US equity markets have rallied over the past month and a half, with the S&P 500 index up about 16 per cent since its mid-June low, and the tech-heavy Nasdaq composite index up by more than 20 per cent over the same period — the technical definition of a bull market.
The rally has confounded many analysts, coming as it has against a backdrop of slowing growth and high inflation.
Recession fears have increased in recent weeks, with economic data showing a slowdown in manufacturing activity, rising jobless claims and a second quarter of declining gross domestic product in the US.
This is reflected in the most inverted yield curve since 2000. In the US, an inverted yield curve where 10-year treasuries yield less than two-year ones, has historically predicted an economic recession with a high degree of accuracy.
The rally in equities even as macroeconomic conditions are seemingly worsening reflects the market’s belief that the US Federal Reserve will have to cut rates in 2023, as inflation slows and unemployment rises.
July’s inflation data, which came in better than expected last week, provided further support for this view. The headline Consumer Price Index fell to 8.5 per cent in July, down from a multi-decade high of 9.1 per cent in June, although this was largely owing to lower energy prices.
Core inflation, which excludes volatile food and energy prices, was unchanged at 5.9 per cent year on year last month, reflecting sustained inflation in housing, health care and other services.
Fed officials quickly pushed back against the market’s rosy interpretation that the central bank will not have to raise rates as much as previously thought, now that consumer inflation has seemingly peaked.
Several Fed presidents noted that they still expect rates to rise into 2023, and that although the July inflation print was a good one, they will need more evidence of a sustained decline in price pressures before they consider a change in policy.
The argument that inflation has peaked also assumes no further supply shocks with respect to energy and food. While global oil and food commodity prices have eased in recent weeks, and there are indications that food exports from Ukraine are resuming, any further disruptions to supply or a recovery in demand could again put upward pressure on these key commodities.
Opec+ has limited capacity to increase production, and the war in Ukraine means that energy supplies from Russia to the EU remain constrained and could be disrupted further, potentially causing shortages this winter.
China’s demand for oil is also expected to rebound as Covid-19-related restrictions on activity are eased, and the International Energy Agency recently increased its forecast for oil demand growth this year, saying that high natural gas prices are encouraging companies and power generators to switch from gas to oil, particularly in Europe and the Middle East.
While Emirates NBD is optimistic that inflation will continue to ease in the coming months, the pace of decline is likely to be slow. Indeed, headline and core CPI will remain well above the Fed’s 2 per cent goal by year-end.
Meanwhile, the US labour market still looks exceptionally strong, with another 528,000 jobs added in July and a further decline in the unemployment rate to 3.5 per cent.
Consequently, we expect the Fed will continue tightening monetary policy in order to cool demand and forecast another 150 basis points in rate hikes over the rest of this year.
Khatija Haque is chief economist and head of research at Emirates NBD.
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Engine: naturally aspirated 6.5-liter V12
Power: 819hp
Torque: 678Nm at 7,250rpm
Price: From Dh1,700,000
Available: Now
World Cup warm up matches
May 24 Pakistan v Afghanistan, Bristol; Sri Lanka v South Africa, Cardiff
May 25 England v Australia, Southampton; India v New Zealand, The Oval
May 26 South Africa v West Indies, Bristol; Pakistan v Bangladesh, Cardiff
May 27 Australia v Sri Lanka, Southampton; England v Afghanistan, The Oval
May 28 West Indies v New Zealand, Bristol; Bangladesh v India, Cardiff
In numbers: China in Dubai
The number of Chinese people living in Dubai: An estimated 200,000
Number of Chinese people in International City: Almost 50,000
Daily visitors to Dragon Mart in 2018/19: 120,000
Daily visitors to Dragon Mart in 2010: 20,000
Percentage increase in visitors in eight years: 500 per cent
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UAE currency: the story behind the money in your pockets
Company Fact Box
Company name/date started: Abwaab Technologies / September 2019
Founders: Hamdi Tabbaa, co-founder and CEO. Hussein Alsarabi, co-founder and CTO
Based: Amman, Jordan
Sector: Education Technology
Size (employees/revenue): Total team size: 65. Full-time employees: 25. Revenue undisclosed
Stage: early-stage startup
Investors: Adam Tech Ventures, Endure Capital, Equitrust, the World Bank-backed Innovative Startups SMEs Fund, a London investment fund, a number of former and current executives from Uber and Netflix, among others.
If you go
Flying
Despite the extreme distance, flying to Fairbanks is relatively simple, requiring just one transfer in Seattle, which can be reached directly from Dubai with Emirates for Dh6,800 return.
Touring
Gondwana Ecotours’ seven-day Polar Bear Adventure starts in Fairbanks in central Alaska before visiting Kaktovik and Utqiarvik on the North Slope. Polar bear viewing is highly likely in Kaktovik, with up to five two-hour boat tours included. Prices start from Dh11,500 per person, with all local flights, meals and accommodation included; gondwanaecotours.com
Our legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
The biog:
Favourite book: The Leader Who Had No Title by Robin Sharma
Pet Peeve: Racism
Proudest moment: Graduating from Sorbonne
What puts her off: Dishonesty in all its forms
Happiest period in her life: The beginning of her 30s
Favourite movie: "I have two. The Pursuit of Happiness and Homeless to Harvard"
Role model: Everyone. A child can be my role model
Slogan: The queen of peace, love and positive energy
Last 10 NBA champions
2017: Golden State bt Cleveland 4-1
2016: Cleveland bt Golden State 4-3
2015: Golden State bt Cleveland 4-2
2014: San Antonio bt Miami 4-1
2013: Miami bt San Antonio 4-3
2012: Miami bt Oklahoma City 4-1
2011: Dallas bt Miami 4-2
2010: Los Angeles Lakers bt Boston 4-3
2009: Los Angeles Lakers bt Orlando 4-1
2008: Boston bt Los Angeles Lakers 4-2
Packages which the US Secret Service said contained possible explosive devices were sent to:
- Former first lady Hillary Clinton
- Former US president Barack Obama
- Philanthropist and businessman George Soros
- Former CIA director John Brennan at CNN's New York bureau
- Former Attorney General Eric Holder (delivered to former DNC chair Debbie Wasserman Schultz)
- California Congresswoman Maxine Waters (two devices)
Usain Bolt's World Championships record
2007 Osaka
200m Silver
4x100m relay Silver
2009 Berlin
100m Gold
200m Gold
4x100m relay Gold
2011 Daegu
100m Disqualified in final for false start
200m Gold
4x100m relay Gold
2013 Moscow
100m Gold
200m Gold
4x100m relay Gold
2015 Beijing
100m Gold
200m Gold
4x100m relay Gold
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RESULT
Arsenal 1 Chelsea 2
Arsenal: Aubameyang (13')
Chelsea: Jorginho (83'), Abraham (87')
THE SPECS
Engine: 1.5-litre, four-cylinder turbo
Transmission: seven-speed dual clutch automatic
Power: 169bhp
Torque: 250Nm
Price: Dh54,500
On sale: now
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UAE currency: the story behind the money in your pockets
