Financial markets have kicked off 2017 on a more positive note than they started 2016: the S&P 500 hit a new record high and the Dow Jones Industrial Average continued to flirt with 20,000, but has yet to breach this psychological level. In the UK, the FTSE100 index closed at a new record high for nine straight sessions from December 28.
More relevant for our region, oil prices are trading in the mid-50s (US$ per barrel) compared with about $30 per barrel a year ago. We know that the Opec agreement in November to cut oil production in the first half of this year is one of the main reasons for the firmer oil price, but the strong performance of global equities even in the face of significant geopolitical uncertainty can be attributed in part to better than expected economic data over the past few weeks.
Globally, measures of economic activity have consistently beat expectations so far in January. Various purchasing managers’ indices (PMI) in China, the euro zone, UK and the US came in higher than forecast for December, suggesting that economic activity in manufacturing and services sectors is robust. Other measures of activity in the US, such as the ISM surveys, have also been stronger than expected. All of this bodes well for economic growth, particularly in the US.
In the GCC too, the Emirates NBD PMI surveys showed that economic activity gained momentum at the end of 2016. The UAE PMI rose to a five-month high in December, as did the Dubai Economy Tracker. While the headline index readings look solid, they mask a couple of less encouraging trends: the growth in business activity last year did not create many new jobs and companies’ margins have been squeezed as they have reduced selling prices to secure work. Last year was undoubtedly challenging for businesses in the region, with cuts to government spending in the largest economy (Saudi Arabia) having a ripple effect across the GCC, low oil prices and a strong US dollar all proving headwinds to growth.
The outlook for this year appears better, with oil prices expected to average $55 per barrel compared with $45 per barrel in 2016. This should boost government revenue and reduce the need for further cuts to public spending. For the UAE, and Dubai in particular, preparations for Expo 2020 are expected to move up a gear, which means higher spending on infrastructure projects, and that should underpin broader economic growth.
However, challenges and uncertainties remain. The US Federal Reserve is expected to accelerate the pace of monetary policy tightening this year, with the Fed’s own projections suggesting three rate hikes are on the cards. This means US dollar strength will probably continue to erode competitiveness in the GCC and remain a headwind to growth.
Political uncertainty in developed economies is likely to remain high this year and will probably be reflected in increased financial market volatility. The incoming US administration will be putting the finishing touches on a range of executive orders and other measures which the president-elect, Donald Trump, is expected to implement after his inauguration, outlining his top policy priorities. These are expected to include tax reforms, rolling back of regulations around health insurance and financial services and increased spending on infrastructure. However, the president-elect has offered very little detail on what these reforms will look like and there is a risk that markets have been too optimistic in regards to what will actually be delivered.
In Europe, uncertainty about Brexit is likely to rise as the UK prepares to trigger Article 50 and start formal negotiations with the rest of the EU by the end of March. At the same time, several EU nations will be gearing up for their own elections, including the Netherlands in March, France in May and Germany around September/October. So while financial markets have started 2017 on a wave of optimism and ebullience, the sailing is unlikely to be smooth.
Khatija Haque is head of Mena research at Emirates NBD.
business@thenational.ae
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MATCH INFO
Uefa Champions League last 16, second leg
Liverpool (0) v Atletico Madrid (1)
Venue: Anfield
Kick-off: Thursday, March 12, midnight
Live: On beIN Sports HD
ZAYED SUSTAINABILITY PRIZE
COMPANY PROFILE
Name: Xpanceo
Started: 2018
Founders: Roman Axelrod, Valentyn Volkov
Based: Dubai, UAE
Industry: Smart contact lenses, augmented/virtual reality
Funding: $40 million
Investor: Opportunity Venture (Asia)
The%20Specs
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The Perfect Couple
Starring: Nicole Kidman, Liev Schreiber, Jack Reynor
Creator: Jenna Lamia
Rating: 3/5
SPECS
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RESULTS
1.45pm: Maiden Dh75,000 1,400m
Winner: Dirilis Ertugrul, Fabrice Veron (jockey), Ismail Mohammed (trainer)
2.15pm: Handicap Dh90,000 1,400m
Winner: Kidd Malibu, Sandro Paiva, Musabah Al Muhairi
2.45pm: Maiden Dh75,000 1,000m
Winner: Raakezz, Tadhg O’Shea, Nicholas Bachalard
3.15pm: Handicap Dh105,000 1,200m
Winner: Au Couer, Sean Kirrane, Satish Seemar
3.45pm: Maiden Dh75,000 1,600m
Winner: Rayig, Pat Dobbs, Doug Watson
4.15pm: Handicap Dh105,000 1,600m
Winner: Chiefdom, Royston Ffrench, Salem bin Ghadayer
4.45pm: Handicap Dh80,000 1,800m
Winner: King’s Shadow, Richard Mullen, Satish Seemar
FIGHT CARD
Welterweight Mostafa Radi (PAL) v Tohir Zhuraev (TJK)
Catchweight 75kg Leandro Martins (BRA) v Anas Siraj Mounir (MAR)
Flyweight Corinne Laframboise (CAN) v Manon Fiorot (FRA)
Featherweight Ahmed Al Darmaki (UAE) v Bogdan Kirilenko (UZB)
Lightweight Izzedine Al Derabani (JOR) v Atabek Abdimitalipov (KYG)
Featherweight Yousef Al Housani (UAE) v Mohamed Arsharq Ali (SLA)
Catchweight 69kg Jung Han-gook (KOR) v Elias Boudegzdame (ALG)
Catchweight 71kg Usman Nurmagomedov (RUS) v Jerry Kvarnstrom (FIN)
Featherweight title Lee Do-gyeom (KOR) v Alexandru Chitoran (ROU)
Lightweight title Bruno Machado (BRA) v Mike Santiago (USA)
BEETLEJUICE BEETLEJUICE
Starring: Winona Ryder, Michael Keaton, Jenny Ortega
Director: Tim Burton
Rating: 3/5
UAE currency: the story behind the money in your pockets
Company%20Profile
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How it works
A $10 hand-powered LED light and battery bank
Device is operated by hand cranking it at any time during the day or night
The charge is stored inside a battery
The ratio is that for every minute you crank, it provides 10 minutes light on the brightest mode
A full hand wound charge is of 16.5minutes
This gives 1.1 hours of light on high mode or 2.5 hours of light on low mode
When more light is needed, it can be recharged by winding again
The larger version costs between $18-20 and generates more than 15 hours of light with a 45-minute charge
No limit on how many times you can charge
Our legal consultants
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
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UAE currency: the story behind the money in your pockets