Disappointing US economic data has unsettled markets in the Middle East and elsewhere and muddied the waters over an eventual interest rate rise
After the Federal Reserve’s quantitative easing programme ended last October, the US reiterated that its economy was doing well . However, recent US economic figures are less positive, with growth slowing at the end of last year. Since last October economists have been split over whether the central bank’s decision will help or hinder the post-recession US recovery.
Since the end of QE3 last year, the majority of the economic releases came in far away from the markets expectations. Most came in contrary to the estimates and were disappointing
The question now is, what do the Fed policymakers need to see before considering raising interest rates?
The Federal Reserve announced an end to its quantitative easing bond-buying programme last October. The first estimate of growth showed a slowing in the final three months to 2.6%, and the annual growth rate was just 2.4%.
Manufacturing remained reasonably robust, but did cool to the same level it was at in January last year.
Orders for longer lasting, so-called durable goods have also faltered in recent months.
As exports dipped, the US trade deficit – the difference between imports and exports – rose significantly in December, and the trade deficit for all of last year was also up.
The stronger dollar appears to be boosting imports and pulling down exports and recent declines in oil prices have had a significant impact on inflation figures in the United States.
The latest jobs numbers were positive with 257,000 posts added last month and the November and December totals were revised sharply upwards. The unemployment rate edged higher to 5.7% of the workforce, but is down from 9.8% in January 2010.
- Impact on Middle East*
To find out more about the progress of the US economic recovery, Business Middle East’s Daleen Hassan spoke to Nour Eldeen Al-Hammory, chief market strategist at ADS Securities in Abu Dhabi.
DH: How do you interpret the US economic figures from the end of QE through to last week?
NAl-H: Since the end of QE3 last year, the majority of the economic releases came in far away from the markets expectations. Most came in contrary to the estimates and were disappointing.
The Federal Reserve is promising to raise rates this year . However, the inflation rate fell to its lowest since 2009 at 0.8%, well below the Fed target of 2%. So it was far from the FEDs expectation.
Moreover, personal spending crashed by the most since 2009. We have seen a decline of more than 0.17%, which has not been seen since the global financial crisis
Meanwhile, there were more than 30 sets of data that were disappointing; factory orders and the durable goods are the most important for the time being.
Factory orders fell for 5 consecutive months, something not seen since 2008. Back in 2012, when factory orders fell for four months in a row, the Fed launched QE3.
As for the positive data, the economy added 257,000 new jobs in January and the earnings increased by 0.5% in January.
However, they haven’t calculated the energy sector layoffs, more than 20,000 jobs. So the unemployment rate increased to 5.7%, while the estimates were for it to decline.
We maintain our negative outlook toward the US and we don’t expect an interest rate raise very soon ?
DH: If the Fed were to raise interest rates, what impact could it have on Arabian financial markets and the wider economy in the Middle East?
NAl-H: It’s not just the Middle East, but globally, as rising rates will decrease lending to invest in stock markets. So here we are going to see a global impact affecting the investment internationally and for sure in the Middle East. However, the Middle East/North Africa region remains a safe haven as the global developments are worrying and leading to uncertainties, especially with the latest development in Greece and fears about it leaving the eurozone.
Moreover, don’t forget that Saudi Arabia is opening the door for foreign investors, therefore, the negative impact might be limited.
The Central Bank of Egypt: has launched a war on money-laundering and the black market, imposing a ceiling on dollar cash deposits in banks
Egypt’s central bank has imposed a ceiling on people paying US dollars into banks.
The new restrictions on cash deposits will make it impossible for companies to buy large amounts of foreign currency and then deposit them in banks.
Central Bank governor Hisham Ramez announced that individuals and businesses will not be able to deposit over 10,000 dollars in a single day, or 50,000 in any month in Egyptian bank accounts.
Some traders say they are seeing a big narrowing in the difference between the black market dollar price and the official exchange rate in banks as a result and that this move should starve black market traders of customers.
Bankers are optimistic that the decision will encourage international investors to look more favourably on Egypt, ahead of the Economic Development Summit at Sharm El Sheikh, next month.
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