GCC and global markets were positive on account of Fed pausing interest rate hike

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KUWAIT CITY, July 3: Kuwait Financial Centre “Markaz” released its Monthly Market Review report for the month of June 2023. Kuwait’s All Share Index witnessed an increase in June, posting a monthly gain of 3.4%. Among Boursa Kuwait’s sectoral indices, the Consumer staples sector gained the most at 22.3%, while the Technology sector lost 2.1% for the month. Among Premier Market stocks, Mezzan Holding Co and Heavy Engineering Industries and Shipbuilding Co (HEISCO) gained the most for the month, rising by 25.4% and 17.7% respectively.

Boubyan Petrochemical Co fell by 7.5% and the Commercial Real Estate Co fell by 2.5% during the month. Kuwait consumer price infl ation (CPI) rose by 3.69% y-o-y and 0.15% m-o-m in May primarily driven by the increase in Food & Beverage and Clothing & Footwear segment. Kuwait’s credit growth has slowed down, falling from 7.7% in December 2022 to 2.7% in May 2023 on y-o-y basis. Retail credit growth fell to 5.3% y-o-y during the month.

Moody’s Investor Service maintained a positive outlook on Kuwait’s banking sector and expects the growth of bank credit to be 3% in 2023, supported by government’s planned spending on new infrastructure projects. Regionally, GCC Markets have been positive, with S&P GCC composite index up 3.1% for the month. All equity indices, except Qatar and Bahrain, ended positive for the month. Dubai and Saudi Arabia equity indices gained 6.0% and 4.0% respectively for the month followed by Abu Dhabi at 1.5%. Emirates NBD and Emaar properties were the top gainers among the blue chips in Dubai, rising by 8.8% and 4.2% during the month. Emaar properties’ gains were driven by S&P’s rating upgrade of Emaar properties to ‘BBB’ from ‘BBB-‘. In Saudi Arabia, Banque Saudi Fransi stock gained by 4.8% while the ACWA Power Co jumped by 11.8% on account of its share repurchase. Qatar and Bahrain equity indices decreased by 0.8% and 0.3% over the month, respectively. Developed markets’ performance was positive in June with the MSCI World index and S&P 500 indices gaining 5.9% and 6.5% respectively.

Investor’s confidence in the global markets was reassured when the federal debt limit in the United States was suspended till 2025 and the Federal Reserve paused its interest rate hike. U.S. consumer price inflation (CPI) slowed to 4% y-o-y in May, down from 4.9% y-o-y in April. Inflation has been cooling down consistently for eleven straight months. The U.S. core personal consumption expenditures (PCE) price index increased 0.1% in May, but down from 0.4% gain in April. However, the Federal Reserve anticipates two further rate hikes of 25 bps each before the end of 2023. The European Central Bank (ECB) raised its policy rate by 25 bps during the month to 3.5%, touching a 22-year high and is expected to further hike the rates in the next two monthly meetings. CPI in the Eurozone eased in June to 5.5% y-o-y from 6.1% y-o-y in the previous month, according to Eurostat. Nonetheless, the core CPI (excluding energy and food) rose 5.4% y-o-y in June, up from 5.3% in May.

On an unexpected note, the Bank of England (BoE) also raised its interest rate by 50 bps to 5%, the highest since 2008. The U.K.’s CPI remained unchanged at 8.7% y-o-y in May compared to April 2023, still well above the 2% target of the Central Bank. The Hamburg Commercial Bank (HCOB) Eurozone Composite PMI, published by S&P, decelerated to a five-month low of 50.3 in June, down from 52.8 in May. The MSCI EM index gained 3.2% during the month.

Oil prices traded within a narrow range during the month and settled at USD 74.9 per barrel, a monthly gain of 3.1%. The spurt in oil prices at the end of June was triggered by a higher-than-expected decline in U.S. crude storage, indicating an increase in U.S. demand. Earlier this month, OPEC+ announced that its supply cuts of 3.66 million barrels per day (mbpd) will be continued till the year end of 2023 while it has agreed to further the reduce the supply cuts by 1.4 mbpd from 2024 onwards.

Saudi Arabia will be voluntarily reducing oil production by 1 million barrels per day (bpd) with effect from July 2023. Gold prices fell 2.2% in June to 1,919.6 $/oz due to the hawkish stance of the Federal Reserve. Investor sentiment in the upcoming month is expected to remain cautious despite the Fed pausing rate hikes as widely anticipated. Indications from the Fed indicate that we have not reached terminal rates yet, with a pivot in 2023 remaining highly unlikely. However, the gradual cooldown in U.S. inflation remains a positive sign. OPEC+ and Saudi Arabia have shown their intent to balance oil supply depending on demand to ensure a fl oor for oil prices at around the USD 70/bbl. mark for the rest of 2023. Stability in oil prices is expected to bode well for GCC equity markets, which are expected to remain resilient in the near term.

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