Abu Dhabi: The regional markets are likely to trade in a narrow range with a negative bias this week, tracking an increase in downside risks on global financial markets and increasing risk aversion among local investors amid lack of strong domestic catalysts, say experts.
Declining global oil prices, which fell below $80 a barrel last week on the back of slowing economic growth in major consumer countries, will also damp investor sentiments since oil exports are a major source of government revenue for several countries in the Middle East & North Africa (Mena) region.
“Ben Bernanke and the FOMC have put off QE3 much to the market’s disappointment and have instead extended the Fed’s programme of swapping shorter term bonds for longer term bonds. The action will see the Fed’s average maturity increase in a bid to flatten the yield curve. With markets largely expecting more aggressive measures from the Fed, such as the outright buying of bonds or MBS, several high beta currencies, equities as well as the commodity segment sold off and will remain sluggish in the near future,” said Gaurav Kashyap, Head of DGCX Desk, Alpari.
He added: "Amidst the Fed’s third projection this year, growth forecasts were toned down with increased unemployment forecasts and prices were set to remain just under the target range, as mandated by the Fed. All the signs indicate a potential improvement in the market, but Bernanke still seems unconvinced due to the flow of data emerging out of the US underpinned by a weaker job growth. Because of the optimism out of Europe, we feel that more opportunities can be found in commodities as opposed to euro crosses — we will continue to watch for a move towards $75 in WTI crude before considering any long positions, with $1,530 a good entry level for gold. The Aussie cross will also remain under pressure with a move toward 1.03 also very much on the cards. The Euro remains well supported on optimism on favourable political developments from Greece and should find a trading range between 1.25 and 1.30 levels.”
Mark McFarland, Chief Investment Strategist at Emirates NBD wrote in his latest research note that it is clear from last week’s aborted rally that after $126 billion in European Union funding to Spain, a sustained revival in market mood isn’t possible unless fiscal measures to stabilize banking systems are accompanied by encouragement from central banks.
“The refusal of the European Central Bank (ECB) to lower their policy rate at the beginning of June has played badly — even though there is a semi-credible reason for it to demand much greater fiscal accountability, before adding more funds to the market,” he added.
Shares in Saudi Arabia, the only Gulf Arab stock market open on Saturdays, fell the most in a week as oil prices declined and after the US Federal Reserve cut its economic forecast.
