UAE and India agree to use local currencies for bilateral trade

President of United Arab Emirates (UAE), Sheikh Mohamed Bin Zayed Al Nahyan received Indian Prime Minister Narendra Modi, who is on an official visit to the Emirates.

To boost bilateral trade and investments, Modi announced that India and the United Arab Emirates have agreed to start trade settlement in local currencies.

The Local Currency Settlement System will permit payment from exporters and importers in their respective local currencies, Indian Rupee (INR) or UAE Dirham (AED). This move will also further enable the development of an INR-AED foreign exchange market.

Modi said that he hopes that bilateral trade between the two countries goes past the US$100 billion-mark soon, as it currently stands at US$85 billion.

Upon arrival at Qasr Al Watan in Abu Dhabi, the Indian prime minister’s motorcade was met by a group of Emirati children waving the flags of both countries.

Sheikh Mohamed greeted Modi and those who accompanied him during an official reception ceremony that included a guard of honor welcome, a 21-gun salute, and a performance of the national anthems of India and the UAE.

 “The India-UAE comprehensive strategic partnership has been steadily strengthening and the Prime Minister’s visit will be an opportunity to identify ways to take this forward in various domains such as energy, education, healthcare, food security FinTech, defense and culture,” the Ministry of External Affairs (MEA) said.

It will also be an opportunity to discuss cooperation on global issues, particularly in the context of the UAE’s Presidency of COP-28 and India’s G-20 Presidency in which the UAE is a special invitee, it added.

The UAE and India have agreed to implement the use of local currencies for bilateral and cross border transactions, the announcement was made on the sidelines of Modi’s visit to Abu Dhabi on Saturday.

Minister of State for Foreign Trade Dr. Thani Bin Ahmed Al Zeyoudi, said, a year after their Comprehensive Economic Partnership Agreement (CEPA) took effect, the UAE and India have further strengthened their strategic relations.

In his statement to the Emirates News Agency (WAM), he stressed that the Emirati-Indian strategic partnership has seen positive developments at all levels, including the CEPA, which makes it a global model for how to upscale collaboration and partnership ties to higher levels that achieve mutual growth, create opportunities for business communities, stimulate entrepreneurship, and support sustainable development.

He noted that this would not be achieved without the shared keenness and unlimited support of the leaderships of the two countries.

He added that the UAE and India had entered a new phase of shared prosperity due to the CEPA that took effect a year ago, which has boosted key sectors in both countries, most notably non-oil trade and mutual investment.

In the first year of the partnership, their non-oil trade reached US$50.5 billion, growing by 5.8%YoY, and compared to the previous year, from May 2020 to April 2021, non-oil trade grew by 53.5%, he added.

It increased by 36.1% as compared to the same period in 2019-2020, and by 29.6% compared to the same period in 2018-2019, Al Zeyoudi further said.

He stressed that the UAE-India partnership agreement boosted non-oil exports from the UAE, which reached US$10.3 billion in the year of its implementation, a rise of 18.6% compared to the same period during 2020-21.

Al Zeyoudi noted the UAE’s ongoing investment in India, which was driven by the impressive growth of one of the world’s fastest-growing economies.

As per the latest official data released this year, the UAE invested US$36.61 billion in various sectors, including financial services, real estate, business services, alternative and renewable energy, engine manufacturing, equipment, and more.

The UAE has chosen India as the first country to sign a comprehensive economic partnership agreement with, in light of their strong strategic ties.

India is a key ally and partner for the UAE in trade and investment, and they have a long history of friendship. This is also India’s first agreement of this kind with a country in the Middle East and North Africa region.

Pakistan Stock Exchange benchmark index posts 1.9%WoW gain

Pakistan Stock Exchange witnessed bullish sentiments during the first three trading sessions. However, profit-taking by investors resulted in market closing in red during the last two sessions. Still the benchmark index managed to gain 861 points during the week ended on July 15, 2023 and close at 45,068 points, up 1.9%WoW.

Market participation remained healthy with daily traded volume averaging at 352 million shares as compared to an average of 265 million shares during the earlier week up 33%WoW.

The market performance was characterized by the IMF’s executive board’s approval of the SBA (Stand-By Arrangement) and the inflow of US$1.2 billion. Additional support was provided by influx of US$2.0 billion from Saudi Arabia and US$1.0 billion from United Arab Emirates. The inflows would reflect in the next week's reserve numbers held by State Bank of Pakistan (SBP) which are anticipated to cross US$8 billion mark after 9 months. As of July 07, SBP held reserves were reported at US$4.5 billion.  As a result PKR gained 0.11%WoW to close at PKR277.6/ US$ parity.

Other major news flows during the week included: 1) steps taken to broaden tax base, 2) July-May LSMI output declined 9.87%YoY, 3) FY23 remittances fall 13.6%YoY to US$27 billion, 4) car sales plunged 82% in June and 59% in the last financial year, 5) GoP announced to mobilize additional PKR3.2 trillion from power consumers and 6) during Jan-May period 4.88 million mobile phones manufactured in country.

Chemical, Automobile Parts & Accessories, and Leather & Tanneries emerged the top performers. Close-End Mutual Fund, Technology & Communication, and Textile Spinning were amongst the worst performers.

Flow-wise, major net selling was recorded by Mutual Funds with a net sell of US$5.97 million. Individual absorbed most of the selling with a net buy of US$3.93mn.

Top performing scrips were: during the week were: UNITY, HCAR, COLG, PSMC, and AIRLINK, while laggards included: GADT, UPFL, SHEL, PGLC, and TRG.

Stock market is expected to remain positive, owing to growing foreign exchange reserves and consequent improvements in the PKR/ US$ parity.

At present market offers attractive valuation. However, upcoming results may exert pressure on bullish sentiment due to the retrospective imposition of the super tax.

Investors are advised to follow a cautious approach in the selection of scrips and focus on stocks with dollar-denominated revenue streams (Tech and E&Ps) and companies with healthy dividend-yields.

 

 

Britain to join trans-Pacific trade pact

Britain on Sunday formally signed the treaty to join a major trans-Pacific trade pact, becoming the first country to take part since its inception in 2018 and opening the way for members to consider other applications including from China and Taiwan.

The signing was part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) commission meeting being held in New Zealand.

Ministers from member countries will meet later on Sunday to discuss a range of topics, including how to move forward with new applications and a review of the agreement itself.

Britain's Business and Trade Secretary, Kemi Badenoch said at the signing that her country was delighted to become the first new member of the CPTPP.

"This is a modern and ambitious agreement and our membership in this exciting, brilliant and forward looking bloc is proof that the UK's doors are open for business," Badenoch said.

The British government still needs to ratify the agreement.

The CPTPP is a landmark trade pact agreed in 2018 between 11 countries including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Britain will become the 12th member of the pact that cuts trade barriers, as it looks to deepen ties in the Pacific after its exit from the European Union in 2020.

China, Taiwan, Ukraine, Costa Rica, Uruguay and Ecuador have also applied to join the CPTPP.

New Zealand Prime Minister Chris Hipkins said the road to bringing Britain into the agreement had been long and at times challenging, but having major economies inside the partnership would bring the Atlantic to the Indo-Pacific in a way that strengthened the rules-based trading system in the region.

 

 

US Dollar pinned near 15 month low

The US dollar hovered at 15-month lows on Friday and was set for its worst week since November last year as markets wagered the Federal Reserve was close to the end of its rate hike cycle as inflation eases.

The dollar index, which measures the US currency against six major rivals, fell 0.114% to 99.649, having touched a fresh 15-month low of 99.574 earlier in the session. The index is down 2.5% for the week, its worst weekly run in eight months.

Investors have been betting on a turn in the dollar for months, with short positions more than doubling over the month to July 7, according to data from Commodity Futures Trading Commission, although they remain far off the levels in 2021.

US producer prices barely rose in June and the annual increase in producer inflation was the smallest in nearly three years, data showed on Thursday, a day after data showed consumer prices rose modestly last month.

"Markets are generally pretty pleasant with the lower inflation data, because lower inflation together with the still resilient labour market supports the narrative of a soft landing in the US economy," said Carol Kong, currency strategist at Commonwealth Bank of Australia in Sydney.

"But we still maintain our view that the US will enter a recession later this year because of the impact of past and potentially future interest rate hikes."

Markets are still pricing in a 92% chance of a 25 basis point hike from the Fed later this month, CME FedWatch tool showed, but no more for the rest of the year.

Data on Thursday also showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, indicating that the labour market remains tight even as job growth is slowing.

Fed officials remain cautious, with Federal Reserve Governor Christopher Waller saying he's not ready to call an all clear on US inflation and favours more rate rises this year.

Shane Oliver, head of investment strategy at AMP Capital, said the Fed is still likely to hike another 25 bps this month on concerns that services inflation remain too high and worries that stopping too early when the labour market is still tight could see inflation reignite.

"But that may be it. US inflation also led inflation in other countries on the way up so its decline augurs well for other countries".

 

 

Can NATO allies save United States from eventual defeat in Ukraine?

The NATO summit this week delivered yet another blow to Russian President Vladimir Putin, with allies standing as united as ever against his war in Ukraine while announcing efforts to expand the alliance and boost defense spending.

The most punishing setback for Putin came on the eve of the summit, when Turkish President Recep Tayyip Erdoğan hashed out a deal to admit Sweden into NATO after more than a year of resistance.

Erdoğan’s reversal not only puts the gears in place to expand the borders of the western security alliance — it also signals the Turkish leader is moving closer to the west and away from Putin.

“He’s no longer interested in being dependent on Putin economically and strategically,” said Asli Aydıntaşbaş, a visiting fellow at Brookings Institution with the Turkey Project. “I think Russians are upset. I think the Kremlin is very upset.”

It also helped repair Turkey’s strained relations with its NATO allies and gave President Biden a major win heading into the high-profile summit in Vilnius, Lithuania. 

At the end of the summit, Biden declared that NATO was more united than ever in its history.

“We will not waver,” Biden affirmed in the Wednesday speech. “Our commitment to Ukraine will not weaken. We will stand for liberty and freedom today, tomorrow and for as long as it takes.”

Erdoğan’s Sweden approval also came just days after he freed Ukrainian fighters from the Azov regiment, a move that deeply angered the Kremlin because the prisoners of war were supposed to remain in Turkey until the end of the war.

Aydıntaşbaş said the prisoner release is an even bigger blow than the Sweden deal, the latter of which was likely anticipated. She assessed the Turkish leader has now sensed Putin has become weak — especially after the Wagner revolt — and is drifting closer to Biden.

“I wouldn’t call this a reset, but it lays the groundwork for a reset between the West and Turkey and that would be a big deal,” she added. “Because at the end of the day, Turkey is NATO’s second largest army and its drift away from the West has been a big issue.”

Aydıntaşbaş, however, acknowledged Erdoğan often makes deals for transactional benefits, and since he does not view the Ukraine war as a binary issue, he is likely to continue to play both sides.

Erdoğan only backed Sweden after he extracted concessions from the West, including enhanced counterterrorism operations, more arms sales and Swedish support for Turkey’s European Union membership hopes.

Erdoğan may also have won a deal to purchase long-awaited F-16 jets from Washington to modernize his air force, as the US announced the paused sale was moving forward a day after the Sweden agreement.

At the summit, Western allies also agreed to boost defense spending levels, a commitment that, if adhered to, would strengthen the alliance and its support for Ukraine. Members are now pledging to spend a minimum of 2 percent of gross domestic product on military resources and security.

NATO has for years tried to get the commitment to stick, to no avail. But Secretary-General Jens Stoltenberg said 11 allies have now reached or exceeded the target, while overall spending by Canada and Europe increased by 8.3% this past year. 

“This is the biggest increase in decades,” Stoltenberg said. “And we expect this number will rise substantially next year.”

Putin secured a minor victory in the dashing of Ukraine’s NATO aspirations, with GOP presidential contender and former United Nations ambassador Nikki Haley saying that Biden made Putin’s day by refusing to commit to Kyiv’s future NATO membership. 

But the US and Ukraine sought to minimize the damage at the end of the summit.

NATO decided against fast-tracking Kyiv into the alliance or setting a clear timeline for membership, a move Ukraine says will only embolden Russia and allow Moscow to use inclusion into the alliance as a bargaining chip in peace talks.

But the alliance still took steps toward admitting Ukraine, removing a procedural hurdle, establishing a NATO-Ukraine council and affirming that Kyiv is closer than ever to membership.

Ukrainian President Volodymyr Zelensky, who had expressed disappointment in the membership process just a day earlier, said he held a powerful meeting with Biden Wednesday.

“The meeting was at least twice as long as planned, and it was as meaningful as it needed to be,” Zelensky tweeted. “If the protocol had not stopped the meeting, we would have talked even longer.”

NATO allies this week also announced big steps toward supporting Ukraine in the long run, putting a damper on Moscow’s hopes of weakening Western support for the war.

A coalition of 11 NATO countries set a date for F-16 training in August for Ukrainian pilots; France confirmed the shipment of much-needed long-range missiles for Ukraine; and the Group of Seven (G7) economic and political bloc announced a long-term security commitment for Kyiv.

Russia has tried to downplay the news coming out of the summit. Moscow’s Foreign Intelligence Service chief told state-run media outlet TASS that the summit did not bring “any surprise to Russia.”

But Liana Fix, a fellow for Europe at the Council on Foreign Relations, said Russia’s attempts to weaken the narrative have largely failed.

“From a Russian propaganda perspective, it makes sense to downplay this as much as possible,” she said. “But the facts just speak against Russia, especially the long-term commitment of G7 members to deter Russia and to erode the optimism in the Kremlin [hoping] everyone in Europe gets tired.”

The Vilnius summit showed allies are standing by Ukraine, even as there are concerns about a lagging counteroffensive launched in early June and the prospect of a longer war, Fix said.

“At the beginning of this year, the messaging was all about Ukraine [and] what it means for this one counteroffensive this year,” she continued. “And I think that was recognized as a bit of a trap.”

This is “sort of an attempt to make clear that the commitment is not only until the end of this year, but the commitment will also extend to the next year.”

 

United Nations to ease sanction on Russia

Reportedly, UN Secretary-General Antonio Guterres has proposed to Russian President Vladimir Putin that he extends a deal allowing the safe Black Sea export of grain from Ukraine in return for connecting a subsidiary of Russia's agricultural bank to the SWIFT international payment system.

Russia has threatened to ditch the grain deal, which expires on Monday, because several demands to dispatch its own grain and fertilizer abroad have not been met. The last two ships traveling under the Black Sea agreement are currently loading cargoes at the Ukrainian port of Odesa ahead of the deadline.

A key demand by Moscow is the reconnection of the Russian agricultural bank Rosselkhozbank to the SWIFT international payment network. It was cut off by the European Union in June 2022 over Russia's invasion of Ukraine.

Earlier, an EU spokesperson said in May the EU was not considering reinstating Russian banks. However, the EU is now considering connecting to SWIFT a subsidiary of Rosselkhozbank to allow specifically for grain and fertilizer transactions.

Guterres has proposed to Putin that Russia allow the Black Sea grain deal to continue for several months, giving the EU time to connect a Rosselkhozbank subsidiary to SWIFT.

Guterres sent a letter to Putin on Tuesday proposing a way forward to further facilitate Russian food and fertilizer exports and ensure the continued Black Sea shipments of Ukrainian grain, a UN spokesman said on Wednesday.

"The objective is to remove hurdles affecting financial transactions through the Russian Agricultural Bank, a major concern expressed by the Russian Federation, and simultaneously allow for the continued flow of Ukrainian grain through the Black Sea," UN spokesman Stephane Dujarric told reporters.

He gave no further details on the proposal, but added that Guterres was engaged with all relevant parties on the issue and was willing to further discuss his proposal with Russia.

The United Nations and Turkey brokered the Black Sea Grain Initiative with Russia and Ukraine in July 2022 to help alleviate a global food crisis worsened by Moscow's invasion and blockade of Ukrainian ports.

To convince Russia to agree to the Black Sea deal, a three-year memorandum of understanding was struck at the same time under which UN officials agreed to help Russia get its food and fertilizer exports to foreign markets.

While Russian exports of food and fertilizer are not subject to Western sanctions imposed after the invasion of Ukraine, Moscow says restrictions on payments, logistics and insurance have amounted to a barrier to shipments.

As a workaround to the lack of access to SWIFT, UN officials have gotten US bank JPMorgan Chase & Co to start processing some Russian grain export payments with reassurances from the US government.

The United Nations is also working with the African Export-Import Bank (Afreximbank) to create a platform to help process transactions for Russian exports of grain and fertilizer to Africa, the top UN trade official told Reuters last month.

Pakistan: Excessive reliance on IMF may prove disastrous

Reading today’s’ headlines about approval of IMF package for Pakistan leaves a strange feeling. I am inclined to draw an inference, “Pakistan is not on the priority list of lender of last resort ‑ International Monetary Fund (IMF)”. Please keep in mind that a paltry amount of US$3 billion is to be disbursed to Pakistan over the next nine months.

To begin with, these nine months are very critical for Pakistan because: assemblies will complete their term, interim government has to be put in place and general elections have to be held. Allow me to say that during these months Pakistanis should not expected any improvement in the economic conditions, on the contrary, the economy could go from bad to worse.

Many analysts say, “The incumbent government has wasted time in debating ‘non-issues’ and refrained from taking some important decisions to put the economy on track”. The GDP growth rate is likely to remain below one percent, exporters are fast losing their competitiveness, hike in interest rate leaves no amount to undertake developmental work and efforts to contain import of raw materials are proving counterproductive.

It is feared that the interim government may defer elections on some flimsy grounds which could further deteriorate the economic landscape. Seeking new foreign exchange deposits from friendly countries and rolling over existing debts is plunging Pakistan deeper into debt trap.