Market Insights & Strategy Morning news summary Global Markets Global News rd 23 July 2020 China vows retaliation after US shutters Houston consulate; Trump says closing more Chinese consulates 'always possible': China vowed retaliation after the US forced the closure of its Houston consulate, in one of the biggest threats to diplomatic ties between the countries in decades. The US government gave China three days to close its consulate in America’s fourth-most populous city in an “unprecedented escalation,” Foreign Ministry spokesman Wang Wenbin said Wednesday in Beijing. China planned to “react with firm countermeasures” if the Trump administration didn’t “revoke this erroneous decision,” Wang said. China’s embassy to the US described the move a “political provocation” and called on Washington to “immediately revoke” the decision. Foreign ministry spokeswoman Hua Chunying wrote on Twitter that China would “surely react with firm countermeasures”. President Donald Trump said on Wednesday it was “always possible” he would order the closure of more Chinese consulates in the United States. Trump, at a White House news conference, noted that a fire was spotted on the Houston consulate’s grounds after the State Department ordered the closure in 72 hours. “I guess they were burning documents and burning papers,” he said. The US State Department said it ordered the consulate shut “to protect American intellectual property and Americans’ private information,” without giving more details. Bloomberg reported that at least two Chinese citizens have been convicted of stealing energy industry trade secrets in Houston in recent years. The consulate is one of five China maintains in the US along with its embassy in Washington. Asked for specifics on why the consulate was being closed, Secretary of State Michael Pompeo responded with broad remarks about China’s actions on intellectual property, saying it was “costing hundreds of thousands of jobs.” “We are setting out clear expectations for how the Chinese Communist Party is going to behave and when they don’t we’re going to take actions that protect the American people,” he said at a briefing on Wednesday in Denmark where he was meeting the country’s foreign minister. Source: Bloomberg; Reuters Rakesh Sahu US existing home sales post record increase in June: US home Director, Market Insights & Strategy sales increased by the most on record in June, boosted by historically low mortgage rates, but the outlook for the housing market is being clouded by low inventory and high unemployment amid the COVID-19 Chavan Bhogaita pandemic. The National Association of Realtors (NAR) said on Managing Director & Head of Market Insights & Strategy Wednesday existing home sales jumped 20.7% to a seasonally adjusted annual rate of 4.72 million units last month. That the biggest Please click here to view our recent gain since 1968 when the NAR started tracking the series. Data for publications on MENA and Global Markets May was unrevised at a 3.91 million unit pace, the lowest level since October 2010. June's increase ended three straight months of decreases, though home resales remained below their pre-pandemic level. Economists polled by Reuters had forecast sales rebounding 24.5% to a rate of 4.78 million units in June. Existing home sales, which make up about 85% of US home sales, fell 11.3% on a year-on- October 2010. June's increase ended three straight months of decreases, though home resales remained below their pre-pandemic level. Economists polled by Reuters had forecast sales rebounding 24.5% to a rate of 4.78 million units in June. Existing home sales, which make up about 85% of US home sales, fell 11.3% on a year-on-year basis in June. The 30-year fixed mortgage rate is at an average of 2.98%, the lowest since 1971, according to data from mortgage finance agency Freddie Mac. Source: Reuters Asian stocks drop with steep China losses as consulate closure fans Sino-US tensions; 10Y Treasury yield falls below 0.6%; Oil stuck near $42: Stocks in Asia were mostly lower, led by declines in China, amid concern over renewed Sino-US tensions and uncertainty over the timing of a new American stimulus package. The dollar dipped to near the weakest since March. China’s blue-chips CSI 300 index was down 1.1% as at 8.00 am UAE time, while the Shanghai Composite index fell 1.2%. Hong Kong’s Hang Seng index was however trading higher by 0.4%, while Japan’s Nikkei 225 index fell 0.6%, Australia’s S&P/ASX 200 index was up 0.3% and South Korea’s Kospi was down by 0.9%. Futures on the S&P 500 index was barely unchanged after the underlying gauge rose 0.6% Wednesday. The yield on 10-year US Treasuries fell below 0.6% for the first time since the March rally, amid pandemic driven risk sell off, when it hit an all-time low of 0.54%. The 10-year Treasury yield was last quoted at 0.597%. In commodity markets, spot gold fell 0.1% to $1,869.23 per ounce, but remained near a nine-year peak on Thursday, with prices up nearly 23% on the year. The greenback was flat against the yen at 107.14 and the Euro was up 0.1% at $1.1579. The DXY dollar index was down 0.1% at 94.926, just little off the low of 94.65 it touched in early March. Oil was stuck near $42 a barrel in New York with a weaker dollar lending support as investors took stock of a surprise gain in American crude stockpiles and renewed tensions between Beijing and Washington. WTI crude futures rose 6 cents to $41.97 a barrel on the New York Mercantile Exchange, after closing little changed on Wednesday. Brent futures were up 7 cents to $44.36 on the ICE Futures Europe exchange after falling 3 cents in the previous session. Source: Bloomberg; Reuters Middle East & Africa News Saudi Arabia to accelerate asset sale plans to boost finances; Kingdom hasn’t ruled out income tax, but isn’t imminent, says finance minister: Saudi Arabia is accelerating plans to sell off state assets and isn’t ruling out introducing income tax as the kingdom seeks to boost state coffers hit by the slump in oil prices. The world’s biggest oil producer could raise more than SAR 50bn ($13.3bn) over the next four to five years by privatising assets in the education, health-care and water sectors, Finance Minister Mohammed Al Jadaan said Wednesday during a virtual forum organised by Bloomberg. “We’re looking at sectors that haven’t been targeted before for privatisation,” Al Jadaan said. The government is “considering all options” to bolster its finances and while income tax isn’t “imminent” and “would require a lot of time” to prepare, the kingdom “isn’t ruling anything away for now,” he said. The Kingdom has already been selling state assets as part of efforts to diversify its economy away from oil after a slow start. In December, the government sold a $29bn holding in energy giant Saudi Aramco through the largest initial public offering in history. It also recently sold a stake in two grain mills. Saudi Arabia has been taking steps to shore up its economy from the double whammy of the coronavirus and lower crude prices. The economy is set to shrink 6.8% this year, according to the International Monetary Fund, in what would be the deepest contraction in over 30 years. The government has already taken unprecedented measures to support its finances, including tripling value-added tax, increasing import fees, and canceling some benefits for government workers. The kingdom has traditionally been tax- free for individuals, with oil revenue supporting a wide range of subsidies and benefits for citizens. “Saudi Arabia is not in austerity and we are not getting into an austerity phase,” Al Jadaan said. While the government has “re-allocated some spending,” total spending in 2020 is likely to be more than a trillion riyals, as planned. Kingdom’s sovereign wealth fund, the Public Investment Fund (PIF) has ample liquidity in the local market, Al Jadaan said Wednesday. Despite its efforts to contain costs, the government transferred $40bn from 2 reserves held by the central bank to boost the financial firepower of PIF for deals. The PIF has already acquired stakes in companies including Citigroup Inc., Facebook Inc. and concert promoter Live Nation Entertainment Inc. The sovereign fund will continue to boost its global investments, Al Jadaan said. He added that the PIF would allot via secondary offerings part of their local holdings to make sure they “recycle mature investments” and invest in something else that the private sector finds difficult to invest in. “That’s not driven by need of liquidity though, they have ample liquidity,” he added. Source: Bloomberg; Reuters Saudi Arabia plans to tap the global debt market one more time this year: The kingdom is also likely to have to borrow about SAR 100bn ($26.7bn) more than planned this year and plans to tap the global debt market at least one more time in 2020 after so far selling $12bn in international bonds in 2020, Finance Minister Mohammed Al Jadaan said Wednesday during a virtual forum organised by Bloomberg. Source: Bloomberg Dubai Islamic Bank reports first half net profit of AED 2.11bn, down 23% yoy: Dubai Islamic Bank’s (DIB) on Wednesday reported a net profit of AED 2.11bn ($574.5m) for the first half of 2020, down 23% year on year. The bank’s total income reached AED 6.82bn in 1H2020, whilst net operating revenue grew to AED 4.72bn.