GCC markets gain due to positive sentiment among investors

ABU DHABI: GCC stock markets closed the week on an increase supported by a more positive sentiment among investors globally. However, markets in the UAE were more volatile today.

This was revealed by Fadi Reyad, Market analyst at CAPEX.COM Mena.

Oil prices were decreasing again as traders considered demand strength and the possible impact of slowing economic growth. Supply also remains a concern to a certain extent with output still tight.

“The Dubai stock market was seeing some volatility ater a series of increases since the beginning of the month. The market could record some price corrections if investors move to secure their gains in the current uncertain atmosphere. Strong company earnings could provide some support.”

The Abu Dhabi stock market extended gains on strong company earnings which helped improve investors’ sentiment. However, the main index could see more pressure from the declining oil prices.

The Qatari stock market closed the week positively, supported by strong earnings from listed companies. The market could see selling pressures as natural gas prices slide further.

The Saudi stock market closed on an increase as global sentiment improved. However, the market could feel some pressure from the sliding oil prices.

The Egyptian stock market ended the week on the positive side thanks to the announcement of new listings. The market could see more gains if Russia and Ukraine succeed in their grain export deal.

Meanwhile, companies reporting earnings in coming weeks are likely to mention one common factor gouging their results: the strong dollar.

The US currency stands near a 20-year high against a basket of its peers and is up 15.1% in the past year, lited by a hawkish Federal Reserve and investors seeking shelter from turbulent markets.

A strong dollar can be a headwind for U.S. companies as it makes exporters’ products less competitive abroad and hurts multinationals that need to convert their foreign profits back into the U.S. currency.

Each percentage point of year-on-year increase in the US Dollar Index, which measures the dollar against six other currencies, translates to a 0.5 percentage point hit to S&P 500 earnings growth, analysts at Morganstanley estimated.

“You seemingly can’t get a break right now. We’re starting to get some relief from oil prices, but you’ve still got the dollar banging on you,” said Bill Stone, chief investment officer at the Glenview Trust Company.

International business Machines Corp, Neflix Inc and Johnson & Johnson were among the companies that in the past week cited the dollar’s strength as a headwind, with Johnson & Johnson joining Microsot Corp by cuting its guidance due to the impact of the greenback’s rise.

Next week’s results from Apple Inc, Microsot Corp , Coca-cola Co and a slew of other companies will give investors a beter picture of how businesses are holding up in the face of the strong dollar and soaring inflation.

Investors are also awaiting what the Fed will have to say on those topics at its monetary policy meeting next week, at which it is widely expected to deliver another jumbo-sized 75 basis-point rate increase.

Overall, some 40% of S&P 500 revenues come from overseas, data from Factset showed. Information technology leads all sectors with 58% of revenues derived internationally, followed by materials with 56%, while utilities companies source just 2% of their revenues out of the United States, according to Factset.

The dollar’s strength threatens to combine with high inflation, supply chain issues and other factors to weigh on earnings, analysts said. “The rate of change on the dollar exhibits a strong negative correlation over time vs. S&P 500 earnings revisions. USD strength comes at an inopportune time for corporates already facing margin pressure and increasingly weaker demand,” Morgan Stanley’s analysts wrote.

So far, 5.1% of the S&P 500 companies that have reported their second quarter results have posted earnings above expectations, nearly half the average of 9.5% over the prior four quarters, according to Refintiv data.

Few can say when the dollar will turn, as the inflation-fighting Fed is expected to raise interest rates more aggressively than other central banks, boosting the U.S. currency’s appeal to yield-seeking investors.

Still, some are beting that signs of a peak in the dollar’s rally could balance out some of the damage caused by the burgeoning greenback.