New Eid habits, new bank stimulus.. and a renewed oil deal?

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While economies struggle to recover from a modern pandemic that brought people and businesses to their knees, humanity found itself helpless in front of an old deadly virus that had actually never left. This week in space, a privately-owned company successfully transported astronauts into the International Space Station. While this week on earth, a reaction against racism blazed through the world giving it a bitter reality check, even in countries that aren't directly affected.

Businesses in the Gulf are busy planning for the post-pandemic world, and trying to give investors the right guidance for the upcoming quarters. This time, they're betting on a positive element to support their outlook: oil price recovery.

This week, the Gulf celebrated Eid differently, Saudi injected new liquidity in its banking system, and oil markets anticipated an extension of the oil-cut agreement.  

Eat, pray, celebrate Eid.. at home

Eid celebrations were very special this year in the Gulf. While cities are gradually reopening, residents were asked to stick to the preventive measures against the coronavirus.

Authorities have urged people to celebrate safely at home, away from big gatherings, with celebrations only taking place with family members living in the same household.   

Saudi announced that it will gradually reopen mosques starting this week, except for those in Mekkah, as it enters the second phase of reopening that allows domestic flights to resume and curfews to be shorter.

A Eid like no other, with busy hotels welcoming internal tourists as staycations become the new vacation.

Saudi banks get more liquidity

Saudi banks received a new round of stimulus this week, as the Saudi Arabian Monetary Authority (SAMA) announced the injection of $13 billion into the sector. 

The liquidity will be passed through non-interest-bearing deposits, unlike the first round of stimulus that provided small and medium enterprises the chance to postpone payments, the Governor of SAMA told Al Arabiya. Ahmed Alkholifey said that the first round launched in March benefited more than 65 thousand SME contracts and around 9 thousand contracts for entrepreneurs.

The governor said that last year’s positive numbers put the kingdom in a good place to face the pandemic, when it comes to private consumption that increased by 4.5% in 2019, and the inventory buildup that recorded an increase of 100%.

It will all play down to one thing: how will the private sector receive this liquidity? And whether the private sector needs new loans, or loan restructuring.

Transfer inside, invest outside

This week, data showed that its Public Investment Fund (PIF), Saudi's sovereign wealth fund that bought minority stakes in US-listed companies in the first quarter, had received new liquidity from the central bank. 

New official figures revealed that the Saudi Arabian Monetary Authority (SAMA), the kingdom’s central bank, has transferred $40 billion in March and April to the PIF from its foreign reserves. The transfer was exceptional, and was made to strengthen the ‘investment capacity’ of the PIF, according to the Minister of Finance. 

The transfer will provide liquidity to allow for tactical investments, the minister told the Financial Times. He also said that the current levels of foreign reserves are ‘very high’ to the level needed to maintain the peg.

“Level is very high compared to what we think we need to maintain the peg and support the economy”- Mohammed al-Jadaan, Saudi finance minister.

Saudi foreign reserves fell for a second month in a row, reaching $444 billion, according to official figures. Economists estimate that reserves should be above $300 billion to maintain the peg to the dollar.

Sovereign Wealth Funds: Leaning In

Coming into the crisis with a strong position, Sovereign Wealth Funds (SWF) around the world are restrategizing and repositioning their allocations to mitigate the effects of the pandemic on state budgets around the world.

With a total of $8 trillion in assets, or 10% of global GDP, how are SWF picking their investments in today’s highly-volatile markets?

What risks are SWF taking? And how are their strategies different from 2008 crisis’?

Another important question is how will Gulf’s SWFs revise their portfolios after the new ‘oil reality’? Here’s what Elliot Hentov answered.

Output cuts are working.. will they be extended? 

Oil producers are set to meet this week (earlier than planned) to discuss a potential extension of the historical deal, as they try to adapt to the fast-moving market. 

The oil deal that entered into force on May 1 has proved to be working, with prices substantially recovering from the crash that led them to their lowest levels in 18 years. With an extension, the market will probably stay away from another crash. But will oil producers agree to extend? And will the different parties commit to the agreed quotas? The latest survey by Reuters reveals that compliance with the last output cut deal is 74% in May.

Some producers like Russia, are leaning towards a short-term extension, for a few months, rather than till the end of year. How will that potential commitment convince the markets that have already priced in a deal? The market needs to wait for 2021 to see prices gain back the $50 per barrel, analysts say.

LinkedIn completing the picture.. with Stories

What does your working day look like? How are you getting ready for the new normal? and how are you doing, really?

We were thrilled this week to announce LinkedIn Stories: a new feature by LinkedIn in the UAE.

Find out more about the new feature here, and join the conversation on top of your feed!

Thank you Yunita Ong and Cate Chapman for the stories.

Thank you Salma for another week of working together, and for the eye-opening conversations between 'reopened cities'.

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