GLOBAL ASSET ALLOCATION | August 2019...caution over the weakening economy and soaring valuations. Exhibit 1: Major MSCI Indices Source: Bloomberg, Rebased as of 1st January 2019 EUROPE:

Monthly Report

GLOBAL ASSET ALLOCATION | August 2019

Contents Overview .................................................................................................................................................................................. 1

Macro Backdrop ...................................................................................................................................................................... 1

Asset Allocation Strategy ....................................................................................................................................................... 1

Equities

US equities: Time for caution ................................................................................................................................. 3

Europe: Bracing for prolonged lull ............................................................................................................................ 3

UK: New PM backs hard Brexit .............................................................................................................................. 3

EMs: Declining growth prospects .......................................................................................................................... 3

GCC: Geopolitical concerns rise ............................................................................................................................ 3

Fixed Income

Sovereign bonds remain resilient .......................................................................................................................... 4

Credit spreads further tightening........................................................................................................................... 4

EM bonds deliver stellar returns ............................................................................................................................ 4

GCC debt market upbeat ........................................................................................................................................ 4

Commodities

Oil prices to remain supported .............................................................................................................................. 5

Precious metals are in demand .............................................................................................................................. 5

Base metals under pressure .................................................................................................................................... 5

Currencies

USD surprisingly rebounds ..................................................................................................................................... 6

EUR fate lies on USD weakening ........................................................................................................................... 6

GBP remains on the backfoot ................................................................................................................................ 6

EMs: Recovery continue ......................................................................................................................................... 6

Charts ....................................................................................................................................................................................... 7

Tables ....................................................................................................................................................................................... 8

Glossary ................................................................................................................................................................................. 10

Monthly Report | 2019

GLOBAL ASSET ALLOCATION

Mashreq Private Banking Page | 1

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OVERVIEW Market sentiments buoyed during July as the world’s major central banks were seen shifting back to accommodative monetary policies to re-stimulate the economic growth. The global equity markets boosted, especially in developed economies, to new all-time highs while the fixed income yields also fell below the major central banks key interest rates. Investors’ quest for high income was reflected in increased inflows into emerging market debt, which offered higher real yields. On the growth front, the continued weakness in global manufacturing sector could lead to job cuts suggesting a possible economic downturn. This coupled with prolonged US-China trade friction, rising Brexit uncertainties and geopolitical tensions in the Middle East have prompted the International Monetary Fund (IMF) to revise its growth projections marginally downward to 3.2% for 2019. In our view, the US-China trade talks pushed back further to September could dampen business sentiments and may feed through the 3Q19 corporate earnings forecasts with downward revisions. As a result, it is possible that the Federal Reserve may take recourse to more expansive monetary policy, although at present it does not intend to prolong the rate cut cycle. The European Central Bank (ECB) has also hinted for a rate cut in September in addition to fresh stimulus measures. Accordingly, it would be advisable for investors to cautiously navigate through the challenging economic environment and rebalance investment portfolios by well diversifying the risk across asset classes.

MACRO BACKDROP The US real GDP growth for 2Q19 slowed to a 2.1% annualized pace, but exceeded

expectations of a 1.8% rise. Personal consumption surged 4.3%, the strongest since 4Q17 while net exports and inventories declined. Inflation rose with core CPI at 0.3%m/m in June, the largest since January 2018. Labour market also exhibited strength with nonfarm payrolls rising 224K following a weak reading of 72K in May.

The Eurozone’s manufacturing sector weakness showed no signs of abating as the PMI fell further in July to 46.1, the lowest reading since December 2012. GDP for 2Q also decelerated to 1.1%, despite the unemployment rate (7.5%) falling to historic lows.

The UK economy seems to hold up well with 0.3% growth in May despite mounting concerns around a no-deal Brexit. Wage growth accelerated to 3.6% in three months to May and inflation stayed contained at 2% in June, supporting solid gains in retail sales.

ASSET ALLOCATION STRATEGY The equity markets remained fairly stable in July. However, we believe the primary

source of risk to global equity markets now stems from slowing growth and prolonging US-China trade talks. These risks would be counterbalanced with major central banks across the world pledging some kind of monetary stimulus. We therefore maintain our outlook, Neutral with a Positive Tilt on US and GCC, and Neutral on Europe, UK and EM.

As the universe of sub-zero yielding sovereign bonds is on the rise mainly in the developed markets, expectations of liquidity from central banks should boost sentiments and increase appetite for riskier assets. We expect corporate bonds yield spreads to see further compression along with increased demand for EM debt, where major EM central banks are also set to ease monetary policies to support growth.

We believe that supply concerns would support oil prices as US oil production growth falters at a faster rate lately, OPEC+ maintains its production cut and central banks start stepping in to counter slowing global economy. Thus, we maintain a $65–75/bbl range for Brent oil prices as well as prefer gold as a safe-haven amidst rising geopolitical risk.

As long as major central banks are dovish, EM currencies remain favourable unless the US–China trade talks go astray. On the other hand, the USD is due for correction driven by monetary easing and as risk appetite improves. The EUR looks vulnerable to the prevailing ultra-low yields and deteriorating economic outlook. The GBP remains susceptible as the UK political environment is skewed towards hard Brexit.

Monthly Report – August 2019

ASSET CLASS VIEWS CHART


*▲ Positive, = Neutral, ▼ Cautious, =▲Neutral with a Positive Tilt, =▼ Neutral with a Negative Tilt #IG – Investment grade, HY – High yield; EMs – Emerging Markets

Asset Allocation

Strategic Tactical

Source: Mashreq Bank Source: Mashreq Bank

45%

30%

10%

15%

Equities Fixed Income Commodities Cash

45%

30%

15%

10%

Equities Fixed Income Commodities Cash

.Asset class Sub-class View* Rationale

Main Asset Classes

Equities = Global growth concerns, geopolitical proceedings weigh on global equities; easing of major monetary policies

Fixed Income = Easy major central banks policies to bode well for the fixed income markets, typically the EMs and corporate bonds in the US and Europe. However, increased leverage pose downside risk

Commodities =▲ Ongoing supply cuts and rising US-Iran tensions to balance the potential adverse impact on demand stemming from trade war. Gold to maintain its appeal due to rising geopolitical risk

Currencies = Fed rate cut to weigh on USD; EUR upside to remain capped by the dovish ECB; EM currencies to broadly firm up

Equities

US =▲ Fed rate cut, though may not assuage growth concerns; stable economy; Prolonging US-China trade talks

Europe ex-UK = Slowdown in major economies; Italy debt troubles; risks from China and Brexit

UK = No-Deal Brexit still possible; declining GBP provides some support to equities; fears of recession

EM ex-GCC = Geopolitical risks linger; Fed and ECB’s monetary policies key

GCC =▲ Structural reforms in major economies to drive markets; rising oil prices aid markets; geopolitical risks from US-Iran conflict

Fixed Income

US Treasuries = Firm macro-economic data is expected to push yields higher, but dovish Fed and trade talks to put downside pressure

Euro (Bunds) = Potential rate cut and additional measures of monetary stimulus from the ECB to support the negative trading German Bunds

UK Gilts = BOE to refrain from policy action due to Brexit uncertainty

US IG# ▲ Increase in liquidity on easing Fed policy and better-than-expected 2Q corporate earnings to fuel demand for credits

US HY# =▲ Easier Fed policy and better-than-expected earnings to fuel demand for credits; however high leverage pose default risk

Europe IG = Strong inflows and ECB stimulus to favour European credit; but rich valuations would limit gains

EMs# =▲ Dovish pivot of the Fed and ECB to be followed by the EM central banks; softening USD and geopolitical risks

Commodities Oil ▲

Ongoing supply cuts and rising US-Iran tensions to balance the potential adverse impact on demand stemming from trade war

Precious Metals ▲ Gold to remain favourable on rising geopolitical risk and slowdown concerns

Currencies

USD =▼ Fed rate cut, lower yields and suspension of debt ceiling to put pressure on USD

EUR = Weaker USD to benefit EUR, but the upside would be limited due to lower yields, weak growth prospects and a dovish ECB

GBP ▼ Brexit risk and low probability of rate hike

EMs# =▲ EMs likely to benefit from major central banks’ easing

Monthly Report | August 2019

EQUITIES


The equity markets remained fairly stable in July, with the MSCI World Index rising 1.3% (YTD: 17.1%), while the MSCI EM Index stayed flat (YTD: 9.2%). However, we believe the primary source of risk to global equity markets now stems from slowing growth and prolonging US-China trade talks. These risks would be counterbalanced with major central banks around the world pledging some kind of monetary stimulus. Therefore, we maintain our outlook, Neutral with a Positive Tilt on US and GCC, and Neutral on Europe, UK and EM.

US EQUITIES: TIME FOR CAUTION The S&P 500 neared its life-time high, supported by better-than-expected corporate earnings as well as 2Q19 GDP (2.1%). The US equities have been the best performing markets in the world in 2019, rising ~20% YTD (and 2.1% in July). While the 2Q corporate earnings overall have trended lower on growth, the tech sector has largely stayed strong, driving the markets. Recent economic data though presents a mixed bag, with ongoing manufacturing slump (July PMI: 50.0) and declining GDP growth amidst the satisfactory job market. The trade war has undoubtedly had a negative impact on the overall economy. While we maintain our earlier outlook (Neutral with a Positive Tilt), we advise caution over the weakening economy and soaring valuations.

Exhibit 1: Major MSCI Indices

Source: Bloomberg, Rebased as of 1st January 2019

EUROPE: BRACING FOR PROLONGED LULL The economic slowdown in Europe is poised to stretch for the foreseeable future as slowing global growth takes a toll on its export-oriented economies. The US–China trade war continues to be an over-arching threat, particularly impacting the manufacturing sector, as indicated by the German manufacturing PMI hitting a 7-year low. Meanwhile, Italy continues to be burdened by high debt, thereby threatening to adversely impact the financial sector in Europe, which holds majority of its sovereign debt. Given this backdrop, the ECB has signalled additional stimulus and possibly a rate cut to counter the slowdown. Overall, the markets performed marginally in July, with the STOXX 600 index rising 1.2%. We maintain our Neutral outlook on European equities amidst the economic gloom, as they provide better returns and trade at discount compared to the US peers.

UK: NEW PM BACKS HARD BREXIT Boris Johnson, the newly elected British Prime Minister, has vowed to exit Europe by October 31 at all costs. This now firmly entails the possibility of a no-deal Brexit as the new PM elect would find no different political footing to negotiate with the EU over the contentious issues, which caused earlier PM Theresa May to resign. An exit without any deal is widely considered to likely have adverse economic and political repercussions. Also, the already weakened UK economy, which grew paltry 0.3% for three months to May, could likely slip into recession as Brexit impact intensifies. The FTSE 100 has however remained steady, growing 11.3% YTD and 0.8% in July. Accordingly, we maintain our Neutral outlook on UK equities.

EMS: DECLINING GROWTH PROSPECTS Investors have been left searching for investment options in EMs, which have been riddled with slowing growth, trade impact and weakening economic and political fundamentals. China (MTD: -1.4%) recorded its worst quarterly growth in 27 years in 2Q19. India (MTD: -4.0%) saw huge outflows as markets fell on uncertainty over growth. Brazil (+1.7%) performed better as pension reforms cleared a key congressional hurdle. Mexico (-5.2%) tumbled as its finance minister resigned citing the inability to remain independent. Most central banks have been considering monetary and fiscal stimulus measures to counter the slowdown, with Turkey central bank going for massive 425 bps cut. Despite lack of catalysts, EM equities offer attractive valuations compared to global peers. Furthermore, rate cuts in the US and Europe could re-stimulate fund flows. As a result, we maintain our Neutral outlook.

GCC: GEOPOLITICAL CONCERNS RISE GCC region saw rising conflicts as Iran seized two British tankers, thereby escalating tensions with the US and the UK. These events had a negative impact on the markets, particularly Saudi, ending flat after giving up its monthly gains. Dubai (MTD: 7.2%) was buoyed as realty stocks gained. Kuwait (MTD: 5.2%) gained on the news of the MSCI EM Index inclusion in 2020. Overall, we maintain our outlook (Neutral with Positive Tilt) on GCC equities as we believe markets stand to gain from structural reforms being carried by major governments.

109

118

116115

9095

100105110115120125

Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19

MSCI World MSCI Emerging MarketMSCI US MSCI Europe


FIXED INCOME


As the universe of sub-zero yielding sovereign bonds is on the rise mainly in the developed markets, expectations of liquidity from central banks should boost sentiments and increase appetite for riskier assets. We expect the corporate bonds yield spreads especially that of investment grade to see further compression. Also, money is expected to heavily gravitate into emerging market debt as they look more appealing, offering higher real yields. Furthermore, major central banks of EMs are also easing their monetary policies to stimulate economic growth.

SOVEREIGN BONDS REMAIN RESILIENT The government debt across developed markets witnessed sustained demand during July, supported by growing fear of a slowing economy and hints of easing monetary policies. The 10-year Treasury yield continued to hover around the 2% level and the UK gilt yield touched the lowest level since the wake of Brexit in 2016. The German Bund yield fell below the ECB’s deposit rate of -0.40% before recovering to -0.35%. In the European peripheries, the French bond yield also turned negative while relatively risky Italian debt outpaced the Bund rally to narrow the yield spread to below 200bps.

We expect Treasury yields to climb north in the near-term as the Federal Reserve’s July ‘insurance rate cut’ of 25bps will prove as a buffer against external vulnerabilities. Otherwise, the US economy remains on a strong footing so far, growing at its long-term trend of around 2% in 2Q19 while beating consensus. Another upside risk is the suspension of debt ceiling through 2021, which could further push up the yields. Nevertheless, the upside will be capped by foreign demand, considering geopolitical uncertainties and prevailing macroeconomic environment. Meanwhile, the European Central Bank (ECB) also provided enhanced guidance for fresh stimulus in September to revive the economic growth in the region, which should favour German Bunds despite negative yields. Similarly, we expect UK Gilt yields to move sideways as we expect the BOE to maintain status quo on its interest rate amidst the growing risk of no-deal Brexit.

Exhibit 2: 10-year Benchmark Sovereign Yields

Sovereign Yield* 1M

(bps) 3M

(bps) YTD (bps)

YOY (bps)

US 2.07% 2 -43 -61 -91

UK 0.69% -14 -46 -59 -59

Germany -0.38% -7 -35 -62 -78

Japan -0.15% -1 -11 -15 -24

France -0.12% -14 -47 -83 -82

Source: Bloomberg, * 26th July 2019

CREDIT SPREADS FURTHER TIGHTENING Corporate bonds realised outsized gains last month, supported by the muted new supply, continued strong demand and expectations of global central bank easing. In the US, Investment Grade (IG) OAS and High Yield (HY) OAS contracted 9bps and 11bps to +108bps and +367bps, respectively.

Likewise, Eurozone IG and HY OAS narrowed 14bps and 4bps to +98bps and +330bps, respectively. Looking ahead, the second quarter corporate earnings are expected to provide a general lift to sentiments and the underlying interest rate cut should further encourage borrowings. We hold a Positive view on the US HY bonds expecting further compression in spreads mainly driven by increase in liquidity but are Neutral with a Positive Tilt on speculative bonds due to rising risk of default as the leverage continues to pile up. Meanwhile, the EUR credit spreads have more than halved this year and still have room for tightening with backing from the ECB’s QE reinvestment policy amidst the weak economic outlook.

EM BONDS DELIVER STELLAR RETURNS The depressed interest rates across developed markets and dovish rhetoric from the Fed and ECB continued to prop up EM asset prices during July. Amongst the EMs, the Turkish 10-year benchmark bond yield plummeted ~45bps to 15.96% amidst an aggressive 4.25% interest rate cut by the central bank. The Brazilian bond also outshined, with yield declining 45bps, mainly as investors found favour with the government’s plan to go ahead with the pension reform. The Indonesian bond yield tightened 23bps as the central bank kick-started its interest rate easing cycle. Likewise, Mexico, India and Russia bonds yields narrowed 25bps, 37bps and 21bps, respectively. Evidently, as a significant portion of the global debt market is trading at negative yields, which includes a larger chunk from developed markets, EMs remain a bright spot for investors searching for higher income. However, each country is dealing with unique set of problems and so Brazil, Mexico, Russia and India seem to be well positioned, as they offer higher real yields and expect further monetary easing which would stimulate economic growth.

GCC DEBT MARKET UPBEAT Despite geopolitical worries in the region, the GCC bonds saw accelerated demand through July as investors continued to chase higher returns in the low yield environment. Oman and Bahrain, which have the weakest finances in the region, saw the 10-year benchmark yields tightening 63bps and 84bps, respectively. Oman also received strong demand (4.5x) for its $3 billion bond sale in the international market despite its junk status.


COMMODITIES


With rising geopolitical tensions in the Middle East lending little support to oil prices, markets seem to be downplaying with supply side factors that were otherwise more influential in the past. However, we still believe that supply concerns would support oil prices as US oil production growth falters at a faster rate lately, OPEC+ maintains its production cut until March 2020 and central banks start stepping in to mitigate the risk posing to the global economy. Thus, we maintain a $65–75/bbl range for Brent oil prices. We prefer gold as a safe-haven asset amidst concerns over the geopolitical risk and the uncertain economic outlook. We see limited upside potential in base metals due to the ongoing slowdown in China and the weakening manufacturing activities in Europe.

OIL PRICES TO REMAIN SUPPORTED Oil prices were quite volatile in July due to various developments taking place in the month. The tension in the Middle East further ratcheted up with Iran and the UK heading towards collision over the seizure of each other’s oil tankers. In addition, the US claimed to have shot down the Iranian drone in the Strait of Hormuz. Yet, surprisingly, these developments had little impact on oil prices with both the benchmarks, Brent and WTI losing by about 4.2% and 5.4%, respectively, in July.

Exhibit 3: Brent and WTI Price Movement

Source: Bloomberg

Of course, we cannot deny that the tension alongside the decline in the US crude inventories for two consecutive weeks helped to curb oil prices from any sharp decline. However, this also implies that oil prices are now heavily influenced by demand concerns due to the ongoing slowdown in the global economic growth. While we acknowledge the slowdown, major central banks are prepared to ease their policies to support growth. In addition, supply side factors cannot be downplayed with production levels at risk in Libya, Venezuela and Iran. Moreover, US oil production growth has been slowing at a faster rate, especially in the Permian Basin. OPEC members are strongly committed to maintain oil prices at around $70/bbl and they have agreed to maintain the ongoing production cuts until March 2020. Hence, we expect oil prices to trade in the $65–75/bbl range.

Exhibit 4: Dwindling production in the Permian Basin

Source: Bloomberg

PRECIOUS METALS ARE IN DEMAND Major precious metals clocked gains in July, though the key winning metal was surprisingly platinum (+6.0%) which had long been underperforming its sister metal palladium. As palladium prices turned red hot following the sustained rally led by the shift in the auto industry due to tighter emission regulations, inventors were looking for platinum, which can be used as a substitute for palladium on a 1:1 ratio in gasoline cars. Palladium is used for lighter emission vehicles powered by petrol while platinum is majorly used in diesel-powered vehicles. Silver turned out to be another stellar performer. Gold prices continued to hold above $1,400/oz, supported by rising global economic uncertainty and geopolitical risk.

BASE METALS UNDER PRESSURE After experiencing some downturn in the past three months, copper and aluminium prices were eventually displaying some signs of recovery on expectations of a positive development over China–US trade talks and Chinese stimulus, which would remain the key driver going forward. Copper supply is also expected to be slightly tighter and the shutdown of the alumina refining capacity by 1.5 million tonnes annually in China could lend some support to the metal. Yet, the upside potential is limited as manufacturing activities in major economies have been deteriorating, adding worries to the global economic outlook.

55.69

63.82

45

50

55

60

65

70

75

Dec-18 Jan-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19

$/bb

l

WTI Brent

-10%

0%

10%

20%

30%

40%

50%

0

1

2

3

4

5

Jan-08 Dec-09 Nov-11 Oct-13 Sep-15 Aug-17 Jul-19

Oil prod. (MMbpd) Growth (y/y, RHS)


CURRENCIES


The USD appreciated against major G-10 currencies, yet lost its ground against EMs suggesting the growing appeal for regional assets as yields made record lows in the developed countries. As long as major central banks are dovish, EM currencies remain favourable unless the US–China trade talks go astray. On the other hand, the USD is due for correction driven by monetary easing and as risk appetite improves. The EUR looks vulnerable to the prevailing ultra-low yields and deteriorating economic outlook. The GBP remains susceptible as the UK political environment is skewed towards hard Brexit.

USD SURPRISINGLY REBOUNDS The USD turned out to be even stronger despite the rate cut by the Fed. The DXY index increased 2% to trade at around 98 levels as the EUR, which has a weightage of ~58% in the index, weakened materially against the USD. That said, the USD also largely advanced against other G-10 currencies. The US macro data flows had been still strong with retail sales, non-farm payrolls for June as well as 2Q19 GDP surprising on the upside. Key worries with the US are external factors, such as trade war, Brexit and geopolitical risk, which led the Fed to cut rate in July to protect from such downside risks. Consequently, markets are now repricing Fed’s monetary policy, which is less dovish than expected earlier with additional reinforcement of the view stemming from the passing of debt ceiling in the House. In addition, safe-haven bids continue to find USD-based assets, including treasuries, gold, etc., helping to uphold the greenback. Furthermore, it is important to look at the USD strength in relative terms as other major central banks are also on the easing mode. Otherwise, the USD has depreciated against major EM currencies in July. We believe that the Fed will become more dovish in future as trade talks look likely to drag until the US Presidential elections in 2020, which could eventually impact the US economy as well. Thus, we maintain our view of Neutral with a Negative Tilt on the USD.

Exhibit 5: G-10 Currencies (M/M Change)

Source: Bloomberg

EUR FATE LIES ON USD WEAKENING After registering some gains in June, the EUR again lost its ground as the economic outlook continued to deteriorate. The key forward-looking indicator, manufacturing PMI for July, contracted further to its lowest level in six and a half years, led by Germany that saw a seven-year low in factory activities. As a

result, the onus has again shifted on the ECB to deliver. The ECB has hinted for a rate cut alongside stimulus measures, most probably starting September. With negative yields already dominating in the region, investors continue to seek higher yields elsewhere, thus putting pressure on the EUR. While valuation of the EUR/USD pair looks quite attractive, only a weakening in the USD should benefit the EUR.

GBP REMAINS ON THE BACKFOOT The GBP continued to depreciate as the odds for no-deal Brexit rose with the change of leadership in the UK. The newly elected PM Boris Johnson has formed a new pack of cabinet members who are in favour of hard Brexit. The PM demanded removing the Irish backstop and asked the EU to change its stance. However, the EU outrightly rejected PM Johnson’s proposal, citing his speech to be rather ‘combative’. Boris Johnson is determined to exit the EU with or without a deal by 31st October and with such disappointing start of dealing with Brexit, the chances for leaving with a deal look quite remote. Hence, we maintain our Cautious view on the GBP.

Exhibit 6: EM Currencies vs. USD (M/M Change)

Source: Bloomberg

EMS: RECOVERY CONTINUE Most of the EM currencies continued to appreciate against the USD, benefitting from the dovish shift in the Fed and ECB. On the other hand, rate cuts by central banks in the EMs are favouring the regional currencies. The South African Rand (ZAR) led the pack, despite the country’s central bank reducing rate by 25bps in July. Likewise, Turkish Lira (TRY) reacted positively despite a sharp rate cut of 425bps amidst still high inflation. However, we see the ongoing support to Lira is a blip and would succumb to policy errors. The Brazilian Real (BRL) benefited from progress towards pension reforms.

2.4%2.2%

1.8%

1.4%

0.7%0.0%

0.0%-2.1%

-2.4%

-3% -2% -1% 0% 1% 2% 3%

USD/SEK

USD/NOK

USD/CHF

USD/JPY

USD/AUD

USD/NZD

USD/CAD

EUR/USD

GBP/USD

0.8%

0.0%

-0.4%

-0.6%

-0.9%

-1.8%

-2.2%

-3% -1% 1% 3%

USD/RUB

USD/CNY

USD/ZAR

USD/INR

USD/MXN

USD/BRL

USD/TRY


CHARTS


Exhibit 7: US-GDP Growth (q/q annualised) Exhibit 8: US-CPI and PPI (y/y change)

Source: Bloomberg, GDP- Gross Domestic Product Source: Bloomberg, CPI- Consumer Price Index, PPI- Producer Price Index

Exhibit 9: US-Unemployment Rate Exhibit 10: US-Avg. Hourly Earnings (y/y change)

s

Source: Bloomberg Source: Bloomberg

Exhibit 11: Euro zone-GDP growth (y/y change) Exhibit 12: Euro zone-CPI and PPI (y/y change)


Exhibit 13: UK-GDP growth (y/y change) Exhibit 14: UK-CPI and PPI (y/y change)


32.8

2.3 2.2

4.2

3.4

2.2

3.1

2.1

0.0

1.1

2.2

3.3

4.4

2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q 19 2Q 19

%

1.61.7

1.0

1.5

2.0

2.5

3.0

3.5

Jun-18 Sep-18 Dec-18 Mar-19 Jun-19

%

CPI PPI

4

3.9

3.8

3.7

3.8

3.7

3.9

4

3.8 3.8

3.6 3.6

3.7

3.5

3.7

3.8

4.0

4.1

Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19

%

3.1

2.7

2.9

3.1

3.3

3.5


%

2.5

2.82.7

2.4

2.2

1.6

1.2 1.21.1

1.0

1.5

2.0

2.5

3.0

2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19

%

1.11.6

0.0

1.5

3.0

4.5

6.0

Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19

%

CPI PPI

1.81.9

2

1.6

1.2

1.4

1.6

1.4

1.8

0.5

1.0

1.5

2.0

2.5

1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19

%

2

1.61.5

2.0

2.5

3.0

3.5


%

CPI PPI


TABLES


Key Forecasts

July 2019#

12-month forward estimates (Bloomberg)

Change

S&P 500 Index 3,026 3,247 ▲+7.30% Stoxx Europe 600 Index 391 420 ▲+7.61% FTSE 100 Index 7,549 8,147 ▲+7.91% 10-Year US Treasury (Yield) 2.07% 2.72% ▲+65bps 10-Year UK Gilt (Yield) 0.69% 1.21% ▲+52bps 10-Year German Bund (Yield) -0.38% -0.02% ▲+36bps Brent ($/bbl) 62.9 68.0 ▲+8.61% WTI ($/bbl) 56.2 61.0 ▲+8.54% Gold ($/oz) 1,419 1,410 ▼-0.63% Silver ($/kg) 16.4 16.3 ▼-0.91% GBP/EUR 1.1128 1.0786 ▼-3.07% GBP/USD 1.2384 1.2368 ▼-0.13% EUR/USD 1.1128 1.1466 ▲+3.04% USD/JPY 108.6800 105.7260 ▼-2.72% Source: Bloomberg * As of 26th July 2019

Upcoming Macroeconomic Indicators*

Date of Release

Country/ Region

Indicator Period Bloomberg Survey

Last Imp act

09-Aug-19 Japan GDP SA QoQ 2Q P -- 0.6% High

09-Aug-19 China CPI YoY Jul -- 2.7% High

09-Aug-19 United Kingdom GDP QoQ 2Q P -- 0.5% High

13-Aug-19 United States CPI YoY Jul -- 1.6% High

14-Aug-19 United Kingdom CPI YoY Jul -- 2.0% High

14-Aug-19 Eurozone GDP SA QoQ 2Q P -- -- High

19-Aug-19 Eurozone CPI Core YoY Jul F -- -- High

22-Aug-19 United States Markit US Manufacturing PMI

Aug P -- -- High

23-Aug-19 Japan Natl CPI YoY Jul -- 0.7% High

26-Aug-19 United States Durable Goods Orders Jul P -- -- High

29-Aug-19 United States GDP Annualized QoQ 2Q S -- 2.1% High

29-Aug-19 United States Core PCE QoQ 2Q S -- 1.8% High

30-Aug-19 Japan Retail Sales YoY Jul -- 0.5% Medium

30-Aug-19 Eurozone Unemployment Rate Jul -- -- High

31-Aug-19 China Manufacturing PMI Aug -- -- High Source: Bloomberg * As of 26th July 2019, Table covers select economic indicators, # F: First estimate, T: Third estimate

Economic Events*

Date Critical Events What to watch out for / Anticipated action

Estimated impact

9-Aug-19 Italy Sovereign Rating Fitch expected to affirm rating at ‘BBB’

Low

30-Aug/ 1-Sep-19 World Economic Forum- Global Shapers Annual Summit

- Low

Source: Bloomberg, *Table covers select economic events


TABLES


Global Equity Indices

Close# 1 Month

3 Month

YTD Y/Y 10-Year Avg. PE

BEst PE

S&P 500 Index 3,004 2.10% 2.65% 19.82% 5.54% 17.90x 18.08x Stoxx Europe 600 Index 390 1.21% -0.16% 15.36% 0.61% 20.66x 14.66x FTSE 100 Index 7,489 0.85% 0.74% 11.31% -2.21% 23.29x 12.94x Nikkei Index 21,757 2.26% -2.47% 8.70% -3.79% 20.33x 15.55x Shanghai Composite Index 2,937 -1.39% -5.97% 17.78% 1.16% 15.59x 11.45x BSE Sensex 37,831 -3.97% -2.32% 4.89% 2.64% 20.14x 19.12x Abu Dhabi Securities Market Index

5,388 8.2% -0.08% 9.62% 11.54% 13.72x 14.07x

Dubai Financial Market Index 2,851 7.2% 2.27% 12.69% -3.19% 20.74x 7.42x Egyptian Exchange 13,510 -4.2% -8.53% 3.64% -11.04% 49.27x 9.26x Tadawul All Share Index 8,819 0.0% -4.92% 12.68% 4.99% 17.18x 16.69x Source: Bloomberg * As of 26th July 2019

Corporate Credit Total Returns

Close# 1 Month 3 Month YTD Y/Y

US IG Corp 3,115 0.76% 4.16% 10.38% 10.11% US HY Corp 2,111 0.65% 1.73% 7.13% 10.54% EUR IG Corp 260 1.38% 2.72% 5.72% 6.75% EUR HY Corp 332 1.32% 2.17% 5.15% 8.85% USD EM Index 1,179 1.20% 4.36% 10.02% 10.26% USD UAE Liquid Index 113 -15.45% -12.38% -1.94% -31.37% Source: Bloomberg * As of 26th July 2019

Commodity Performance


Brent ($/bbl) 62.87 -4.19% -11.89% 18.24% -15.07% WTI ($/bbl) 56.20 -5.36% -11.22% 23.76% -19.26% Natural Gas ($/MMBtu) 2.26 -3.42% -13.41% -29.10% -18.57% Gold ($/oz) 1,418.90 0.70% 10.32% 10.64% 16.05% Silver ($/kg) 16.40 7.40% 8.71% 5.83% 6.62% Platinum ($/oz) 865.26 6.00% -3.76% 8.75% 4.89% Aluminium ($/ton) 1,777.25 -1.00% -2.51% -4.59% -13.26% Source: Bloomberg * As of 26th July 2019

G-10 Currencies Performance


EUR/USD 1.1128 -2.1% -0.2% -2.8% -4.4% USD/CHF 0.9932 1.8% -2.6% 0.9% -0.1% USD/JPY 108.680 1.4% -2.6% -1.4% -2.3% GBP/USD 1.2384 -2.4% -4.1% -2.5% -5.5% USD/AUD 1.4468 0.7% 1.8% 1.8% 6.7% USD/NZD 1.5069 0.0% 0.4% 1.0% 2.2% USD/CAD 1.3166 0.0% -2.1% -3.5% 0.7% USD/SEK 9.5023 2.4% 0.1% 5.6% 7.8% USD/NOK 8.7175 2.2% 0.4% 0.1% 6.4% Source: Bloomberg * As of 26th July 2019

Glossary

BEst: Bloomberg Estimated Ratio – Consensus estimates from various analysts contributing to Bloomberg;

Credit Spread: The difference in yield between two bonds of similar maturity;

DM: Developed Markets – Group of countries that are most developed in terms of their economy and capital markets;

EM: Emerging Markets – Group of countries that have some characteristics of developed market but do not meet the standards to be developed market;

Duration: A measure of price sensitivity related to an interest rate change;

DXY: Dollar Index – measures the value of USD relative to a basket of foreign currencies;

EPS: Earning Per Share – calculated by dividing the company's net income with its total number of outstanding shares;

FOMC: Federal Open Market Committee – US Fed’s committee which takes key decisions on interest rates and the US’ money supply growth;

HY: High Yield – High return bond with a low credit rating than IG bonds;

IG: Investment Grade – An IG bond has a relatively low risk of default, so low risk with low returns;

Maturity Date: The date on which principal amount of the bond will be paid to the investors;

PE Ratio: Price to Earnings Ratio – Measure of the company’s share price with respect to its EPS;

YTM: Yield to Maturity – The total interest rate earned by an investor, who buys and holds the bond until maturity;

YTW: Yield to Worst – The lowest potential yield that investor receives on a bond, that has callable, puttable, exchangeable, or any other features;

Sharpe Ratio: A measure of return earned in excess of the risk-free rate per unit of volatility;

GDP: Gross Domestic Product – The monetary value of all the finished goods and services produced within a country's borders in a specific time period;

IHS Markit Composite PMI: The Purchasing Managers’ Index (PMI) calculated by IHS Markit based on monthly surveys of carefully selected companies representing major and developing economies worldwide;

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GLOBAL ASSET ALLOCATION | August 2019...caution over the weakening economy and soaring valuations. Exhibit 1: Major MSCI Indices Source: Bloomberg, Rebased as of 1st January 2019 EUROPE:

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