This year has been a dismal one for investors as shares, bonds, Bitcoin and gold have all fallen, while inflation destroys the real value of cash. Even safe-haven currencies such as the Japanese yen and Swiss franc have taken a beating.
Yet, amid the wreckage, the mighty US dollar stands firm.
The world’s reserve currency remains the number one safe haven in a financial and geopolitical storm.
So far this year, it is up 6.76 per cent against the Swiss franc, 7.65 per cent against the euro, 8.46 per cent against the British pound and a staggering 11.17 per cent versus the yen.
This isn’t just a flash in the pan, either. Measured over a decade, the greenback is up a thumping 16.8 per cent against the euro, 23.53 per cent against the pound, and an incredible 63.2 per cent against the yen.
The dollar's strength offers some respite for international investors reeling from the crash in US shares.
The S&P 500 has fallen 18.68 per cent year to date, with the Nasdaq down 28.07 per cent, but the losses will be mitigated for those holding weaker currencies.
So, can recent US dollar outperformance continue — or is a backlash about to set in?
The US dollar is rising for three reasons, Stéphane Monier, chief investment officer at Lombard Odier Private Bank, says.
First, the war in Ukraine has driven safe-haven trade. “When things go badly, money flows into the US dollar,” he says.
The conflict has also hit the eurozone, he adds.
“We calculate it will reduce European growth by at least 1 per cent this year, against just 0.4 per cent in the US.”
Reflecting this, the euro has slumped to about $1.05 at the time of writing and Mr Monier expects it to hit parity this year.
The second cause of dollar strength is China’s growth-sapping “zero-Covid” policy, with Lombard Odier data suggesting the country’s economic activity has now fallen by a quarter on pre-pandemic levels.
Again, its currency is bearing the brunt. The Chinese renminbi has fallen about 5 per cent this year, from 6.35 to 6.68 to the dollar at the time of writing. Mr Monier expects it to slide further to around 7 this year.
“China is the world’s second-biggest economy, worth 16 per cent of global gross domestic product, so this is a significant factor in current dollar strength,” he says.
The third and biggest dollar booster is the US Federal Reserve, which is tightening monetary policy in a belated bid to recover its lost credibility after spending most of last year wrongly claiming that inflation was “transitory”.
The Fed raised the federal funds rate to a range of 0.75 per cent to 1 per cent in early May, and is expected to push through another 0.5 per cent hike at its next meeting to curb US inflation, which hit 8.3 per cent in April.
Higher US interest rates will attract foreign investors seeking higher yields on their money, further boosting dollar demand.
The Fed is also shrinking its balance sheet by about $95 billion a month, draining markets of liquidity. Loose monetary policy has been propping up global markets for years, but now the tightening has begun.
Anticipating this, Lombard Odier started the year about 12 per cent overweight the US dollar in client portfolios, but is now taking profits, Mr Monier says.
“We are still overweight [for] the dollar, but only by around 3 per cent.”
Breakneck US dollar growth looks set to ease and it could be a good time for investors to embrace risk again, he says.
“The bad news is now mostly priced into markets following this year’s sell-off. While it is impossible to time the bottom of the market, this could be a good time to start buying shares again,” Mr Monier adds.
He favours buying US equities after recent dips, with a bias towards value and high-quality stocks in the energy, defence and healthcare sectors, as well as cyber security and climate change transition.
Mr Monier would also buy tech firms, but only companies generating strong, reliable cash flows today, rather than promises of higher returns somewhere down the line.
If sentiment recovers, so could the price of industrial metals such as nickel and copper, which are vital as the world electrifies to beat global warming, while commercial real estate offers attractive yields as a hedge against inflation, Mr Monier adds.
US government bonds also look tempting as yields rocket. Ten-year US Treasury notes now yield 2.89 per cent, up two thirds from 1.73 per cent at the start of April, as bond investors anticipate Fed hikes.
Mr Monier says he “has never seen them move so quickly in such a short period” and this should quickly tame inflation.
“The interest rate on a 30-year mortgage in the US has nearly doubled in a few months, from 3 per cent to 5.55 per cent. That leaves consumers with less money to spend on other things, hitting demand and slowing the economy.”
For the US dollar to weaken, three things must go into reverse, Mr Monier says.
“The Fed tightens less aggressively, the Ukraine conflict eases and China solves its Covid issues. Predicting the future is hard, but right now, none of these look likely.”
Investors need nerves of steel to buy right now ahead of a stock market bounce, says Chris Beauchamp, chief market analyst at online trading platform IG.
“Even today’s low stock valuations cannot tempt investors, a sign of just how much the macroeconomic outlook worries everyone right now,” he adds.
Other analysts are more optimistic. 2022 has been one of the worst years on record for share and bond investors, George Lagarias, chief economist at Mazars, says, but that could reverse over the next few months.
The Fed remains “inherently dovish” and has “merely adopted the role of the hawk temporarily to preserve its credibility and mandate as an inflation fighter”, he says.
“Incredible as it may sound today, investors should start positioning for another 180-degree turn within the next few months,” Mr Lagarias says.
As soon as growth falters and inflation begins to stabilise, the Fed will declare victory and revert to form, delivering the same “soothing dovish gospel” it has preached for the past 20 years, he adds.
“Markets are already pricing in more rate hikes than most Fed members for 2022, which implies that a reversal of policy could lead oversold markets to a significant rally,” according to Mr Lagarias.
Good news for stock markets could be bad news for the dollar, which will suffer if the Fed turns dovish and slows the pace of rate hikes. Few expect a crash, though. The dollar is just too strong for that.
Electric scooters: some rules to remember
- Riders must be 14-years-old or over
- Wear a protective helmet
- Park the electric scooter in designated parking lots (if any)
- Do not leave electric scooter in locations that obstruct traffic or pedestrians
- Solo riders only, no passengers allowed
- Do not drive outside designated lanes
Anghami
Started: December 2011
Co-founders: Elie Habib, Eddy Maroun
Based: Beirut and Dubai
Sector: Entertainment
Size: 85 employees
Stage: Series C
Investors: MEVP, du, Mobily, MBC, Samena Capital
Founders: Abdulmajeed Alsukhan, Turki Bin Zarah and Abdulmohsen Albabtain.
Based: Riyadh
Offices: UAE, Vietnam and Germany
Founded: September, 2020
Number of employees: 70
Sector: FinTech, online payment solutions
Funding to date: $116m in two funding rounds
Investors: Checkout.com, Impact46, Vision Ventures, Wealth Well, Seedra, Khwarizmi, Hala Ventures, Nama Ventures and family offices
Which products are to be taxed?
To be taxed:
Flavoured water, long-life fruit juice concentrates, pre-packaged sweetened coffee drinks fall under the ‘sweetened drink’ category
Not taxed
Freshly squeezed fruit juices, ground coffee beans, tea leaves and pre-prepared flavoured milkshakes do not come under the ‘sweetened drink’ band.
Products excluded from the ‘sweetened drink’ category would contain at least 75 per cent milk in a ready-to-drink form or as a milk substitute, baby formula, follow-up formula or baby food, beverages consumed for medicinal use and special dietary needs determined as per GCC Standardisation Organisation rules
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%3Cp%3E%3Cstrong%3EEngine%3A%20%3C%2Fstrong%3E2.0-litre%20four-cyl%20turbo%20%2B%20mild%20hybrid%0D%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E204hp%20at%205%2C800rpm%20%2B23hp%20hybrid%20boost%0D%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E320Nm%20at%201%2C800rpm%20%2B205Nm%20hybrid%20boost%0D%3Cbr%3E%3Cstrong%3ETransmission%3A%20%3C%2Fstrong%3E9-speed%20auto%0D%3Cbr%3E%3Cstrong%3EFuel%20consumption%3A%20%3C%2Fstrong%3E7.3L%2F100km%0D%3Cbr%3E%3Cstrong%3EOn%20sale%3A%20%3C%2Fstrong%3ENovember%2FDecember%0D%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh205%2C000%20(estimate)%3C%2Fp%3E%0A
What is the Supreme Petroleum Council?
The Abu Dhabi Supreme Petroleum Council was established in 1988 and is the highest governing body in Abu Dhabi’s oil and gas industry. The council formulates, oversees and executes the emirate’s petroleum-related policies. It also approves the allocation of capital spending across state-owned Adnoc’s upstream, downstream and midstream operations and functions as the company’s board of directors. The SPC’s mandate is also required for auctioning oil and gas concessions in Abu Dhabi and for awarding blocks to international oil companies. The council is chaired by Sheikh Khalifa, the President and Ruler of Abu Dhabi while Sheikh Mohamed bin Zayed, Abu Dhabi’s Crown Prince and Deputy Supreme Commander of the Armed Forces, is the vice chairman.
New UK refugee system
- A new “core protection” for refugees moving from permanent to a more basic, temporary protection
- Shortened leave to remain - refugees will receive 30 months instead of five years
- A longer path to settlement with no indefinite settled status until a refugee has spent 20 years in Britain
- To encourage refugees to integrate the government will encourage them to out of the core protection route wherever possible.
- Under core protection there will be no automatic right to family reunion
- Refugees will have a reduced right to public funds
Hydrogen: Market potential
Hydrogen has an estimated $11 trillion market potential, according to Bank of America Securities and is expected to generate $2.5tn in direct revenues and $11tn of indirect infrastructure by 2050 as its production increases six-fold.
"We believe we are reaching the point of harnessing the element that comprises 90 per cent of the universe, effectively and economically,” the bank said in a recent report.
Falling costs of renewable energy and electrolysers used in green hydrogen production is one of the main catalysts for the increasingly bullish sentiment over the element.
The cost of electrolysers used in green hydrogen production has halved over the last five years and will fall to 60 to 90 per cent by the end of the decade, acceding to Haim Israel, equity strategist at Merrill Lynch. A global focus on decarbonisation and sustainability is also a big driver in its development.
Barbie
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White hydrogen: Naturally occurring hydrogen
Chromite: Hard, metallic mineral containing iron oxide and chromium oxide
Ultramafic rocks: Dark-coloured rocks rich in magnesium or iron with very low silica content
Ophiolite: A section of the earth’s crust, which is oceanic in nature that has since been uplifted and exposed on land
Olivine: A commonly occurring magnesium iron silicate mineral that derives its name for its olive-green yellow-green colour
Milestones on the road to union
1970
October 26: Bahrain withdraws from a proposal to create a federation of nine with the seven Trucial States and Qatar.
December: Ahmed Al Suwaidi visits New York to discuss potential UN membership.
1971
March 1: Alex Douglas Hume, Conservative foreign secretary confirms that Britain will leave the Gulf and “strongly supports” the creation of a Union of Arab Emirates.
July 12: Historic meeting at which Sheikh Zayed and Sheikh Rashid make a binding agreement to create what will become the UAE.
July 18: It is announced that the UAE will be formed from six emirates, with a proposed constitution signed. RAK is not yet part of the agreement.
August 6: The fifth anniversary of Sheikh Zayed becoming Ruler of Abu Dhabi, with official celebrations deferred until later in the year.
August 15: Bahrain becomes independent.
September 3: Qatar becomes independent.
November 23-25: Meeting with Sheikh Zayed and Sheikh Rashid and senior British officials to fix December 2 as date of creation of the UAE.
November 29: At 5.30pm Iranian forces seize the Greater and Lesser Tunbs by force.
November 30: Despite a power sharing agreement, Tehran takes full control of Abu Musa.
November 31: UK officials visit all six participating Emirates to formally end the Trucial States treaties
December 2: 11am, Dubai. New Supreme Council formally elects Sheikh Zayed as President. Treaty of Friendship signed with the UK. 11.30am. Flag raising ceremony at Union House and Al Manhal Palace in Abu Dhabi witnessed by Sheikh Khalifa, then Crown Prince of Abu Dhabi.
December 6: Arab League formally admits the UAE. The first British Ambassador presents his credentials to Sheikh Zayed.
December 9: UAE joins the United Nations.
THREE
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Sui Dhaaga: Made in India
Director: Sharat Katariya
Starring: Varun Dhawan, Anushka Sharma, Raghubir Yadav
3.5/5
AWARDS
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Company Profile
Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
Funds raised: $22 million
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How to apply for a drone permit
- Individuals must register on UAE Drone app or website using their UAE Pass
- Add all their personal details, including name, nationality, passport number, Emiratis ID, email and phone number
- Upload the training certificate from a centre accredited by the GCAA
- Submit their request
What are the regulations?
- Fly it within visual line of sight
- Never over populated areas
- Ensure maximum flying height of 400 feet (122 metres) above ground level is not crossed
- Users must avoid flying over restricted areas listed on the UAE Drone app
- Only fly the drone during the day, and never at night
- Should have a live feed of the drone flight
- Drones must weigh 5 kg or less
