Gulf stock markets drop into red with new Fed rate hike

Most major Gulf stock markets declined during early trading on Thursday, following yet another rate hike by the US Federal Reserve on Wednesday.

The majority of Gulf Cooperation Council (GCC) countries including Saudi Arabia, the United Arab Emirates and Qatar have their currencies pegged to the dollar and are vulnerable to the impacts of US monetary tightening.

What happened: The Fed raised interest rates by a quarter of a percentage point on Wednesday, leading Gulf central banks to follow suit. Central banks from Saudi Arabia, the UAE and Bahrain raised their interest rates by 0.25% shortly afterward.

The Qatar Central Bank, which said it will hold its interest rate steady on Wednesday, saw its benchmark increase by 1% while most others in neighboring Gulf countries dropped. Nevertheless, it also raised its rates by 0.25% later the same day. 

Here are the Thursday changes to GCC stock markets as reported by Reuters:

• TDW MAIN IDX (Saudi benchmark index): down 0.3%

• Saudi Basic Industries Corporation: down 1.9% 

• Saudi British Bank: down 3% 

• DFM GENERAL INDEX (Dubai’s main index): down 0.1%

• Emaar Properties PJSC: down 0.7%

• Abu Dhabi index: down 0.1%

• QE Exchange General IDX (Qatari benchmark): up 1% 

Fed Chair Jerome Power said inflation remains a chief concern for the United States and that it is too soon to tell if the rate hike trend is over.

Background: Oil prices, a key factor for Gulf financial markets, rose but could not make up for the 9% decline over the last three days as major consumer demand trumped the impact of signs from the United States that it will pause rate hikes.

In April, the Saudi-led Organization of the Petroleum Exporting Countries and its allies received warnings from the International Energy Agency to stop cutting oil production so that oil prices do not burden global economic growth and further drive inflation.

Transitioning too quickly away from fossil fuels could itself lead to inflation, according to one London-based executive.

"We have already seen that when you just switch off fossil energy and move to a transition energy that you will have a high increase in oil prices, which leads to inflation as well," Naeem Aslam, chief investment officer at Zaye Capital Markets, told Al-Monitor last week.

The Gulf region is remaining defiant, however, and could fare better economically than other parts of the world in 2023.

Saudi Arabia, Qatar, the UAE, Bahrain and Oman all raised their interest rates in March after the Fed did so.

The same happened previously in February, with the United States raising interest rates and GCC countries following suit, except for the Qatar Central Bank.