The Winter of Discontent

The Winter of Discontent!                                           26 August 2022

.No figures were available for property statistics for the week ending 26 August.

Recording 7.1k sales transactions, at a value of US$ 5.7 billion, Dubai’s property sector witnessed its best ever July returns, and up 63.5%, compared to a year earlier; sales transaction values were 88.4% higher, on an annual basis. Property Finder noted that sales volumes and values were also up 41.2% and 58.3%, respectively, in comparison with July 2013, when they peaked. The consultancy also noted that the July split between secondary/ready property and off-plan properties was 59:41, with the latter totalling 2.9k transactions, equating to an annual increase of 67% (volumes) and 81% (value).

Knight Frank has indicated that Palm Jumeirah villa prices have skyrocketed – up 51% in the past twelve months, and 68% since the onset of the pandemic. According to Luxhabitat Sotheby’s, the prices of the top ten residential sales in Q2 ranged from US$ 20 million to US$ 35 million. The top five sales were found in Dubai Hills Grove, Palm Jumeirah Frond G. MBR City District One, Umm Suqeim 3 Marsa Al Arab and Emirates Hills, Sector L  – at prices of US$ 35 million, US$ 34 million, US$ 30 million, US$ 29 million and US$ 28 million. Four of the top ten prices were located in Palm Jumeirah.

One of the highest-priced property sales saw US$ 44 million being spent on the largest penthouse at Atlantis The Royal Residences on The Palm Jumeirah. Encompassing 25k sq ft, the five-bedroom property includes a sky garden, two private pools and terraces, a private lift and floor-to-ceiling windows with 360-degree views of the city and the Arabian Gulf. The penthouse is located on floors 35, 36 and 37 of the residential towers, with an additional mezzanine level on 37. The only Dubai apartment and penthouse currently listed at a higher price is AVA at Palm Jumeirah by Omniyat, at US$ 68 million.

Some eighteen years since land was recovered to establish Deira Islands, Nakheel has unveiled a new upscale plan for what is now known as Dubai Islands, in line with the Dubai 2040 Urban Master Plan. It will comprise five, interconnected, (but with their own different features), islands with a total area of 17k sq mt, all of which have recreational sport beaches and beach clubs, with easy access to the city and airport. Combined, the islands will add a further 20 km of beachfront – and 2 sq km of parks and open spaces including golf courses – and will include over eighty resorts and hotels, including luxury and wellness resorts, The development will also boast a well-connected network of marina promenades and pathways for water and road transportation, walking and biking support.

Emirates announced that Emirates will restore its non-stop A380 services to and from Auckland and Kuala Lumpur, starting from 01 December; the routes are currently served by Boeing 777-300s, with the New Zealand flight having a stop at KL. Emirates’ direct flight EK448 from Dubai to Auckland will take almost seventeen hours and will be the longest pf EK’s routes, at 14.2k km.

Senior management of Damac Group are “on a fact-finding mission in Germany to research the market and possibly identify “mutually beneficial partners” and exploring data centre and technology-related investment opportunities worth US$ 1 billion. Last year, the Dubai-based developer had launched Edgnex, a global digital infrastructure provider that identifies and invests in the next digital hubs. Its chairman, Hussain Sajwani, noted that “the country has a lot of opportunities in sectors such as data centres”, and that he sees “a lot of opportunity and potential, especially in eastern Germany”.

Dubai Business Events has confirmed that the emirate continues to consolidate its position as a leading destination for international business events, reporting that, in H1, it had registered ninety-nine successful bids to host major conferences, congresses, incentive travel programmes and other meetings over the coming years. These events are set to attract more than 77k delegates and yield over 330k hotel room nights with the aims of boosting Dubai’s events, hospitality and related tourism sectors, in addition to advancing the broader economy by bringing in global expertise and knowledge. It is estimated that of the two hundred bids and proposals for international business events submitted in H1, there are several bids yet to be decided but some of those that have been won include the International Congress of the World Confederation for Physical Therapy (2023), IFOS ENT World Congress (2023), Congress of the Asia Pacific Orthopaedic Association (2024) and International Congress of Endocrinology (2024). On top of this, key corporate events and incentive travel programmes to be held in Dubai include Sun Pharmaceuticals Industries’ Annual Convention and Incentive (2022) and IBM Best in Tech (2023).

Majid Al Futtaim Holding posted an 18% hike in H1 earnings, driven by a marked improvement in retail and leisure sectors. MAF recorded EBITDA at US$ 518 billion, as revenue climbed 15% to U$ 4.90 billion, attributable to strong operational performance, diversification efforts and cost efficiencies. Revenue at the company’s properties business jumped 51% to US$ 654 million, while Ebitda increased 27% to US$ 381 million. In H1, there were increases across the board including:

  • shopping mall tenant sales by 21%, while footfall increased 20% to 100 million visitors
  • hotel portfolio’s revenue grew to US$ 91 million, with Revenue Per Available Room and average occupancy rates climbing 142% and 43%, respectively
  • retail business revenue increased 9% to US$ 3.92 billion and EBITDA was 9% higher at US$ 154 million, along with the opening of eighteen new stores
  • leisure, entertainment and cinemas arm’s revenue rose 56% to US$ 154 million, with cinema admissions increasing by 60% to 8.8 million
  • lifestyle arm reported a 42% revenue increase to US$ 98 million

The privately held conglomerate, and the region’s largest mall operator, noted that the retail industry that had been battered by the impact of Covid, along with enforced lockdowns, but had bounced back strongly in 2021, and maintained the growth momentum into this year. 2022 statistics point to this, with the country’s economy growing 8.2% in Q1, and is set to post its strongest annual expansion since 2011 on the back of higher oil prices and the fact that UAE consumer spending increased 22% in H1 –  and this despite the double whammy of soaring inflation and rising fuel costs.          

The RTA has announced that last year, it achieved a 13% decrease in total emissions, and a 10% decrease in energy costs, as it recorded an 18% reduction in the total energy consumption of its operations and projects, compared to the average consumption in the years from 2016 to 2019. Its chairman, Mattar Al Tayer, noted that the Authority had a roadmap, aiming to achieve zero-emission public transport in Dubai by 2050. Over the year, gasoline consumption decreased by 36%, over the four-year period, because of the expansion of the Dubai Taxi Corporation, in the use of hybrid taxis, as well as a 15% decrease in diesel consumption during the same period, despite the increase in the fleet of public transport buses. Because of the introduction of the 15 km route 2020 of the Dubai Metro, and its seven stations, electricity consumption was 11% higher.  With it implementing thirty-six energy and green economy initiatives, there was a financial saving of US$ 23 million, along with other savings of 68 million kW hours in electricity consumption, 55 million gallons of water, 21 million litres of gasoline, and 1.8 million litres of diesel. It is estimated that the initiatives also contributed to avoiding emissions of nearly 86 tonnes of carbon dioxide equivalent and diverting nearly 450k tonnes of waste from landfill.

HH Sheikh Mohammed bin Rashid al Maktoum has issued a law which affiliates Dubai Media Incorporated to Dubai Media Council. Furthermore. HH. Sheikh Hasher bin Maktoum Al Maktoum has been appointed as Chairman of DMI, while Mohammed Al Mulla serving as its CEO. Sheikh Ahmed bin Mohammed, Chairman of the Dubai Media Council, said the new law reflects the importance Mohammed bin Rashid accords to media and is in line with HH’s directives to develop media establishments to keep pace with the emirate’s growing global prominence in the sector.

It is reported that the total H1 premiums of twenty-eight insurance companies listed on the two local bourses increased by 7.64%, year-on-year, to US$ 4.27 billion, as their combined net profits totalled US$ 223 million. Of that total, the thirteen companies listed on the DFM accounted for 56.1% of the total premiums of insurance companies, valued at US$ 2.40 billion, while the remaining fifteen companies listed on the ADX accounted for 43.9% or US$ 1.88 billion. The Dubai-listed insurance companies accounted for 56.4% of the total assets, valued at US$ 17.65 billion, equating to US$ 9.95 billion, with the ADX firms accounting for the balance of US$ 7.70 billion; total assets increased by US$ 798 million, (4.7%), over the six-month period.

A report by Alvarez & Marsal indicated that the top ten banks in the country reported a 24% Q2 increase in aggregate net profit, to US$ 3.43 billion, driven by total net interest income 19.5% higher on the quarter. Four of the banks – Emirates NBD, DIB, Mashreq and CBD – are Dubai-based. With the UAE banking sector’s aggregate net interest margin improving to 2.3%, and by 26.1bp, it is still 2.6% lower of its pre-pandemic mark.  Over Q2, there were increases in both aggregate loans/advances and deposits by 1.8% and 4.5% respectively.

The professional services consultancy was also bullish on the future, noting that “the regional banking sector is expected to report continued strong profitability on the back of increasing interest rates, improving credit quality and robust economic growth.” Although global inflation is a potential threat to further growth, it will probably have a lesser effect for the UAE because of robust oil prices, hovering around the US$ 100 level, (with some analysts forecasting it to go 25% higher in the coming months), increased consumer confidence and strong economic activity. Another bonus for the lenders is that rising interest rates will fill their coffers even further – next month, it is a shoo-in that the Fed will increase rates by at least 0.50%, after the 0 75bp jump in July, with any US move mirrored by the Central Bank of UAE.

Dubai Investments, with over 19.8k shareholders and a capital base of US$ 1.09 billion, posted a H1 20.5% rise in net profits to US$ 99 million, compared to a year earlier, driven by the continued strong performance of the group’s manufacturing, contracting and services segment. With total equity 1.0% higher at US$ 3.30 billion, the group’s total assets remained stable at US$ 5.99 billion. It will wait until Q3 when it will recognise the resultant gain on disposal and fair valuation gain on retained interest amounting to US$ 267 million.

The DFM opened on Monday, 22 August, 103 points (3.1%) higher on the previous three weeks and closed, up 43 points (1.3%), on Friday 26 August, at 3,463. Emaar Properties, US$ 0.14 higher the previous fortnight, was up US$ 0.05 to close the week on US$ 1.66. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.70, US$ 3.72, US$ 1.61 and US$ 0.49 and closed on US$ 0.71, US$ 3.74, US$ 1.62 and US$ 0.50. On 26 August, trading was at 138 million shares, with a value of US$ 100 million, compared to 81 million shares, with a value of US$ 22 million, on 19 August 2022.  

By Friday 26 August 2022, Brent, US$ 2.21 (2.3%) lower the previous week, gained US$ 5.04 (5.3%) to close on US$ 100.80. Gold, US$ 59 (3.2%) lower the previous week, shed US$ 59 (0.5%), to close Friday 26 August, on US$ 1,751.

Brent, the global benchmark for 67% of the world’s oil, was trading at $100.80 a barrel at close of today’s trading. At the onset of the Russian invasion of Ukraine in March, prices went as high as US$ 140 because Russia is the second energy exporter in the world and was the leading supplier to European countries. There are three main reasons why prices have dipped, despite the continuance of hostilities in the Ukraine: they are the regulated output strategy managed by OPEC, spare capacity is below 2 million bpd, and oil inventories standing at a multiyear low. However, fundamentals also point in the other direction, based on the possibility of Iran returning to the global marke..

2022 has been a year that Bitcoin, and its peers, will want to forget after a battering brought on by rising US rates and soaring inflation – not the best scenario for so-called risky assets. The marquee cryptocurrency is down 50% YTD and has fallen for a fifth day in the past six trading sessions, closing the week at US$ 20,211

Blaming its recent poor financial performance, Twitter has warned its employees, by email, that they may only receive half of their annual bonuses because the bonus pool is only at 50% of what it could be if the company had met its financial targets. Its latest Q2 figures saw the micro-blogging website post a US$ 270 million loss, (compared to a US$ 66 million profit a year earlier), as revenue dipped a marginal 1.0% on the year to US$ 1.18 billion. A revenue split sees advertising, 2.0% higher, contributing 92% of the total, whilst revenue from subscriptions and other streams tanked 27% yearly to US$ 101 million. Twitter posted that the revenue fall reflected “advertising industry headwinds associated with the macro-environment as well as uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk”. It is also considering a reduction in its physical office space globally, including in San Francisco, New York and Sydney, as it focuses on remote work to cut operational costs. It is also reported that the company is looking at closing various offices once leases expire, including those in Seoul, Wellington, Osaka, Madrid, Hamburg, and Utrecht, as well as reducing office space in other sites including Tokyo, Mumbai, New Delhi, and Dublin.

Ford Motor Co announced that its was making 3k white collar jobs redundant in line with its strategy to cut costs, as it makes the transition from internal combustion to electric vehicles; the total would comprise 2k full-time salaried and 1k contract salaried workers, equivalent to about 6% of the 31k  full-time salaried work force in the US and Canada. Ford’s 56k union factory workers are not affected. Some workers will also lose jobs in India. The company has already restructured in Europe, Asia and India. This week, the carmaker announced that it would appeal a US$ 1.7 billion verdict against the automaker after a 2002 Ford F-250. pickup truck crash that claimed the lives of a Georgia couple, in 2014.

Toyota is taking a gamble that will see it restart its strategy that the Indian driver will start to accept hybrid vehicles as long as the price is right. Since entering the market in 2013, the Japanese conglomerate – in line with other international car manufacturers – has struggled to sell large numbers of its hybrid Camry sedan. With a price tag, equating to eight times the annual income of a middle-class family, it has failed to sell large numbers of its hybrid Camry sedan. Having learned an expensive lesson, it will bet that lower cost hybrids will be well received by Indian consumers by cutting costs across the board, including making many parts in India, (rather than importing them), where the car maker’s factories are running well below capacity, and to source key materials within the country. Unlike other countries where the trend is to go all electric, (in line with VW, GM and Tata in India), Toyota will focus on a mild hybrid alternative which have smaller batteries and are cheaper to produce. Its first entrée will be the Urban Cruiser Hyryder, a compact sports utility, priced at about US$ 25k — less than half the price of the Camry. A major drag factor affecting the Hyryder’s price is taxation, with levies of 43% on hybrids — on par with petrol or diesel SUVs – and far higher than the 5% tax on EVs.

The former F1 supremo, Bernie Eccleston, has been charges with fraud by false representation for failing to declare a trust in Singapore, with a bank account containing over US$ 600 million – a charge that the nonagenarian has denied. HM Revenue and Customs brought the charges after a “complex and worldwide” probe between July 2013 and October 2016.The court heard that he claimed that he disclosed “only a single trust” to tax authorities, one in favour of his daughters. Eccleston was granted unconditional bail ahead of his next appearance next month.

There was a shock that Malaysia’s former Prime Minister, 69-year-old Najib Razak lost his appeal, after he was convicted in July 2020 for his involvement in a corruption scandal involving state-owned wealth fund 1Malaysia Development Berhad (1MDB). After two years out on bail, he has been sentenced to twelve years in jail – and his request that the sentence be delayed was rejected by the country’s highest court. In the original trial, he was found guilty

on seven counts – centred on a total of over US$ 9 million which was transferred from SRC International – a former unit of 1MDB – into his private accounts.

Saying the airline is “working hard” to remove the traffic bottlenecks, and that “on behalf of the national carrier, I want to apologise and assure you that we’re working hard to get back to our best,” Qantas chief executive Alan Joyce has apologised to the airline’s customers. Since April, the carrier, which has recorded a 50% jump in sick leave, has hired 1.5k more people to “have more crew in reserve” to deal with this problem. Paying passengers have been increasingly concerned that cancelled flights, hour long queues and lost baggage; Qantas has even requested senior executives to help out with baggage handling for three months to support airport operations. There is no doubt that Australia’s ‘Flying Kangaroo’ has been badly hit hard by a labour shortage. Like many other national airlines, Qantas had to lay off many staff at the onset of the pandemic, with many of them moving to different jobs, with more flexible work options. Now the conundrum is that with international travel having more than tripled in June, on the year, it is being hampered by a shortage of staff in the various sectors of the industry which will continue to be a major disrupter.

Australian airports are not the only ones in the world that can be impacted by staff calling  in sick; this week, twenty-six  EasyJet flights in and out of Gatwick have been cancelled at short notice, with the airport blaming staff sickness, specifically in its air traffic control tower. Over the summer, thousands of UK travellers have been hit by flight cancellations and airport delays this summer, with the main driver being down to staff shortages. The Office for National Statistics recorded that around a  third of people have experienced disruption, while travelling abroad over the past eight weeks, and that out of those, four in five said their flights had been delayed or that they had faced longer waiting times on planes, while one in four reported flight cancellations.

It will be a turbulent year for cotton, with crops in several producing countries being badly impacted by the extreme weather conditions. India, the world’s leading producer, has been bedevilled by heavy rains and pests damaging crops so much that it has had to resort to importing supplies. In contrast, the world’s second largest producer, USA, will see its cotton production tanking to its lowest level in over a decade because of the worsening drought in the country. Both China and Brazil, the world’s two leading exporters accounting for 50% of global production, are facing heatwave conditions and droughts that could lead to yields slowing by 30%. Another factor to note is that unseasonal rains in regions, including Australia, Pakistan and even Brazil, have also diminished the quality of the stock. Furthermore, demand may be impacted by slowing economies and a decline in clothing purchases. Earlier in the year, cotton prices reached their highest level since 2011 and there is every chance that these March prices could be superseded as cotton supplies are cut.

To add to their economic woes, large parts of China are facing a severe drought amid a record-breaking heatwave, with authorities issuing its first national drought alert of the year in many locations such as Shanghai in the Yangtze Delta region and Sichuan in SW China experiencing weeks of extreme heat. Several international companies have been affected, including Volkswagen, Toyota and Foxconn, with the German carmaker noting that its factory in Chengdu remains shut, and that it expects “a slight delay” in deliveries that it could recover “in the near future”. The Japanese manufacturer commented that it was gradually resuming production in Sichuan “utilising in-house power generation”. Meanwhile, the Apple supplier, which also shut its plant in Sichuan, confirmed the impact on its production was currently “not significant”.

Although it appears that Russia may be losing the war in the Ukraine, it is doing better on the economic battlefields of Europe. At the beginning of the crisis, in late February, the EU introduced various sanctions, including:

  • a ban on transactions with the Russian Central Bank
  • a ban on the overflight of EU airspace by Russian carriers of all kinds
  • a ban on imports of iron and steel products currently under EU safeguard measures
  • a list of 680 individuals and 55 entities of sanctions persons and 53 entities
  • excluding key Russian banks from the SWIFT system
  • prohibiting investing in projects co-financed by the Russian Direct Investment Fund
  • prohibiting the provision of euro-denominated banknotes in Russia
  • prohibiting certain state-owned media
  • prohibiting the export of luxury goods

In the first two months of the war, it is estimated that Germany paid as much as US$ 9 billion for Russian energy supplies, as In April, Germany imported more than half of its natural gas, this side of 50% of its coal and a third of oil used in homes, from Russia.  On top of that, EU nations have spent about US$ 51 billion for Russian energy and have only given US$ 21 billion to Ukraine for its defence against the Russian invasion. In the first one hundred days of the war, the CREA estimated that Russia earned over US$ 100 billion, from fossil fuel exports, with the EU making up 61% of that balance. This windfall is paying for the war, with Russia ‘s daily spend evaluated at US$ 876 million.

Prior to the invasion, the rouble was trading at 0.13 to the greenback but had halved to 0.0072 by 07 March and was trading, a lot higher, at 0.017 on 22 August. On the same dates, the euro was at 1.13, 1.09 and 0.99. It is easy to see that the rouble has fared better than the euro over the period. In the twelve months to July, EU inflation more than quadrupled from 2.2% to 8.9%, whilst Russia saw comparative figures at 8.4% and 15.1% – less than double. Europe’s recession is a given, especially as the risks of disruptions for energy supplies remain elevated. There is no doubt that Russia has weathered the barrage of economic sanctions much better than expected, whilst Europe’s economy is in dire straits and a continental recession is edging in that direction, as it faces the prospect of a full-blown energy crisis this winter. At the onset of fighting, the experts felt that the war would be won by Russia within six months; once again they have been proved wrong.

Eurostat reports that the Q2 seasonally adjusted GDP in both the EU and the euro area rose by 0.6%, quarter on quarter; Q1 noted growth in the EU and the euro area by 0.6% and 0.5%. Over the same Q2 period last year, the seasonally adjusted GDP increased by 3.9% in the euro area and by 4.0% in the EU, following increases of 5.4% in the euro area and 5.5% in the EU. There was an increase in the number of employed persons, nudging 0.3% higher in both blocs, whilst employment had increased by 0.6% in the euro area and by 0.5% in the EU, compared to Q1. A year earlier in Q2 2021, employment increased by 2.4% and 2.3% in the euro area and in the EU, following rises of 2.9% and 2.8% in the previous quarter.

In a bid to ‘tame’ record high inflation rates, Chairman Jerome Powell confirmed that the Fed will have to continue with a tight monetary policy “for some time” to beat record-high inflation. He indicated that the policy will leave households and businesses feeling “some pain”, and that it would result in softening the labour market and the only way to beat inflation, and bring it down, is a soft labour market, “a sustained period of below-trend growth”, and higher interest rates which could top 3.5% by year-end. The Fed chairman has repeatedly said his aim is to achieve a soft landing by slowing the economy without bringing on a recession. Indicators are that the US economy is “clearly slowing” and the betting is that the US has a better chance of avoiding a recession than the EU – maybe that will see the greenback gaining even further than the euro in the coming months.

On Tuesday, the euro broke parity, trading at US$ 0.9910 – its lowest level in twenty years, driven by growing fears of an inevitable recession, and not helped by the increasing risk to the supply of natural gas from Russia to Europe. YTD, it has lost 12.8% in value, at a time of rising inflation, currently at 8.9% at the end of last month, (10% higher than it was in May and still heading north). An indicator that the bloc is in trouble came with news that the latest S&P flash composite PMI showed that the downturn in Germany’s private sector economy worsened in August, with the indicator falling 0.5 on the month to 47.6. The ECB has been reticent to move rates higher because of the slowing economic activity in the eurozone, whilst the hawkish Fed will continue to raise rates, having increased them by 0.75% over the past two months, with more of the same on the cards next month. There is no doubt that traders are having a field day who think they are betting on a certainty that the euro will continue with its downward trend.

Meanwhile, the leaderless UK economy is fast becoming a basket case, and the country a banana republic, with sterling, at US$ 1.18, down about 13% since the start of the year, and forecasts that inflation could top 18% by the beginning of 2023 – its highest rate in fifty years. With the UK’s energy sector being privatised – and despite not being in the eurozone – it is still impacted by soaring gas prices. It is the main driver why UK inflation will hover around the 15% level come October and another 7% hike in energy prices. Today, the UK public got the news they did not want, with Ofgem announcing that its price cap would jump by a massive80%, and a typical household gas and electricity bill will rise to US$ 4,164 (£3,549) a year from October. The energy price cap is the maximum amount that suppliers can charge households per unit of energy – it does not apply to businesses. Cornwall Insight has forecast that we have seen nothing yet, forecasting that the typical annual household bill will rise to US$ 6,336 (£5,400) in January before hitting more than US$ 7,744 (£6,600) in April. Unite has estimated that at least 30% of the Ofgem price cap increase is made up of profit for energy giants, equating to US$ 17.60 (£15 billion). The new energy price cap will drain the disposable income of several million households and will have a huge negative impact on consumer confidence, as the economy downturns into a recession. There is no doubt that the country is facing The Winter of Discontent.

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