Focus: The dollar, emerging markets, commodity prices and debt

The dollar continued its decline during the week reaching the lowest level since April 2018, reflecting the risk-on sentiment based on the hopes of a vaccine in 2021. (Shutterstock)
The dollar continued its decline during the week reaching the lowest level since April 2018, reflecting the risk-on sentiment based on the hopes of a vaccine in 2021. (Shutterstock)
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Updated 05 December 2020

Focus: The dollar, emerging markets, commodity prices and debt

The dollar continued its decline during the week reaching the lowest level since April 2018, reflecting the risk-on sentiment based on the hopes of a vaccine in 2021. (Shutterstock)

The week that was: 

The two big stories of the week were vaccines and an OPEC+ compromise on tapering production cuts.

The UK approved the Pfizer/BioNTech vaccine and will receive the first shipment by mid-December. Healthcare workers, care home residents and the elderly will be vaccinated first. Stock markets across the globe rallied on the news, with the S&P 500 reaching new highs. 

The optimism may be overdone in the long run, because COVID-19 cases west of Suez are still high (at all time highs in the US). Germany extended its mini lockdown through Jan. 10. Pfizer also had to lower the production of vaccines from 100 million doses to 50 million in 2020 on account of issues with ramping up the raw materials' supply chain. The company will produce a billion doses in 2021. The latest development dampened the mood in the equity market.

OPEC+ held tense meetings on whether to extend the current 7.7 million barrels per day (bpd) into next year or taper to 5.8 million bpd as of Jan. 1. News on vaccines and strong demand east of Suez had led to a four-week oil price rally ending Friday last week, rendering consensus elusive and leading to a falling oil price. 

On Thursday the 23 countries decided to taper cuts by 500,000 bpd to 7.2 million bpd on Jan. 1 and review the situation on a monthly basis. 

Saudi Energy Minister Prince Abdulaziz bin Salman said the grouping would watch markets closely and tweak cuts according to developments. The decision was well-received by markets, with Brent climbing by more than 2 percent.

Fed chairman Jerome Powell and US Treasury Secretary Steve Mnuchin testified before Congress. Powell again emphasized the importance of keeping the stimulus going and assuring law makers that the Fed would keep interest rates at current levels for the foreseeable future.

Initial jobless claims for the week of Nov. 28 came in at 712,000, down 75,000 from the preceding week and representing the first decline in three weeks. The Labor Department reported November non farm payrolls up by 245,000 and the unemployment rate as 6.7 percent, down 0.2 percent. While this was good news, non farm payrolls came in 215,000 lower than a Bloomberg survey among economists had predicted. 

Speaker of the House of Representatives, Nancy Pelosi, indicated $908 billion as the baseline for negotiations over the stimulus package, instead of the previously proposed $2.4 trillion, giving Senate leader Mitch McConnell an opening to reach a compromise before current programs run out at the end of this year. 

President-elect Joe Biden’s administration will probably come out with a bigger stimulus in 2021.

The Pentagon added another four Chinese companies to a list of entities owned or controlled by the People’s Liberation Army, potentially exposing them to sanctions. CNOOC, the China National Offshore Oil Company, is among them.

The deadline for ByteDance to sell Tik Tok to Oracle/Walmart expires Dec. 4 unless the company can affect another extension. Two deadlines have so far come and gone.

A bill allowing regulators to kick Chinese companies off US exchanges if they do not open their financial audits for review was passed by the House of Representatives on bipartisan support. The Senate had passed the bill in May.

German factory orders for November climbed 2.8 percent month-on-month.

Salesforce acquired Slack for $27.7 billion and S&P Global is reported to be in advanced talks to acquire IHS Markit for $44 billion.

Saudi mobile telecom firm Zain successfully raised SR4.5 billion ($1.2 billion), enabling it to restructure its capital structure including repaying some debt. The company is confident that it will sell its towers in the Kingdom within 2020. Its CEO Sultan AlDeghaither told Bloomberg that he believed Zain should focus on innovation like gaming, cloud services and fintech rather than infrastructure. Zain operates the largest 5G network in the Middle East.

Focus:

The dollar continued its decline during the week reaching the lowest level since April 2018, reflecting the risk-on sentiment based on the hopes of a vaccine in 2021.

The biggest beneficiaries were emerging markets, which saw considerable capital inflows and where currencies appreciated correspondingly. The latter constitutes a mixed blessing for several countries. 

Thailand serves as a good example: The Thai baht appreciated 3.1 percent against the greenback during November, rendering Thai exports more expensive in the middle of a recession and at a time when its tourism industry is a long way from recovery. The tourism sector contributed around 20 percent to gross domestic product in 2019.

Other emerging market and developed market currencies like the Korean won, the Australian and Canadian dollars reached the highest levels against the greenback in two years. The Swiss franc has reached highs not seen since 2015, not to mention the Chinese yuan which has increased more than seven percent between May and November alone.

A low dollar traditionally fuels commodity prices and leads to appreciation of commodity exporters’ currencies, as seen in Australia and Canada.

Emerging markets would suffer in case the dollar rebounded from its losing streak. At present this cannot be attributed a high probability, especially as the Fed will leave interest rates at current levels for the time being.

Low dollar interest rates and exuberance surrounding a vaccine also drive investors to high yielding debt across the spectrum in emerging markets and developed markets. This remains a risky proposition. US junk bonds yields fell to 4.45 percent lows last seen in 2015.

Where we go from here:

Brexit negotiations continue nearing a make-or-break point for a trade deal. The main sticking points remain fisheries and a level playing field including state aid. The latest snag is controversy over whether the EU has made new demands. Earlier in the week, French President Emmanuel Macron had instructed EU chief negotiator Michel Barnier against making further concessions.

A no-deal Brexit could shave 2 percentage points off the UK economy in 2021 and add one full percentage point to unemployment, according to the Office for Budget Responsibility. This being said, a potential deal is on the light side, especially because it leaves out the services sector. Financial services alone account for 7 percent of GDP, whereas fisheries only account for 0.12 percent.

The European Central Bank’s €2.2 billion ($2.67 billion) budget and rescue package still looks to be held up by Hungary and Poland over a clause tying the disbursement of rescue package funds to the upholding of democratic standards.

Ryanair will purchase 75 new Boeing 737 Max aircraft in a landmark deal reversing the future of the troubled plane. Ryanair CEO Michael O’Leary told Bloomberg that he felt comfortable because the 737 was the world’s most audited and inspected airplane.

  • Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources. Twitter: @MeyerResources

Startup of the Week: Framed by Hams; Documenting precious memories

Startup of the Week: Framed by Hams; Documenting precious memories
Updated 16 min 3 sec ago

Startup of the Week: Framed by Hams; Documenting precious memories

Startup of the Week: Framed by Hams; Documenting precious memories
  • What makes Framed by Hams unique is the company’s ability to customize items so each frame is different

JEDDAH: Motherhood is the most precious experience in any woman’s life. Every mother wants to document each special moment with her newborn, whether through photographs, videos, sketches or paintings.

New Saudi mother Hams Jambi thought of documenting her experiences in an innovative and artistic way: Custom-made nursery picture frames, with hand-drawn characters, shapes and plants, as well as registering the baby’s height and weight at birth, their date of birth and even the hour they were born.

The 25-year-old mother set up the company in early March, and her seven-month-old daughter Misk as her source of inspiration.

“Being a mom at this stage is what gave me this business idea. I was looking for something I couldn’t find in the market,” Jambi told Arab News.

“Giving birth and being a mother is an indescribable feeling — it is such a special experience that we want to materialize the memory and make it something tangible … That’s why we add all of the baby’s measurements, along with the timings,” she said.

Just like all mothers when they are expecting a baby, she started designing and decorating her child’s nursery. “When I was looking for pictures to frame, I didn’t find anything special, or … anything at all. Even Instagram businesses take pictures from online and print it on a canvas and sell it,” she said. “I wanted something different.”

She noticed two things that mothers were doing to decorate their newborn’s rooms: Either ordering art pieces from abroad, or simply printing from the internet.

“This is where the business idea came and I thought about making something special for each baby, and, of course, each mother wants something different and unique for her baby, different from (the) usual nursery decorations that almost everyone has,” she said.

What makes Framed by Hams unique is the company’s ability to customize items so each frame is different, with nothing repeated, unless the client asks for a specific design.

The new mother also expanded her target through providing a gift wrapping service for customers to buy the frames for friends or family members. “Our prices are affordable which makes it an even more convenient gift,” she added.

The startup has sold 12 frames so far, and is aiming to sell 200 by the end of the year. Keep up with Framed by Hams on Instagram (@framed_by_hams) where orders can be placed too.


Oilfields Supply Center to invest $570m in new facility at Saudi energy park

Oilfields Supply Center to invest $570m in new facility at Saudi energy park
Updated 33 min 25 sec ago

Oilfields Supply Center to invest $570m in new facility at Saudi energy park

Oilfields Supply Center to invest $570m in new facility at Saudi energy park
  • The OSC base will contribute to Saudi Arabia’s Vision 2030 efforts to localize more of the energy supply chain

RIYADH: Oilfields Supply Center Limited (OSC) is to invest $570 million building a center at the King Salman Energy Park (SPARK).

The OSC base, measuring 1 million square meters and including multiple areas and zones, will contribute to Saudi Arabia’s Vision 2030 efforts to localize more of the energy supply chain.

“OSC is providing pre-built industrial solutions which de-risk the set-up phase for investors and give them flexibility to rent industrial facilities and workshops on demand, in addition to providing a full set of supporting services,” Dr. Mohammad Yahya Al-Qahtani, chairman of the SPARK board of directors, said in a press statement on Monday. “The base is expected to create thousands of jobs in the energy fields.” 

Iqbal Mohammad Abedin, OSC’s director and corporate affairs general manager, said all phases of work on the site were due to be completed by the fourth quarter of 2023. 

Dr. Mohammad Yahya Al-Qahtani

“The creation of an oil and gas supply base on site at SPARK, the region’s only fully integrated energy hub, is another example of how the project complements Aramco’s In-Kingdom Total Value Add Program, which encourages the development of a diverse, sustainable and globally competitive energy sector in the Kingdom,” Abedin said. 

SPARK will be built in three phases. Last month, it announced that 80 percent of the infrastructure work for phase one had been completed, with the remaining 20 percent due to be finished this year. 

The first phase’s near-completion means the allotted land is ready for investment, and 35 investment applications have been approved for companies and their support services. Contracts have already been signed with 23 other companies, the company said in March.

Two strategic agreements have also been signed with the Industrialization and Energy Services Co. (TAQA) and the Arab Minerals Co. (AMCO).

Under the agreement, TAQA is seeking to expand its local operations through the TAQA Industrial Complex, with an initial investment of up to SR300 million ($80 million). AMCO is investing SR260 million to develop a new center in the city.

SPARK is being built on an area of 50 square kilometers. Phase one will be 14 square kilometers, in addition to a dedicated logistics zone and dry port.

OSC is owned by the Dubai government and was established in the early 1960s.


Libya’s NOC declares force majeure on Hariga port in statement

Libya’s NOC declares force majeure on Hariga port in statement
Updated 37 min 14 sec ago

Libya’s NOC declares force majeure on Hariga port in statement

Libya’s NOC declares force majeure on Hariga port in statement

TRIPOLI: Libya’s National Oil Corp. has declared force majeure on exports from the port of Hariga, it said in a statement on Monday, after its subsidiary that runs the terminal said it had suspended output.

More to follow...


Syria’s upcoming presidential election stirs bitterness, disappointment in refugees

Syria’s upcoming presidential election stirs bitterness, disappointment in refugees
Updated 19 April 2021

Syria’s upcoming presidential election stirs bitterness, disappointment in refugees

Syria’s upcoming presidential election stirs bitterness, disappointment in refugees
  • News that Syria’s embassies had opened for voter registration was met with disappointment by refugees in Lebanon
  • Syrian refugees in Lebanon have been distributed in the Bekaa Valley and on the country’s northern borders since arriving in Lebanon

BEIRUT: Syrian refugees in Lebanon have expressed bitterness and disappointment ahead of elections that are expected to keep President Bashar Assad in office.

The Syrian Parliament has set May 26 as the date for the poll.

Assad won in 2014 with more than 88 percent of the Syrian vote. He has not officially announced his candidacy to run in next month’s election.

News that Syria’s embassies had opened for voter registration was met with disappointment by refugees in Lebanon, who also expressed their frustration with the international community.

Abu Ahmad Souaiba, speaking on behalf of the Voice of Syrian Refugees in Lebanon, said the revolution was launched to “achieve freedom and dignity.”

“Our disappointment today is great because of the failure to implement (UN) Security Council resolutions, which call for power transition not the re-election of Bashar Assad one more time,” he told Arab News.

Syrian refugees in Lebanon have been distributed in the Bekaa Valley and on the country’s northern borders since arriving in Lebanon, with the majority of those who took part in the revolution against Assad concentrated in the Arsal area.

“There are three segments of Syrians in Lebanon,” said Souaiba. “One segment includes families who have been living in Lebanon since before the revolution and those who are not affiliated with the opposition. The second includes the opposition, and these migrated to Lebanon in 2013 and 2014 because of the barrels of death (barrel bombs). The third includes those who are neither with the opposition nor with the regime, and those (people) came to Lebanon because of the economic crisis and are concerned about obtaining their livelihood and the sustenance of their families.”

According to the UN High Commissioner for Refugees (UNHCR), the number of registered Syrian refugees in Lebanon decreased to 865,500 by the end of Dec. 2020.

Lebanon called on the UNHCR to suspend new registrations at the beginning of 2015. 

About 55,000 have returned to Syria in recent years as part of repatriation efforts by Lebanese General Security and as part of a reconciliation program sponsored by Hezbollah in some Syrian towns.

Rumors are circulating that Hezbollah has set up committees to fill out census forms with the number of Syrian refugees present in certain areas ahead of taking them to voting stations on polling day.

Talk of a Hezbollah census has coincided with information that the Ministry of Interior is waiting for UNHCR data in order to prepare a mechanism for calculating the number of Syrian refugees in Lebanon.

The ministry has been assigned this task in coordination with the Ministry of Social Affairs, Lebanese General Security and the UNHCR.

Arab News contacted UNHCR spokesperson Lisa Abu Khaled, but she refused to comment and only said there was “currently no refugee census.”

Souaiba believed there was no need to recount the refugees because, around six weeks ago, a census was carried out by NGOs under the supervision of Lebanese military intelligence for refugees in camps and settlements, specifically in the Arsal area which is open to the land connecting Lebanese and Syrian territories.

He also said there was news from inside Syria of hunger, even in Damascus, and painted a bleak picture of people’s desperation to escape.

“There is no fuel and no electricity,” he added. “A woman who fled to Lebanon with her children told me that her husband was arrested by Syrian authorities and his fate is still unknown. She is almost dying of starvation with her children. She preferred to flee to Lebanon with her children and borrowed $100 to pay the smuggler. She thought that in Lebanon she would receive some food, and this is better than hunger in Syria.”

A UNHCR study estimated that 89 percent of Syrian refugee families were living below the extreme poverty line in Lebanon in 2020, compared to 55 percent in 2019.


Iran, IAEA start talks on unexplained uranium traces

Iran, IAEA start talks on unexplained uranium traces
Updated 19 April 2021

Iran, IAEA start talks on unexplained uranium traces

Iran, IAEA start talks on unexplained uranium traces
  • Failure to make progress on explaining the uranium traces could mean world powers would push for a resolution by June

VIENNA: The UN nuclear watchdog and Iran on Monday started talks aimed at obtaining explanations from Tehran on the origin of uranium traces at found at undeclared locations in Iran, an issue which could affect efforts to revive Tehran’s 2015 nuclear deal.
An agreement to hold the talks helped persuade European powers to hold off of seeking a resolution criticizing Iran at a meeting of the International Atomic Energy Agency’s 35-nation Board of Governors last month.
That avoided an escalation between Iran and the West that could have hurt efforts to bring Washington and Tehran back into full compliance with the 2015 deal, under which Iran agreed to curbs to its nuclear program in return for the lifting of sanctions.
Failure to make progress on explaining the uranium traces in the IAEA’s talks with Tehran could mean France, Britain and Germany would push for a resolution with US backing by the next IAEA board meeting in June.
“The IAEA and Iran began today to engage in a focused process aimed at clarifying outstanding safeguards issues,” the IAEA said in a statement, adding that the meeting was at the level of experts.
The Iran nuclear deal effectively drew a line under what the IAEA and US intelligence agencies believe was a secret, coordinated nuclear weapons program that Iran halted in 2003. Iran denies ever seeking nuclear weapons.
In the past two years, however, IAEA inspectors have found traces of processed uranium at three sites Iran never declared to the watchdog, suggesting that Tehran had nuclear material connected to old activities that remains unaccounted for.
The IAEA must track that material down to be sure Iran is not diverting any to make nuclear weapons.
The issue has been a complicating factor in the diplomatic effort to resurrect the 2015 deal, which then-US President Donald Trump abandoned in 2018 prompting Iran to violate some of its limits. President Joe Biden aims to resurrect the deal, but Washington and Tehran are at odds over how to do that.
A first IAEA-Iran meeting to discuss the uranium traces had been due to take place in Tehran in early April, but that was delayed just as talks to rescue the deal, involving its remaining parties and shuttle diplomacy with the United States, were being arranged in Vienna.
“Today’s meeting took place in Vienna, as participating Iranian experts are also involved in separate meetings on the Joint Comprehensive Plan of Action at another location in the Austrian capital,” the IAEA said, using the deal’s full name.