Stock markets in the Gulf region exhibit a mixed response due to corporate earnings reports and rising US inflation.
Mixed Reactions in Gulf Stock Markets as U.S. Inflation Data and Tariff Deadline Approach
The U.S. inflation data and the approaching U.S. tariff deadline on China have led to mixed reactions in Gulf stock markets, with investor sentiment influenced by expectations over Federal Reserve rate cuts and tariff impacts.
Most Gulf equity indexes showed modest fluctuations around mid-August 2025, reflecting cautious positioning ahead of the inflation report and tariff expiry.
Key points include:
- U.S. inflation data impacts Federal Reserve's rate policy expectations, which in turn affect Gulf markets where currencies are mostly pegged to the U.S. dollar. Traders priced about a 90% probability of a Fed rate cut easing in September and at least one more by year-end.
- If U.S. inflation is hotter than expected, it could delay rate cuts, causing negative sentiment in Gulf stocks and currencies. Conversely, positive inflation data raising hopes of rate cuts tend to lift Gulf stock indexes.
- Stock market performance was mixed: Saudi Arabia's benchmark index dropped about 1% over consecutive sessions, weighed down by losses in companies like Saudi Advanced Industries, MBC Group, and Al-Dawaa Medical Services, reflecting weaker corporate earnings. Other Gulf markets showed minor gains or stability, with Kuwait (+0.2%), Qatar (+0.1%), Oman (+0.2%), and Dubai (+0.1%) recording small rises, while Bahrain (-0.2%) and Abu Dhabi (-0.1%) were slightly down.
- The expiry of the U.S. tariff deadline on China is a significant external factor but market participants were still awaiting concrete impacts, leading to cautious trading in the region.
Regarding currencies, the Gulf currencies largely pegged to the U.S. dollar are influenced by the dollar's weakening trend, which is linked to expectations of Fed rate cuts and the global trade environment. The U.S. dollar has been weakening against major currencies, and this is a mixed blessing for Gulf economies:
- A weaker dollar can reduce import costs but can also exert pressure on currency pegs and monetary policies in the Gulf, which must mirror U.S. interest rates except for Kuwait’s dinar, which tracks a basket of currencies.
In Egypt, core inflation rose to 11.6% year-on-year in July, while companies like Al-Dawaa Medical Services Co reported a 9.7% year-on-year decline in quarterly net profit. Key U.S. inflation data and the expiry of the U.S. tariff deadline on China are awaited, which could further influence the direction of Gulf stock markets and currencies.
[1] Reuters, "Gulf stock markets mixed as investors weigh earnings, tariff impacts," August 15, 2025. [2] Bloomberg, "Saudi Arabia's Benchmark Stock Index Falls for Third Straight Session," August 17, 2025. [3] Arab News, "MBC Group drops 4.1% to 30.3 riyals per share," August 18, 2025. [4] Gulf Business, "Why the U.S. dollar's weakening trend matters for Gulf economies," August 19, 2025.
- The U.S. inflation data's impact on the Federal Reserve's rate policy expectations could influence Gulf markets, as traders anticipate a 90% probability of a Fed rate cut in September and another by year-end.
- In contrast to Saudi Arabia's benchmark index, other Gulf markets like Kuwait, Qatar, Oman, and Dubai showed minor gains or stability, while Bahrain and Abu Dhabi were slightly down. This stock market performance was mixed, reflecting weaker corporate earnings in certain companies.
- The U.S. tariff deadline on China is another significant external factor affecting the Gulf stock markets and currencies, but market participants are still awaiting concrete impacts, leading to cautious trading.
- Moreover, the dollar's weakening trend, linked to expectations of Fed rate cuts and the global trade environment, can reduce import costs for Gulf economies, but it can also exert pressure on currency pegs and monetary policies, particularly in Gulf countries whose currencies are mostly pegged to the U.S. dollar.
