During a meeting held on Thursday at the Embassy of Qatar in Beirut, ambassadors of the Quintet Committee (United States, France, Saudi Arabia, Egypt, and Qatar, known as The Group of Five) emphasized the priority of electing new head of State and expressed their continuous support for completing the presidential process as soon as possible. As such, the BLOM Bond Index (BBI) which is BLOMInvest Bank’s market value-weighted index tracking the performance of the Lebanese government Eurobond’s market (excluding coupon payments), increased remarkably throughout the course of the week by 10.18%, to reach 6.03 points by March 7, 2024. As for the JP Morgan EMBI, it rose by 1.02% to stand at 852.9 on March 7, 2024 compared to 844.33 on February 29, 2024.

Moreover, the yield on the five-year (5Y) and ten-year (10Y) Lebanese Eurobonds dropped respectively by 880 and 950 bps to stand at 107.4% and 105.6% by the week ending March 7, 2024 compared to the previous week.

US yield curve shifted lower over the course of the week as one, five and ten years yields dropped respectively by 8, 19 and 16 bps to stand at 4.93%, 4.07% and 4.09% by March 7, 2024 compared to the previous week.

Federal Reserve Bank of Cleveland President Loretta Mester reported that the central bank should be able to start cutting rates later this year, though she first wants to see more evidence that inflation is cooling further. Mester reiterated that price gains slowed significantly last year, but that pace of disinflation may not continue this year, warranting careful vigilance from policymakers.

Similarly, Fed Chair Jerome Powell said in congressional testimony on Thursday that the central bank will likely cut rates at some point this year, but that policymakers still need to see more evidence that inflation is on a sustainable path down to their 2% target.  Fed officials will be focused this year on managing the risk between holding rates at high levels for too long, thus risking pain in the labor market, and cutting too soon and spurring resurgence in inflation. Should inflation stall, the Fed will likely keep rates at restrictive levels for longer, The FOMC has been very reactive to negative data surprises, as evidenced by Fed Chair Jerome Powell’s quick dovish pivot in December after seeing a slight weakening in the labor market at the time. Given expectation that the labor market will cool more quickly ahead, economists expect the Fed to cut rates in May — earlier than market expectations for June.

The number of Americans who applied for unemployment benefits in the week ending March 2nd slightly increased to 217,000, compared to 215,000 in the previous week. Therefore, suggesting little deterioration in a strong U.S. labor market. New jobless claims have ranged from 189,000 to 227,000 per week in the first three months of 2024, a remarkably low level from a historical perspective. The number of people collecting unemployment benefits in the U.S., meanwhile, edged up by 8,000 to 1.9 million. Indeed, the continuing claims have risen steadily since last year in a sign that it’s taking longer for people to find new jobs. That’s the clearest indication the labor market has lost a bit of its sizzle. The number of people receiving jobless benefits now is at roughly the same level as before the pandemic.

New jobless claims tend to rise shortly before a recession and are among the first economic indicators to hint at trouble. Right now, jobless claims aren’t showing any sign of trouble. Businesses are still hiring, unemployment is low at 3.7% and a recession seems far away. To date, the labor market has cooled mainly through softer demand rather than broad-based layoffs. Economists continue to expect it to weaken in the next few months, with the unemployment rate increasing to 4.7% by year end. On a different note, productivity in the labor market may be higher as businesses invest in technology such as Artificial Intelligence (AI) to become more efficient.

In turn, the 5Y & 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a downturn from 11,194 and 11,085 bps to 10,333 and 10,151 bps respectively by the week ending March 7, 2024.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank