In the US, economic indicators continued to post optimistic signs of growth. Real GDP grew 2.1% in Q4, as. U.S. retail sales posted another strong month to end 2016; retail sales increased 0.6% last month after rising only 0.2% in November.

American manufacturers ended 2016 optimistic as the US ISM Manufacturing Index hit the highest level in two years. The index climbed to 55, signaling expansion, while the US ISM nonmanufacturing remained at 57.2 in December. Nonfarm payrolls came in at 227,000 jobs in January versus the expected 175,000, while unemployment edged higher to 4.8%. Durable goods orders fell 0.4% for second month in a row. Housing starts jumped in December by 11.3%, at a seasonally adjusted annual rate of 1.226 million, marking the best year since 2007. Existing home sales declined from the previous month and came in below the forecast, but sales for the full year were the strongest since 2006. New home sales declined last month to a seasonally adjusted annual rate of 536,000.

The UK Manufacturing Purchasing Managers Index (PMI) ended 2016 at 56.1, recording the fastest growth in more than two years but ended January slightly down at 55.9. UK inflation rose to 1.6 % in December year-on-year, up from 1.2 % in November year-on-year. Consumer confidence for the month of January was recorded at -5, up from the previous month at -7. Retail sales in December dropped 1.9% from the previous month making it the biggest monthly fall in the last four and a half years.

UK equities closed the month down 0.6%, as measured by the FTSE 100.

The Eurozone Manufacturing PMI was at 55.2 in January compared to 54.9 in the previous month. This indicates that the Eurozone manufacturing is in expansionary range. The Services PMI remained unchanged at 53.7 for the month of January. The indicator showed improvement in business activity, although a bit slower. Consumer confidence rose slightly to -4.7 from -4.9.

European equities in January dropped 0.4%, as measured by the Stoxx Europe 600.

Japan posted a trade surplus of JPY 313 billion for the month of November. The surplus was helped by cheaper oil imports and an improvement in exports. Exports for the month of December were up year on year 5.4% while imports were down year on year 2.6%. The Nikkei Manufacturing Purchasing Managers’ Index dropped to 52.7 in January from 52.8 in December. Japan’s consumer price index dropped to 0.3% in December from 0.6 in November. The unemployment rate decreased to 3.1% in December.

Japanese equities were slightly down in January, as measured by the Nikkei 225, falling 0.4% for the month.

China’s exports fell more than expected in December as global trade remained sluggish. Exports decreased 6.1% year-on-year in dollar terms, while imports rose 3.1%. The Caixin manufacturing purchasing managers’ index, a private gauge of nationwide factory activity, rose to 51.0 in January from 51.9 in December. The Caixin non-manufacturing purchasing manager’s index also increased for the month of January to 54.6 from December’s figure of 54.5.

Although emerging market equities performed well in January, up 5.5%, Chinese equities, as measured by the Shanghai Stock Exchange Composite Index, only gained of 1.8%.

The GCC equity market started the year well with gains of 1.1%, supported by the Kuwait equity market. Bahrain and Dubai markets also performed well, advancing 6.8% and 3.2%, respectively. Egypt’s index continued to improve in 2017, increasing 2.7% in January. Abu Dhabi had a minimal gain of 0.1%, while Saudi Arabia’s equity market posted negative returns.