Markets

After a period of extensive damage assessment, stock markets are fluctuating in the absence of major news and a sense of direction. The squabbles on eurobonds injected some excitement and the end of civil war in Libya sutured a geopolitical wound at risk of infection. Markets seemed to have recovered last week, though the slew of weak economic data from the US and Europe led to further declines following a highly volatile August. Regional markets made small gains while haven investments like gold and Swiss Franc rallied as investors sought safety from the downturn.

Global Developments

Americas:

• Personal spending rose 0.8% mom in July with increases in the quasi-totality of products' categories,
  inverting the trend registered in June (-0.1%). The US Personal Consumption Expenditure core price index
  gained 0.2 ppt mom in July confirming that the biggest part of the US economy is holding up.
• July pending home sales registered a 1.3% decrease, following a 2.4% increase in June. The decrease affected 3 out of the 4 regions of the sample: only the West registered positive data for the house market.
  The S&P/Case-Shiller index of property values fell 4.5% yoy at a slower pace than May's 4.6% decline.
• Chicago PMI fell to 56.5 in August (Jul: 58.8) implying that business activity expanded at a slower pace, but
  manufacturing continues to outperform other sectors of the economy.
• July factory orders were positive: rising 2.4% mom and inverting the 0.8% drop in June, supported by a
  9.8% increase in orders for motor vehicles and parts, the largest one-month gain since Jan ‘03.
• In August, the US job market continues to stagnate with the jobless rate flat at 9.1% (2007: 4.6%) and non- farm payrolls unchanged at the weakest level since Sep 2010. Meanwhile, initial jobless claims fell to 409k
  in the week ended Aug 27 despite remaining quite elevated.
• Aug ISM survey fell to 50.6 (Jul: 50.9):

Europe:

• Germany's Q2 nominal GDP growth slowed to 3.6% yoy after expanding 4.9% in Q1, showing that even the safest and strongest Eurozone country is not completely immune to the sovereign debt crisis.
• European confidence plunged: the European Commission index that summarizes the sentiment of consumers, industry and services fell to 98.3 in Aug (Jul: 103). The Euro Area Business Climate indicator dropped as well to 0.07 in August from 0.44 in the previous month.
• Eurozone's August PMI was at a 2-year low of 49, below July's 50.4 and the flash estimate of 49.7 - as both output and new businesses recorded falling volumes.
• European inflation held steady at 2.5% in Aug with the ECB setting the target levels just below 2% over the medium term. Eurozone unemployment in July increased slightly to 10% (June: 9.9%) with youth unemployment rates stable at 20.5%. Ireland and Spain continued to see increases in jobless rate to 14.5% and 21.2% while joblessness dropped to 12.3% in Portugal and 3.7% in Austria, the lowest in the Eurozone.

Asia and Pacific:

• China's PMI recovered to 50.9 in Aug, following a string of declines including July's 29-month low of 50.7 though a
• India's GDP moderated to 7.7% yoy growth in Apr-Jun 2011 (Jan-Mar: 7.8%). The slow growth pace can be attributed to the 11 rate hikes in the past 18 months, leading to a slowdown in domestic consumption.
• Aug manufacturing PMI in India declined for the fourth straight month to 52.6 (Jul: 53.2), also recording a 29-month low, as price pressures and further monetary tightening continued to dampen sentiment.
• July industrial output expanded at a slow pace in South Korea and Japan as global concerns affected exports: Japan output rose 0.6% mom (Jun: 3.8%) while South Korea output grew 3.8% yoy (6.5%).
• South Korea's trade surplus recorded a slight decline to $ 821mn in Aug (Jul: $ 6.32bn) as imports were up 29.2% (25.0%) due to higher commodity prices (crude oil, raw materials) and exports rose 27.1% to USD 46.38bn (Jul 25.2%), with diverging trade patterns: exports to developing countries rose 17.1% as opposed to 10% growth to developed nations - exports to the EU fell 7%.
• Inflation touched a three-year high of 5.3% in August (Jul: 4.7%), also breaching the comfort zone of the Bank of Korea, on increase in food and transportation costs.

Bottom line:

With Bernanke's Jackson Hole speech delivering very little in terms of direction and as data from US continue to disappoint (increasing hopes for QE3), moderation seems to be the buzz word with global manufacturing cues from the developing nations (South Korea, Japan, China, India) also pointing to a slight weakness. This week will be interesting to watch - President Obama will present proposals to address unemployment on Sep 8; various central bank meetings: look out for Trichet's comments and as emerging markets try to balance growth alongside rising inflationary pressures.

Regional Developments

• Qatar inflation edged up to 1.9% yoy in July recording a 19 month high, although on a monthly basis it fell 0.3%, still a rather benign environment. Meanwhile, Saudi Arabia's inflation rate rose 4.86% in July, led by surge in rent and food prices.
• Credit growth to the private sector shows signs of recovery in July: in Saudi Arabia, credit to private sector rose 8.7% at annual rate to AED 831.5 bn, recording one of the highest growth rates since 2008; Qatar's credit to the private sector rose 17% at annual rate to QAR 213bn.
• Non-oil exports in Saudi Arabia rose 19% at annual rate to reach SAR 13.1bn in July while the imports dropped by 17% to SAR 28.9bn.

UAE Focus

• The UAE Central Bank has revealed that a new payment services will be added to the Payment and Settlement Systems (UAESWITCH), allowing debit cards to pay for purchases, bills and money transfer among individuals.
• The UAE PM issued two decrees to aid financial activity: one, to establish a federal credit information company as public joint company owned by the federal government and based in Abu Dhabi; two, to establish a government council for financial harmonization comprising representatives of local and federal government.
• The UAE Ministry of Economy has established a specific committee to follow up with all issues related to GCC custom and certificate of origin.
• The Ruler of Dubai issued a law amending DIFC Law No 9 of 2004 appointing a higher board at the DIFC that will be chaired by the DIFC President and members appointed by a decree. The decree issued has stated that Sk. Maktoum Bin Mohammad Bin Rashid Al Maktoum, Deputy Ruler of Dubai, has been appointed chairman of the board, and Abdul Aziz Al Ghurair as Deputy Chairman, Hussain Al Qemzi, Abdul Fattah Sharaf, Eisa Kazim, Abdullah Saeed Gobash and David Eldon as board members.
• Nakheel launched the first tranche of its long-delayed Dh4.8 billion ($1.3 billion) Islamic bond in line with its five-year restructuring plan.
• ADIA has restructured its external equities department, separating indexed funds from active funds as part of a more focused strategy.
• Dubai's foreign trade rose 26% at annual rate to AED 451bn in first five months of 2011.
• The EIBOR (all maturities) rose for first time in six months after consecutive drops in the week ended Aug
  25 - six months was at 1.68% compared to 1.67% in mid-Aug and 2.48% a year ago.
• Dirham future contract for one month reached its lowest level in the past 15 years reflecting a high demand
  for dirhams and lack of liquidity for dollar futures.
• Data released by VISA has revealed that cash withdrawals in the UAE is 10 times higher than purchases -
  cash withdrawals amounted to AED 31.66bn while purchases were at AED 3.44bn in 1Q2011.

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