Interest Rates and Oil Reshape Gulf Market Landscape

The US interest rate decision is no longer an isolated event for Gulf markets; it has become a convergence point for the cost of capital, oil prices, bond yields, dollar movements, equity valuations, gold, and cryptocurrencies. While most Gulf central banks moved in tandem with the Federal Reserve, the Central Bank of Kuwait kept its discount rate at 3.5%, based on its assessment of local monetary and financial conditions. Meanwhile, Gulf stock exchanges are absorbing the impact of higher interest rates, even as elevated oil prices support Gulf economies. However, the trajectory of the war and navigation disruptions in the Strait of Hormuz and the Bab al-Mandab remain factors capable of rapidly altering the energy and market equation. Thus, markets are entering a new phase governed not solely by interest rates or oil, but by the interaction of monetary policy with geopolitics and global liquidity flows.

Gulf and global markets have entered a new phase of asset repricing following the US Federal Reserve’s first interest rate hike since 2023, coinciding with oil prices remaining above the $100-per-barrel threshold and escalating geopolitical risks in the region. The US Federal Reserve raised interest rates by 25 basis points to a range of 3.75% to 4%, in a unanimous decision, reaffirming that inflation remains elevated and that monetary policy aims to bring inflation back to the 2% target. The central bank also maintained a tone indicating continued close monitoring of economic and geopolitical developments.

The US decision coincided with a broad move by Gulf central banks, as Saudi Arabia, the UAE, Qatar, Bahrain, and Oman raised interest rates by 25 basis points, reflecting the nature of Gulf exchange rate regimes and the peg of most local currencies to the US dollar.

Kuwait Stock Exchange Key Figures:

- General Index: 8,913.16 points

- Change: -28.88 points / -0.32%

- Trading Value: 146.14 million KD

- Shares Traded: 488 million shares

- Main Market: +0.14%

- First Market: -0.42%

- Main 50: +0.40%

Markets Face Four Key Drivers:

1. Interest Rates: The Fed raised rates to 3.75%-4%, with Gulf markets (except Kuwait) following suit.

2. Oil: Crude remains above $100, despite a partial decline in supply risk premiums.

3. Gold: Supported by inflation and geopolitics, but facing pressure from higher yields.

4. Cryptocurrencies: Bitcoin is trading near $76,000, amid high sensitivity to the dollar, liquidity, and interest rates.

Gulf Stock Exchanges: Limited Gains After Rate Shock

In Gulf markets, trading trended toward limited gains at the start of yesterday’s session as investors absorbed the Fed’s decision and local central bank moves. The Saudi index rose by approximately 0.1%, while the Dubai and Abu Dhabi indices rose by 0.1% and 0.3%, respectively, and the Qatar index remained nearly flat, according to Reuters data during trading.

These movements follow a cautious session, with several Gulf markets declining the previous day amid escalating geopolitical risks and anticipation of the Fed’s decision. Attention now turns to the ability of Gulf equity markets to balance the support for Gulf revenues and economies provided by rising oil prices against the pressure on equity valuations caused by higher borrowing costs.