Cbanks cut rates as manufacturing gloom deepens

Oil prices fall back after spiking on Saudi attacks EQUATE sponsors KOGS 2019

AReport prepared by NBK

fter a torrid August, financial markets recovered somewhat in September, helped by a more stable trade war climate – followed in October by a limited deal between the US and China that removed near-term tariff hikes – and looser monetary policy by both the US Fed and the ECB. Major equity indices rose around 2-5% and bond yields edged back up from September’s multi-year lows, though 10-year yields remain negative across parts of Europe and Japan. The oil market however was rocked by attacks on Saudi oil facilities that saw oil prices surge, before falling as Saudi production recovered and markets returned their focus to the deteriorating global growth outlook.

US manufacturing weakens again,

Group photo of officials during the conference EQUATE Group, a global producer of petrochemicals and the world’s second largest producer of Ethyl- ene Glycol, today announced its sponsorship of the Kuwait Oil & Gas Show and Conference (KOGS) 2019, supporting the objectives of the conference in a knowledgesharing platform that gathers leaders and organizations across the oil and gas value chain to contribute to the advancement of the industry.

KOGS is held under the patronage of His Highness Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah, Prime Minister of the State of Kuwait from October 13 to 16.

Speaking of the Company’s

but jobs market strong

In the US, there has been more evidence that economic activity is softening. Most alarming was the manufacturing ISM index, which dropped even further into negative territory at 47.1 in September, and a 10-year low amid heavily contracting export orders and trade pessimism. But also concerning was the decline in the non-manufacturing equivalent to a three-year low of 52.6. Meanwhile however, the jobs market remains strong, underpinning still reasonable growth in consumer spending. Non-farm payrolls rose a decent 136,000 in September and the unemployment rate fell to a 50-year low of 3.5%. One concern is that the labor market is a lagging indicator, and that slower business activity will eventually generate cracks in the jobs market that cause the consumer sector to buckle;

support to industry conference, EQUATE’s Senior Vice President, Naser Al-Dousari, said: “We believe in the importance of sharing knowledge and expertise amongst industry peers to positively contribute together in its growth on the long term. At EQUATE, we ensure we’re part of these strategic opportunities, including KOGS which is a unique platform for the public sector, led by Kuwait Petroleum Corporation (KPC) and its subsidiaries, and the private sector to engage and share the latest solutions and advancements to industry challenges.”

The parallel 4-day multi-disciplinary conference program focuses

indeed, the pace of hiring has already slowed from the average of 223,000 per month recorded last year. But at the same time, slower jobs growth need not be a sign of economic weakness if it reflects an economy close to full employment.

Against this uncertain outlook, the Federal Reserve as expected cut interest rates by 25 bps in September – the second cut of the year – leaving the Fed Funds target range at 1.75-2.00%. The move was however interpreted as somewhat ‘hawkish’, with two out of 10 members voting for no cut (though one supported a larger 50 bps reduction), and the bank’s ‘dot plot’ projections pointing to no further rate cuts in 2019-20. It also left its forecasts for growth and inflation next year, at 2.0% and 1.9% respectively, unchanged, implying no strong need for further policy

on science and engineering factors facing those working in Kuwait and the region, a unique business platform showcasing services, products and expertise to over 6,000 oil & gas energy professionals across the value chain.

“EQUATE’s support of KOGS and its objectives this year comes as a continuation to its partnership with local and international organizations and associations in an aim to drive innovation and bring technical solutions to the challenges of the industry and the markets it serves.” Said EQUATE’s Vice President Technical Services, Nawaf AlKhaledi.

action. Markets however continue to take a different view, pricing in an 85% chance of at least one further cut by end year (probably October).

The Fed has also been tackling a sudden and unexplained liquidity shortage in the money markets, which saw interbank interest rates temporarily spike in mid–September and resulted in the bank offering emergency short-term loans. These injections saw the Fed’s balance sheet record its first meaningful rise since it halted its quantitative easing program in 2014, with some analysts dubbing it ‘QE lite’. The Fed in October then outlined a larger program of purchases of $60 billion per month of short-term treasury bills through 2Q20.

Manufacturing gloom deepens amid ECB policy clash News on the Eurozone economy has become still more downbeat, with manufacturing in decline in most of the region and growing signs of spillover effects on the until recently more upbeat service sector. Germany’s manufacturing PMI plunged to a 10-year low of 41.7 in September amid investment cuts and accelerated job losses on the back of slower trade and Brexit-related uncertainty.

The broader composite PMI at 48.5, saw its first sub-50 reading since 2013 and points to a decline in GDP in Q3 that would put the economy in recession following a 0.1% q/q contraction in Q2. Equivalent results for the Eurozone as a whole (50.1) point to economic stagnation at the end of Q3, presenting the risk of a fall into recession if momentum continues to weaken going forward.

Despite this worrying outlook, a degree of opposition surrounded the European Central Bank’s (ECB) loosening of monetary policy in September. The bank announced a package of easing policies, cutting the deposit rate to -0.5% and restarting its asset purchase program from November. The move drew rare public criticism from some current and former ECB officials, who see ‘ultra loose’ policy as threatening financial stability, a backdoor attempt to finance highly indebted governments and also unjustified in the absence of a clear deflationary threat (inflation has been at 1% or higher for the past three years). The controversy could set the stage for a battle when Christine Lagarde replaces Mario Draghi as ECB president in November. This is important, as the bank’s perceived commitment to looser policy could be key in transmitting its effects through the markets.

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