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Market Insights & Morning news summary Strategy Global News Global Markets  Fed cuts half point in emergency move amid spreading virus; th 4 March 2020 10-year US yield plunges below 1% for first time in 150 years: The US Federal Reserve slashed interest rates by half a percentage point in the first such emergency move since the 2008 financial crisis, amid mounting concern that the coronavirus outbreak threatens to stall the record US economic expansion. The rate cut, which came between the central bank’s regularly scheduled meetings, was announced hours after Group of Seven finance chiefs held a rare teleconference to pledge they’d do all they can to combat the fast-moving health crisis. “My colleagues and I took this action to help the US economy keep strong in the face of new risks to the economic outlook,” Fed Chairman Jerome Powell said in a press conference on Tuesday. “The spread of the coronavirus has brought new challenges and risks.” The vote for the rate cut to a range of 1% to 1.25% was unanimous even though the Fed said in a statement that the “fundamentals of the US economy remain strong.”

Powell left the door open to further action by the central bank at its next scheduled meeting March 17-18. “In the weeks and months ahead we will continue to closely monitor developments,” he said. “The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” Powell said The Fed chief acknowledged that the Fed doesn’t have all the answers, adding that it would take a multi-faceted response from governments, health care professionals, central bankers and others to stem the human and economic damage. “We do recognize a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain. We get that,” Powell said. “But we do believe that our action will provide a meaningful boost to the economy.”

Investors weren’t impressed weren’t impressed by either the G-7 promise or the Fed’s move. Traders are betting that the Fed will have to do more, with the futures markets pricing additional easing later this year. Following the Fed’s emergency cut, the 10-year Treasury yield dropped below 1% and last traded at 0.9604%. A Bloomberg article said, according to historical work by Robert Shiller, the Nobel laureate economist at Yale University who has reconstructed the 10- year interest rates available in the US back to 1871, it has never Rakesh Sahu before dropped this low. Many momentous events have shaken the Director, Market Insights & Strategy US since Ulysses S. Grant’s presidency, but none of them were sufficient to drive long-term money down to such cheap levels. Chavan Bhogaita Source: Bloomberg Managing Director & Head of Market Insights & Strategy  China's central bank keeps short-term rates stead; major central banks say stand ready to support economy: China’s central bank Please click here to view our recent kept short-term borrowing costs steady on Wednesday, shrugging off publications on MENA and Global Markets the US Federal Reserve’s emergency policy rate cut overnight. The People’s Bank of China (PBOC) skipped open market operations, it said in a statement on the website, leaving reverse repurchase agreements unchanged. A article said markets however widely believe the authorities will continue to move to lower financing

People’s Bank of China (PBOC) skipped open market operations, it said in a statement on the website, leaving reverse repurchase agreements unchanged. A Reuters article said markets however widely believe the authorities will continue to move to lower financing costs for business and roll out powerful measures prop up the economy, which has been hit by a coronavirus outbreak. Major economies have kicked off a new round of easing globally to combat disruption to economic growth from the virus epidemic, which was first detected in China, has now spread beyond to some 80 nations and could turn into a pandemic. Central banks in Australia and Malaysia cut rates on Tuesday and on Monday the Bank of Japan took steps to provide liquidity to stabilise financial markets there. The Hong Kong Monetary Authority followed the Fed and lowered its base rate to 1.50% from 2.00%. South Korea has unveiled a $9.8bn extra budget to help businesses hit by the outbreak.

The European Central Bank policymaker Francois Villeroy de Galhau said Tuesday that the central bank is ready to support the economy in the face of the coronavirus outbreak, but governments with budget leeway also need to help. Villeroy, who is also head of the French central bank, told Dutch newspaper De Telegraaf that the ECB’s monetary policy was already accommodative and helping to stablise the euro zone economy. The ECB’s regular refinancing operations and ultra-cheap long-term loans to banks were helping them in turn to lend to companies running into trouble because of the virus outbreak, he said. “If necessary, we would stand ready to take appropriate and targeted measures, taking into account the liquidity needs of banks and businesses,” Villeroy said, echoing comments from ECB President Christine Lagarde.

Bank of England Governor Mark Carney said on Tuesday policymakers around the world are working on a “powerful and timely” response to the economic hit from coronavirus. “The lines of communication globally between central banks are wide open,” Carney told lawmakers on Tuesday. “It is reasonable to expect a response that reflects a combination of fiscal measures and central bank initiatives.” “We are confident that collectively these measures both within jurisdiction and across jurisdictions will be both powerful and timely,” he said. Carney declined to comment when asked if the BoE’s Monetary Policy Committee might cut interest rates before March 26 when it is due to announce the outcome of its next meeting. “The committee will make a decision at the appropriate time but not before,” he said.

Singapore’s Trade and Industry Minister Chan Chun Sing said it’ll take more than an interest rate cut by the Federal Reserve to boost sentiment in the global economy amid a spreading coronavirus outbreak. “It takes more than just a Fed cut to restore the confidence because people must see and feel for themselves the confidence in how governments are handling this in a coherent way,” Chan said in an interview Wednesday with Bloomberg. “I’m not sure that I would characterize it as a panic but I think many central banks in the world would want to work together to try to restore confidence in the current situation,” Chan said. It’s “too early to say” if the global economy will plunge into recession, Chan said, although there’s growing concern the recovery will be U-shaped, or L-shaped, implying a more protracted rebound. Source: Reuters; Bloomberg

 WHO says Coronavirus global fatality rate is higher at 3.4%; Mainland China reports 119 new coronavirus cases, down from day earlier: The head of the World Health Organization said the novel coronavirus doesn’t transmit as efficiently as influenza but the fatality rate is higher at 3.4%. Total infections globally rose above 93,000. Coronavirus fatalities in the US rose to nine. Infections rose in South Korea and Iran, where more officials were diagnosed. Mainland China had 119 new confirmed cases of coronavirus on Tuesday, the country’s National Health Commission said on Wednesday, down slightly from 125 on the previous day. The total number of cases on the mainland has now reached 80,270. The number of deaths rose by 38 to bring the total mainland China death toll to 2,981 by March 3. Hubei, the epicenter of the outbreak, reported 37 new deaths and 115 new cases on Tuesday. Source: Bloomberg

 US futures rise amid election results; Asian shares struggle for traction; oil extends rally after OPEC+ experts suggest deeper output cuts: US stock futures rebounded after Tuesday’s sharp decline as investors took in early Super Tuesday election results alongside the Federal Reserve’s

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emergency interest-rate cut. Treasuries pared gains. Early wins by Joe Biden lessened the chance of the Bernie Sanders nomination that had unsettled some investors. Futures on the S&P 500 rose 1.05% after the index tumbled 2.8% overnight in wake of an emergency 50 basis-point Fed move that failed to ease concerns about an economic downturn. Asian stocks were volatile as declines in Australia offset gains in South Korea, while Japanese, Chinese and Hong Kong shares fluctuated. Japan's Nikkei 225, which opened around 1% lower, last traded 0.4% higher at 8:10 am Abu Dhabi time. China’s blue-chip CSI 300 index and Hong Kong’s Hang Seng were flat in fluctuating trade. South Korea’s Kospi index added 2.0%, and Australia’s S&P/ASX 200 index fell 1.9%.

Oil’s rebound extended into a third day after OPEC+ experts recommended deeper production cuts to combat the demand hit from the coronavirus before the group meets later this week. The Joint Technical Committee suggested an additional output reduction of 600,000 to 1 million barrels a day during the second quarter, Bloomberg reported citing according to delegates. Ministerial meetings are scheduled for Thursday and Friday in Vienna. WTI crude futures rose 70 cents, or 1.5%, to $47.87 a barrel on the New York Mercantile Exchange. The contract has advanced around 7% since Friday after plunging 16% last week. Brent futures increased 1.4% or 73 cents to $52.59 a barrel on the ICE Futures Europe exchange. The global crude benchmark traded at a premium of $4.61 to WTI for the same month. In currencies market, the yen hit its highest against the greenback since October at 106.85 per dollar, before paring gains to trade 0.3% weaker at 107.43. The DXY dollar index was almost flat. Source: Bloomberg

Middle East & Africa News

 Gulf central banks follow Fed move with half-point rate cuts: Policy makers in the Gulf followed the US Federal Reserve’s emergency move on Tuesday, lowering interest rates in response to the coronavirus outbreak. Central banks in Saudi Arabia, the and Bahrain matched the Fed’s half-percentage point cut, hours after Chairman Jerome Powell said the fallout from the virus had increased risks to the US economic outlook. The UAE central bank said that, effective on March 4, it was cutting interest rates on certificates of deposit and its repo rate for borrowing short-term liquidity by 50 bps. The Saudi Arabian Monetary Authority said that, “in light of global developments”, it was cutting its repo rate, used to lend money to banks, by 50 bps to 1.75% and its reverse repo rate, at which commercial banks deposit money with the central bank, by 50 bps to 1.25%. Bahrain’s central bank also lowered its key rate to 1.75% from 2.25% Source: Bloomberg; Reuters

 UAE central bank to revise 2020 growth forecast due to coronavirus: The United Arab Emirates’ central bank will reassess its forecast for economic growth in 2020 due to the coronavirus outbreak, said Magda Kandil, chief economist and head of research and statistics at the bank. “Given what has transpired already, given implications on supply chain and demand, and disruption of transportation and tourism and cancellation of events, this will weigh negatively on global growth, and I think the UAE, we have to be realistic in this regard, will see some impact of this,” she said, speaking on Dubai Eye radio on Tuesday. The International Monetary Fund last year had forecast 2020 growth of 2.5% for the United Arab Emirates. Source: Reuters

 UAE, Saudi Arabia PMI show private sector lags amid coronavirus fears; UAE Feb PMI falls to 49.1 from 49.3 in Jan; Saudi Arabia Feb PMI falls to 52.5 from 54.9 in Jan: Business conditions in the United Arab Emirates worsened and Saudi Arabia had the weakest increase in its non-oil private sector output since at least 2009 as disruptions caused by the coronavirus rippled through the Gulf’s two biggest economies. The spillovers into trade, tourism and supply chains resulted in “a sharp loss of momentum since the start of 2020” for Saudi Arabia, according to IHS Markit. Its Purchasing Managers’ Index for the kingdom dropped to 52.5 in February from 54.9 a month earlier, indicating the slowest pace of improvement for almost two years. “The latest survey data highlights a sharp loss of momentum since the start of 2020, with overall business conditions improving at the slowest pace for almost two years,” IHS Markit said. “February data revealed additional challenges from international

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supply chain disruptions following the COVID-19 outbreak in China, with firms seeking to build up inventories and source alternative suppliers of critical components,” the survey said. In February, new orders contracted for the first time since April 2018, falling to 49.3 from 52.6 in January, in its turn a sharp drop from 64.1 in December. Employment remained stagnant in February, with the lowest rate of job creation since March 2019.

The IHS Markit UAE PMI deteriorated for a second month, to remain below the threshold of 50 that separates contraction from growth, as it fell to 49.1 in February from 49.3 in January. The headline PMI reading of 49.1 was the UAE’s lowest since August 2009. “The UAE’s non-oil private sector suffered another blow in February. The private-sector contraction reflected a decline in output, new orders and employment,” IHS Markit said in its report. “Supplier performance was meanwhile hit by the coronavirus outbreak in China, with PMI surveys globally noting significant delays to freight deliveries, as well as weaker export demand,” the survey said. The survey showed that confidence for future output fell to a near two-year low as business expectations were undercut by fears that the outbreak could put pressure on an already struggling domestic economy. Export orders also dropped because of the coronavirus, according to the survey, hurting overall sales. Employment in the private sector dropped for the second month in a row in February, though at a slower rate than a month earlier, the survey said. Source: Bloomberg; Reuters

 Formosa Sukuk could help GCC issuers to diversify their funding, says Fitch Ratings: The expansion of Taiwan's Formosa bond market to include sukuk instruments could help Gulf Cooperation Council (GCC) issuers, including Islamic banks, to diversify their funding and widen their investor pool without increasing currency risk, Fitch Ratings said on Tuesday. “The ability of GCC issuers to tap the Formosa market for sukuk could boost the overall global sukuk market, although it will take time for investor appetite to develop, and issuance is restricted to investment-grade issuers,” the rating agency said in a statement. The Formosa bond market is nearly entirely US dollar-denominated, making it a good fit for GCC issuers given that GCC currencies are pegged to the dollar. It is also large relative to GCC local sukuk markets, which could benefit sukuk pricing and liquidity if Formosa sukuk grows in popularity, Fitch said. The Formosa bond market had about $175bn of outstanding debt at 25 February 2020, compared with total GCC local-currency sukuk of about $100bn, and a total global sukuk market of about $500bn. The Taiwanese initiative could also boost sukuk's recognition among global investors, which could help to tighten the pricing of sukuk relative to bonds, Fitch said.

The Formosa sukuk market was launched in 2019 after Taiwan's regulators announced guidelines allowing foreign borrowers to issue sukuk denominated in currencies other than the New Taiwan dollar. These instruments can be sold to local insurers, banks and professional investors, as well as internationally. GCC issuers have increasingly tapped the Formosa bond market in recent years. This is in line with the trend to diversify funding options, with many GCC issuers issuing kangaroo, samurai and even panda bonds. Fitch said GCC issuers, led by those in Qatar and the UAE, account for about 20% of total outstanding Formosa bonds. Demand for Formosa bonds has been driven by Taiwanese life insurance companies seeking higher yields amid low interest rates. Fitch said near-term demand should remain high as insurers reinvest proceeds from maturing bonds. Fitch said, according to Bloomberg, about $15.5bn of debt held by Taiwanese insurers matures in 1Q20. Fitch said it expects the development of the Formosa sukuk market to be gradual, despite keen interest from GCC issuers. The rating agency noted that several potentially significant sukuk issuers, including Turkey, Bahrain and Oman, are barred from the market as they are below investment-grade. “Moreover, it will take time for investors to familiarise themselves with Formosa sukuk, and Taiwanese insurers' ability to invest has been reduced by regulatory moves to limit their foreign-currency exposures,” Fitch said. Source: Fitch Ratings; Bloomberg

 Saudi Arabia restricts entry for GCC citizens, residents; Concerts, sports events cancelled in Gulf on precaution: Saudi Arabia on Tuesday barred citizens and residents of Gulf Cooperation Council (GCC) countries from entering the kingdom for 14 days after returning from outside the region due to coronavirus concerns, state news agency SPA reported. Travellers coming from any fellow GCC state, which include the UAE, Bahrain, Kuwait, Oman and Qatar, must spend 14 continuous days in that

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country and show no signs of the coronavirus before being granted entry, SPA said. It also cited an interior ministry source as saying that Saudi citizens or residents entering from a GCC country must inform authorities upon arrival in the kingdom of any travel outside the GCC in the preceding 14 days.

Major concerts and sporting events in Gulf Arab states have been cancelled or postponed and Saudi Arabia stepped up health screening measures in response to the spreading coronavirus. According to a Reuters article, there have been at least 2,476 cases of the virus in the Gulf region, mostly in Iran where 77 people have died. Cases have also been reported in other Middle East nations. Conferences, concerts and sporting events are a major draw-card for foreign visitors to the UAE, which has reported 27 cases of coronavirus. The UAE education ministry said schools and higher educational institutions would be closed for four weeks from Sunday to help contain the spread of coronavirus. It also moved forward spring holidays, which were due to run from March 29-April 12, to a start date of March 8. Source: Reuters

 Most Gulf indexes extend gains on Tuesday: Most bourses in the Middle East closed higher on Tuesday, with Saudi outperforming the region, as global policymakers signalled a united front to address the economic fallout from the spreading coronavirus. Saudi Arabia's benchmark index advanced 2.8%, with all its banking shares trading in positive territory. Al Rajhi Bank added 3.4%, while petrochemical maker Saudi Basic Industries jumped 5.3%. Elsewhere, Seera Group Holding was up 3.2%, after the travel operator swung to annual profit from year ago losses. In Abu Dhabi, the index was up 0.9% with telecoms firm Etisalat and Abu Dhabi Islamic Bank both rising 2.8%. Dubai's main share index shed earlier gains to end flat, as Emirates Integrated Telecommunications retreated 2%, while Emirates NBD Bank rose 0.8%. Kuwait's index increased 2.3%, extending gains from the previous session, boosted by a 3.4% gain in National Bank of Kuwait and a 1.7% rise in Kuwait Finance House. Elsewhere in the Gulf, the Bahrain index slipped 0.2% and Oman’s index was up 0.4%. Outside the Gulf, 's blue-chip index gained 1%, as tobacco monopoly Eastern Company hiked 3.8%, while Palm Hills Developments surged 5.3% following a buyback of 1.3 million shares. Egypt introduced exceptional measures on Sunday to make it easier for listed companies to buy treasury stocks, a move aimed at supporting the stock market following a sharp fall in world markets in the past few days. Source: Reuters

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