Markets Update: Local markets are poised for a stronger open after strong employment data from the US and co-ordinated central bank actions lift Saudi stocks.
UAE bourses poised for buoyant opening
Saudi Arabia's stock market rose yesterday after the release of improved employment data from the US and central banks across the world acted in unison to support lenders.
That left thee UAE's bourses poised for a higher opening in trading today.
The Saudi Tadawul All-Share Index rose 1 per cent to 6,171.12 yesterday as the effect of new liquidity and higher oil prices filtered through to Gulf markets, closing at 6169.61.
Stronger than expected employment data in the US pushed stocks on the S&P 500 index up 7.4 per cent to 1,244.28 on Friday.
The US unemployment rate fell by 0.4 of a percentage point last month to 8.6 per cent, according to official US labour statistics.
The improvement in job creation in the world's largest economy capped the best week for US stocks since March 2009, coming on the heels of coordinated action by central banks to ease liquidity constraints on the financial system.
Six of the world's major central banks, including the US Federal Reserve, the European Central Bank and the Bank of England, moved on Wednesday to provide extra emergency liquidity to the world's banks, extending until 2013 agreements put in place at the onset of the financial crisis in 2007.
Markets jumped on the news, with the MSCI World index of global equities increasing 3.9 per cent to 1,184.60 on Wednesday following the announcement.
The UAE's markets were closed on Thursday for a holiday to mark the Islamic New Year and National Day. However, markets in Qatar, Oman and Kuwait were buoyed by the central banks' move.
But despite the gains on global equity markets, the central banks' intervention may only by a short-term solution and further measures were needed, said Steen Jakobsen, the chief economist at Saxo Bank.
"[Wednesday's] coordinated central bank intervention was like the captain of a transatlantic flight coming on the intercom to tell us that, while three of the four engines have failed, the remaining one might get us to our destination," he said.
"Unless this move is followed up by concrete steps to apply the debt brakes in both the US and Europe it will remain a desperate stand-alone effort that only buys a little more time." European markets are likely to remain jittery ahead of a summit of euro-zone leaders on Friday, at which details on tweaks to EU treaties are expected to be proposed.
"If the policy response in the euro area turns out to be deeply inadequate, or if policymakers are overwhelmed by destabilising events (such as failed bond auctions, bank failures and political instability), it will become possible to entertain some very bad economic and financial outcomes," analysts from Goldman Sachs wrote in a research report.
Elsewhere in the region, Egypt's markets are in sharp focus this week as investors weigh up the prospects of an Islamist government widely expected to be led by the Muslim Brotherhood. Run-offs for the first stage of Egypt's parliamentary elections are expected to take place tomorrow, after Egyptians took to the ballot boxes last Sunday for the country's first free elections since the overthrow of Hosni Mubarak, the president.
Egypt's markets gained 8.1 per cent last week to 4,087.89 on optimism that the transition to civilian rule would progress smoothly, after the poll passed with no sign of recent street violence. Final results of the election are not due until next month.
But even as the country's turbulent politics settle down, Egypt's path to an elected parliament was unlikely to be entirely smooth, analysts from Bank of America Merrill Lynch wrote in a research note.
"The successful holding of elections should help defuse tensions in the short term, but the transition process remains long, complex and fraught with challenges," the report said.
"While political clarity seems unlikely at least until [the mid-second quarter of next year] this uncertainty weighs down on the economy and adds to the pressure on the Egyptian pound and rates."
On local markets, speculation is again growing the MSCI will finally upgrade the UAE to "emerging market" status in a review expected later this month.
Crude oil prices have also risen as western nations unite against Iran. Brent crude futures rose US$1 to $110.35 per barrel on Friday.