Do You Believe In Magic?

Claudio_RanieriHH Sheikh Mohammed bin Rashid Al Maktoum has approved the construction of a 60k capacity sports arena in Al Aweer. The Mohammed bin Rashid Stadium, costing US$ 817 million, will be the world’s first fully air-conditioned and raised off the ground stadium, and will include conference halls and a sports museum.

CBRE’s latest report points to strengthening demand in the Dubai prime office sector as the supply pool continues to fall, with only 800k sq mt of new property expected to come to the market over the next three years. There has been a slight increase in quality office rentals to US$ 522 per sq mt, as vacancy rates continue to decline and demand points upwards.

Chesterton’s latest study indicates mixed Dubai real estate transactions, with residential up 11.0% to US$ 7.3 billion, whilst office deals were down 7.0% to US$ 211 million. Although rental rates remained flat, quarter on quarter, apartments still gave average 7.5% yields, with villas lower at 4.7%. The report also confirmed the available supply of Dubai residential units at 471k but also a move by a segment of the market to consider relocation to secondary cheaper markets.

Already with a 1.7k property portfolio, valued at US$ 490 million, Danube Properties has launched the US$ 82 million, 418-unit Glamz 1 Project in Al Furjan. The company expects a further two releases this year.

With its three theme parks opening in October, Meraas has launched the Outlet Village, encompassing 25k sq mt and 100 brands. The upscale outlet mall will be located adjacent to Dubai Parks and Resorts and be open for business by September.

It is no surprise to see that Lamborghini has opened its largest ever showroom and service centre in Dubai. Located on SZR, and featuring an external glass façade suspended by steel cables, the 30k sq ft outlet was designed by Uruguayan architect Carlos Ott.

DEWA announced that it has selected five bidders – Abu Dhabi’s Masdar, China’s Jinko Solar, France’s EDF, Japan’s Marubeni Corporation and Saudi’s Acwa Power – for phase 3 of its Sheikh Mohammed bin Rashid al Maktoum Solar Park. The 5k-megawatt solar park will be completed by 2030, with phase 3 adding 800 megawatts. It is reported that the lowest bid (unnamed) came in at US$ 2.99 kilowatt-hour (kWh).

Dubai Holding released plans of its proposed International Centre for 3D Printing in Dubai International City, as it bids to become the worldwide centre for 3D printing technology. Its aim is to provide a suitable infrastructure environment for all interested stakeholders, including innovators, designers, suppliers and educators, to serve a myriad of sectors, such as medical, construction and consumer products.

The DED has confirmed that no government entity is empowered to take action against anyone making negative comments about the local economic situation and also rejected rumours that the public could be fined for expressing their opinions. However, the Department did warn the public “not to pay attention to unconfirmed reports and hearsay”.

Although still well in positive territory, April’s UAE Purchasing Managers’ Index (PMI), at 52.8, continues to weaken from the previous month’s level of 54.5. Although the main cause was a marked slowdown in employment, output, new orders and input stocks all headed south.

After failing to pay a US$ 35 million fine to a group of Kuwaiti investors, for mis-selling financial products, the DIFC-based Bank Sarasin Alpen (ME) will face a non-voluntary winding-up brought by its creditors. The liquidation order is not subject to appeal and ends a six-year legal battle.

Despite weak market sentiments, Emaar Properties posted a 17.5% hike in Q1 profit to US$ 330 million, on revenue of US$ 962 million, as property sales jumped 70.0% to US$ 1.1 billion. The main revenue drivers were the property unit – up 22.0% to US$ 537 million – and hospitality at US$ 197 million.

As Q1 trading activity improved, with trades up 7.7% to US$ 11.1 billion, the Dubai Financial Market posted a 27.0% hike in Q1 profits to US$ 23 million.

The DFM opened on Sunday at 3492 and lost 5.3% – or 184 points – to close the shortened week on 3308 by Wednesday (04 May 2016). Bellwether stocks, Emaar Properties and Arabtec, lost ground falling US$ 0.13 to US$ 1.71, and US$ 0.04 to US$ 0.40. The index fell 1.4% in the month from its opening April mark of 3356 but was still 5.0% up YTD from its January start of 3151.Trading volumes were marginally higher on Wednesday at 433 million shares, valued at US$ 137 million, changing hands, (cf 304 million shares for US$ 131 million, the previous Thursday).

Brent crude slipped this week – down 3.7% (US$ 1.71) to US$ 44.32 – whilst gold rose US$ 5 to US$ 1,272 by the Thursday (05 May) close. Brent has confounded most analysts in 2016 – it has risen YTD by 30.8% from US$ 36.40 to US$ 47.30 by 30 April and 26.1% from US$ 37.52 for April. In the first four months of the year, gold has jumped 22.4% from US$ 1,060 to US$ 1,297 and in April nudged US$ 55 (4.4%) higher from its month starting position of US$ 1,242.

After announcing a 54.0% fall in Q1 underlying profits to US$ 1.6 billion, and net profits by 89.0% to US$ 484 million, Shell has cut its capital investment programme by US$ 3 billion to US$ 30 billion. The oil giant is also closing three UK offices, with 1.6k staff, in a bid to further slash its costs.

Having agreed in March with Brazilian authorities to a US$ 2.3 billion settlement in relation to the Samarco mine disaster, it now seems likely that Australia’s BHP Billiton, with its JV partner, Vale, will face further federal proceedings for a massive US$ 43 billion. No wonder then that their shares tanked by 9.4% to US$ 14.10, with US$ 4.3 billion being wiped off its market value.

Based on claims that its talc-powder products could have caused ovarian cancer, Johnson & Johnson has lost two US cases this year and ordered to pay US$ 72 million and US$ 96 million in compensation. It is reported that the company could be facing a further 1.2k lawsuits.

As its parent company, BMW, reported record sales of 558k vehicles, Rolls Royce disappointed the market with only 551 vehicles handed over in Q1 – down 29.4%. Fortunately for the German carmaker, its total revenue was only 0.3% marginally down to US$ 24.2 billion, as EBIT fell 2.5% to US$ 2.8 billion.

US vehicle sales soared to US$ 36.9 billion on 1.5 million vehicles in April, with all major carmakers, excluding GM, Hyundai and VW, posting improving results. Honda recorded a 14.4% sales increase followed by the likes of Nissan – 12.8% – Fiat Chrysler, 6.0%, Ford, 4.0%, and Toyota, 3.8%.

It is reported that the Saudi Binladin Group, with bank debts of US$ 30 billion, will lay off 77k foreign workers, as well as 12k Saudi staff – an indicator of the problems facing the Saudi construction sector, as well as the national economy, with the government trying to reduce its budget deficit that reached US$ 100 billion last year.

Australian banks are posting mixed returns. Westpac saw a 3.3% hike in cash profits to US$ 2.9 billion, on the back of rises in both business and home loans, although it set aside a further US$ 190 million for bad loans. ANZ has seen half year cash profits slump 24.3% to US$ 2.1 billion, as bad loans’ provisions increased. The country’s leading lender, National Australia Bank, recorded a 6.5% rise in half-year cash profits to US$ 2.5 billion, with a double-digit growth in its wealth business sector, although bad loans increased.

After the sale of its 47.4% stake in the Chinese online car sales company, Autohome, Telstra is planning to pay back more than US$ 1.1 billion to its shareholders.

In line with most financial institutions, Europe’s biggest lender, HSBC, has blamed tough market conditions and volatility for its 14.0% decrease in Q1 pre-tax profits to US$ 6.1 billion, as its revenue stream dropped 4% to US$ 13.9 billion. As with other major banks, HSBC has yet to finalise past misdemeanours including PPI misspelling and other legacy issues.

Because of a US$ 1.7 billion government payment to cancel its Dividend Access Share, RBS, 73% owned by the UK taxpayer, posted a US$ 1.4 billion Q1 loss; this was more than double the US$ 660 million deficit recorded in the same 2015 period. Since its 2008 US$ 65 billion bailout, the bank has recorded 8 straight years of losses, including a US$ 2.9 billion shortfall in 2015.

The three April Markit/CIPS UK PMIs indicate that all is not well with the UK economy. The manufacturing index was at its weakest in three years, sinking below the 50-mark threshold – an indicator of contraction and falling output. The sector has seen over 20k jobs lost in Q1, as new orders and manufacturing exports continued their downward trend whilst the UK economy recorded a slowdown in growth to just 0.4% over the past quarter.

There is no doubt that the upcoming Brexit vote is having a negative impact on UK business confidence. The latest PMI for the service sector shows a reading of 52.3 (53.7 last month) – its lowest in over three years, as the pace of employment was at its slowest since August 2013. Meanwhile the manufacturing index reported its steepest decline since 2013.

With its quarterly CPI dropping a further 0.2%, it was no surprise to see the RBA cutting its cash rate by 0.25% to a record low 1.75% in a move to push inflation rate to its target of 2% – 3%. The Australian economy is struggling with a sluggish global economy that is impacting on its commodity sector, and continuing subdued growth in labour costs. Whether this marginal change in monetary policy, after a 12-month hiatus, comes too late or is sufficient to boost the economy remains to be seen; rarely will low interest rates be a panacea for solving low inflation.

This week’s budget saw a lifeline thrown to Australian SMEs, in the form of a 2.5% cut in tax to 27.5% for 870k companies. The US$ 4.0 billion tax break over four years will be offset by a crackdown on tax dodgers; bigger companies – with a turnover of US$ 8 million – will have to wait a further six years to reap the full benefits of a tax reduction. The government coffers have been hit by the energy sector’s downturn and subsequent lower tax receipts.

To make up for some of the loss in tax revenue, there will be an increased penalty from 30% to 40% for companies caught contravening tax regulations through moving Australian-sourced profits offshore. The ATO will recruit 1k tax specialists to target suspected corporate and individual dodgers. Treasurer Morrison has to start to rein in the ballooning US$ 28 billion national deficit.

With US on-going intransigence, it seems that the Transatlantic Trade and Investment Partnership with the EU may collapse. The French are concerned that its agricultural sector would suffer if no changes were made to the trade deal, whilst a Greenpeace leak also indicates that EU public health standards would be undermined to the bloc’s detriment. The TTIP has also been criticised because of its bias to bigger business and weaker regulation requirements. According to a recent study, the EU could benefit by US$ 137 billion and the US by US$ 109 billion, if all 28 EU countries accepted the wide-ranging agreement.

The big news of the week was Leicester winning the EPL championship under Italian manager, Claudio Ranieri, who has been in that position for only 294 days – the shortest time ever for a manager being appointed and winning the English title. The team won by dint of current champions Chelsea drawing with Tottenham thanks to a late goal by Eden Hazard, whose transfer fee was US$ 44 million. In comparison, the cost of the usual 11 Leicester players was a paltry US$ 35 million. With 5,000 – 1 odds at the beginning of the season to win the title, under a 64-year old manager that had never won any, Do You Believe In Magic?

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