Gulf Markets Rise as U.S. Data Hints at Potential Fed Rate Cuts
Gulf markets closed higher on Sunday, buoyed by U.S. economic data suggesting possible Federal Reserve interest rate cuts. Saudi Arabia, Qatar, and Egypt all saw gains in their respective indices.
Gulf financial markets concluded Sunday's trading session on a positive note, extending their upward trajectory from the previous day. This optimistic trend was largely influenced by recent U.S. economic indicators, which have increased the likelihood of interest rate reductions by the Federal Reserve.
The U.S. Department of Commerce released data on Friday, August 30, 2024, revealing that the personal consumption expenditures (PCE) price index, the Fed's preferred measure of inflation, increased by 0.2% in July 2024. Additionally, consumer spending, which constitutes over two-thirds of U.S. economic activity, rose by 0.5% during the same month.
These figures have set the stage for potential monetary policy easing by the Fed, with financial markets anticipating a 25 basis point reduction at the September 2024 meeting. Some analysts even suggest a 33% probability of a more substantial 50 basis point cut.
The monetary policies of the six-member Gulf Cooperation Council (GCC), which includes Saudi Arabia, typically align with the Fed's decisions. This is primarily due to most regional currencies being pegged to the U.S. dollar, a practice that dates back to the aftermath of the 1944 Bretton Woods Agreement.
In Saudi Arabia, the benchmark index gained 0.4%. Notable performers included Al Taiseer Group, an aluminum products manufacturer, which advanced 3.1%, and Al Rajhi Bank, the world's largest Islamic bank by market capitalization, which closed 0.8% higher.
Qatar's index also saw an uptick of 0.3%, with Masraf Al Rayan, one of the country's fastest-growing banks, increasing by 1.5%.
Beyond the Gulf region, Egypt's blue-chip index rose 0.4%, led by a 1.7% gain in Talaat Mostafa Group, the country's largest real estate developer. Egypt's economy, the second-largest in Africa by nominal GDP, received a boost as central bank data indicated a $220 million increase in net foreign assets (NFAs) for July 2024. This marks the third consecutive month of positive NFAs after a prolonged period of negative figures lasting over two years.
"Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.5% last month"
The positive performance of Gulf markets underscores the interconnectedness of global economies and the significant influence of U.S. monetary policy on international financial markets. As the Federal Reserve, established in 1913, contemplates its next moves, investors and policymakers alike will be closely monitoring economic indicators for further guidance.
