Dollar just off 20-year highs, rally hinges on Fed signals

Dollar just off 20-year highs, rally hinges on Fed signals
Money markets are betting the Fed will raise rates as high as 3.6 percent by end-2023 to tame inflation at 40-year highs. (Shutterstock)
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Updated 04 May 2022

Dollar just off 20-year highs, rally hinges on Fed signals

Dollar just off 20-year highs, rally hinges on Fed signals
  • Dollar strength has weighed on other currencies, pushing the euro last week to two-decade lows around $1.0469

The dollar index pulled further away from 20-year highs on Wednesday, having already priced the US Federal Reserve to raise interest rates by a half-point later in the day and by some 250 basis points by year-end.

Currency markets have settled in to wait for the Fed’s 1800 GMT announcement and Chairman Jerome Powell’s news conference, having endured wild gyrations in recent weeks, with the dollar soaring to 20-year highs against a basket of currencies.

Money markets are betting the Fed will raise rates as high as 3.6 percent by end-2023 to tame inflation at 40-year highs.

Having kicked off its hiking cycle in March, the Fed is seen delivering a 50 bps move on Wednesday, with two more half-point hikes priced for the next two meetings.

It may also announce when it will start reducing its $9 trillion balance sheet.

Those bets lifted the dollar index 5 percent last month to around 103.93. It has since slipped 0.3 percent off those levels and by 00830 GMT, was at 103.39, slightly lower on the day.

“A major correction in the dollar would happen only if the Fed pushes back against hawkish market pricing and until they do that, there is a degree of freedom for markets to reprice the terminal rate to 4 percent,” ING Bank strategist Francesco Pesole.

“We are also in a situation where if you let go of dollar positions, where do you put your money?,” Pesole said, noting the effect of the Russia-Ukraine war on Europe and the economic slowdown in China.

Dollar strength has weighed on other currencies, pushing the euro last week to two-decade lows around $1.0469. It stood at $1.0512 on Wednesday.

“The fundamentals, the interest rate difference, the growth outlook, the risk-off mood, all tend to favor the dollar,” said Gergely Majoros, member of the investment committee at Carmignac.

“A lot of factors point to a stronger dollar and weaker euro...in our global portfolio we have increased dollar positioning.”

Some note markets’ expectations of future US inflation — so-called breakevens — derived from Treasury inflation-protected securities (TIPS) have eased, with 5-year breakevens around 3.2 percent, versus April highs of 3.6 percent.
ING’s Pesole dismissed the moves, however.

“If the Fed provides an indication they will aggressively front-load the tightening cycle and the back end of the Treasury curve comes off a bit, that will be the indication that markets are starting to price the Fed getting ahead of the curve (on inflation),” he added.


Saudi banks’ profits up 21% in December, central bank data shows

Saudi banks’ profits up 21% in December, central bank data shows
Updated 30 January 2023

Saudi banks’ profits up 21% in December, central bank data shows

Saudi banks’ profits up 21% in December, central bank data shows

RIYADH: Deposits in Saudi banks grew by 9 percent year-on-year to SR2.29 trillion ($609.97 billion) with the major chunk deposited by government agencies, the monthly bulletin issued by the Saudi Central Bank, also known as SAMA, showed.

Data showed that deposits by government entities rose by 27 percent, the highest in 16 years, reaching SR651.2 billion.

Saudi-listed banks reported a 21 percent rise in aggregate net profit before zakat and tax to SR6.16 billion in December 2022, compared to SR5.11 billion a year earlier.

The data covered the results of Tadawul-listed banks and some foreign banks operating in Saudi Arabia.

Banks’ aggregate assets increased nearly 10 percent year-on-year to SR3.62 trillion in December.

Loans issued to individuals in the Kingdom saw a 14 percent surge during 2022 reaching SR1.17 trillion by the end of 2022 as compared to SR1.02 trillion by the end of 2021.

The volume of residential real estate financing for individuals declined by 21 percent in 2022 for the first time since 2016. The total volume remained at SR123.4 billion.

The SAMA report showed that remittances from Saudi Arabia fell by 7 percent during 2022 to SR143.2 billion while remittances to the Kingdom from citizens living abroad recorded a growth of 11 percent to reach SR7.25 billion.

Assets held by the central bank shrank by SR63.8 billion month-on-month to SR1.93 trillion in December 2022. However, as compared to December 2021, SAMA’s assets rose by SR85.1 billion.

The central bank’s investments in foreign securities, which make up 58 percent of its total assets, edged down 0.2 percent year-on-year to around SR1.13 trillion last month.


 LEAP tech conference launches two competitions with a $1.5m prize pool

 LEAP tech conference launches two competitions with a $1.5m prize pool
Updated 30 January 2023

 LEAP tech conference launches two competitions with a $1.5m prize pool

 LEAP tech conference launches two competitions with a $1.5m prize pool

RIYADH: The world’s largest technical conference “LEAP” has launched two competitions with a SR6 million ($1.5 million) prize pool aimed at rewarding Saudi-based startups and boosting cloud technologies.

Supported by the National Information Technology Development Program and the Misk Foundation, the Rocket Fuel competition aims to support new businesses, highlight entrepreneurial projects, and build innovative solutions that address technical challenges.

As many as 90 local startups will compete for a chance to be one of 15 to be awarded a share of SR4 million, with a top prize of almost SR940,000.

As for the Alibaba Cloud hackathon, it aims to enhance cloud technologies in the Kingdom through a number of various challenges that will be set up prior to the start of the conference. The competition offers cash prizes amounting to SR2 million.

LEAP, which is set to kick off its second edition in Riyadh from Feb. 6 to Feb. 9, is anticipating the participation of major government and private agencies as well as technology and communications companies.

The conference is organized by the Ministry of Communications and Information Technology, the Saudi Federation for Cybersecurity, Programming, and Drones, and UAE-based IT services and consulting firm Tahaluf.


ACWA Power adds record desalination capacity to serve 5.5m more people daily 

ACWA Power adds record desalination capacity to serve 5.5m more people daily 
Updated 30 January 2023

ACWA Power adds record desalination capacity to serve 5.5m more people daily 

ACWA Power adds record desalination capacity to serve 5.5m more people daily 

RIYADH: Saudi-based ACWA Power created the largest water desalination capacity in the company’s history in 2022, enabling it to serve 5.5 million more people in the Gulf Cooperation Council region every day.

The power generation firm added a record-breaking 2.4 million cm3/day of water desalination capacity, according to a press release, through four reverse osmosis megaprojects in the Middle East pushing ACWA power’s aggregate water capacity up to 6.4 million cubic meters. 

Saudi Arabia’s water giant currently manages 16 projects in four different nations, and fulfills almost 30 percent of the Kingdom’s overall water needs.  

Desalinated water produced by the company reaches 40 million people daily, according to the international consumption per household.  

“ACWA Power has been at the forefront in mitigating water resources challenges over the past decade and a half through innovative, resilient solutions that are benefitting millions of people across the world,” said Kashif Rana, chief portfolio management officer of ACWA Power. 

“Enhancing capacity is a significant milestone not only for us, but for our industry. I am confident that through our expertise we will continue to build water security reliably and responsibly for Saudi Arabia and the world,” he added. 

The release further noted that reverse osmosis technology has been incorporated in all of the company’s projects, which saves up to 80 percent more energy than the conventional processes.

ACWA Power is anticipated to boost its capacity by around 15 percent through developing three new desalination projects in 2023.  

“As the leading water desalination operator in the world today, managing 6.4 million m3/day of desalinated water at lowest possible cost, ACWA Power is continuing to bring an innovative, and practical change to the industry, as we have been doing since 2006,” said Dr. Tariq Nada, the vice president of Water and Technical Service at the company.


Closing bell: Saudi bourse slips 29 points to close at 10,811 

Closing bell: Saudi bourse slips 29 points to close at 10,811 
Updated 30 January 2023

Closing bell: Saudi bourse slips 29 points to close at 10,811 

Closing bell: Saudi bourse slips 29 points to close at 10,811 

RIYADH: Saudi Arabia’s Tadawul All Share Index fell 28.81 points — or 0.27 percent — on Monday to close at 10,810.68. 

While MSCI Tadawul 30 Index ended flat at 1,492.97, the parallel market Nomu fell 27.67 points to 19,151.14. 

TASI’s total trading turnover of the benchmark index on Monday was SR5 billion ($1.33 billion), with 69 stocks of the listed 223 advancing and 135 retreating. 

Fawaz Abdulaziz Alhokair Co., also known as Cenomi Retail, was the topmost gainer of the day, rising 7.03 percent to SR18.88. 

The company was also the topmost gainer on Sunday as it rose 9.98 percent, following the announcement of its plans to divest 26 non-strategic brands to rationalize its brand portfolio. 

The franchisee retailer wants to focus on “champion brands” occupying the No. 1 or No. 2 positions in their sectors.  

The other top gainers were East Pipes Integrated Co. for Industry, healthcare player Al Hammadi Holding, Al Kathiri Holding Co., and Allianz Saudi Fransi Cooperative Insurance Co. 

The worst performer on Monday was Alinma Hospitality REIT Fund, which fell 4.80 percent to SR9.52 on its debut after opening at SR9.25. 

The SR1.2 billion fund was listed on Monday at SR10 per unit, taking the total number of real estate investment trusts in the primary market to 18. 

Subscriptions to the fund’s units took place during the period from Oct. 30 to Nov. 7, 2022. A minimum of 50 units were allocated to each subscriber, while the remaining shares were allocated pro-rata.    

The other stocks that performed poorly included Halwani Bros. Co., Yanbu Cement Co., Allied Cooperative Insurance Group, and Mulkia Gulf Real Estate REIT. 

Among sectoral indices, 12 of the 21 listed on the stock exchange declined, while one stayed flat and the rest advanced. 

The Media and Entertainment Index was the worst-performing sector as it fell 2.01 percent to 22,423.88, weighed down by its vital constituent, Saudi Research, and Media Group, which stumbled 2.48 percent to SR189. 

The Software & Services Index was the best-performing index thanks to Elm Co., which jumped 3.08 percent to SR354.60. On the other hand, Al Moammar Information Systems Co. moved up 2.34 percent to SR96.20. The other gainers were Arabian Internet and Communications Services Co. and Arab Sea Information System Co. 

On the announcements front, Saudi Paper Manufacturing Co. informed the stock exchange that its shareholders approved on Jan. 29 the board of directors’ recommendation to repurchase up to 1 million treasury shares, not exceeding 5 percent of the issued capital. 

The decision came as the board and executive management saw that the share market price was less than its fair value. 

The repurchase will be financed from the company’s resources using its cash balances or credit facilities, the company said in the statement to Tadawul.   


GCC banks to refrain from redeeming hybrid capital as volatility rises: S&P Report 

GCC banks to refrain from redeeming hybrid capital as volatility rises: S&P Report 
Updated 30 January 2023

GCC banks to refrain from redeeming hybrid capital as volatility rises: S&P Report 

GCC banks to refrain from redeeming hybrid capital as volatility rises: S&P Report 

RIYADH: Gulf Cooperation Council banks will refrain from redeeming the hybrid capital instruments at the first call date for the next 12 to 24 months, owing to the increasing volatility, scarce liquidity and significant rise in the cost of capital, said S&P Global Ratings in its latest report. 

Interest rates in the Gulf have been rising quickly as central banks matched course with the US in support of their currency pegs with the US dollar.

“Liquidity is becoming scarcer and more expensive, even in the Gulf. Current market conditions mean banks that replace an existing hybrid capital instrument with a new one could incur a significant increase in their cost of capital,” said Mohamed Damak, primary credit analyst at S&P Global Ratings in Dubai, in the report. 

Over the past decade, the GCC banks have shown a marked preference for conventional and Islamic hybrid capital instruments, resulting in their contribution to the total adjusted capital increasing from 2.3 percent at the end of 2011 to 13.5 percent as of Sept. 30, 2022. 

While some banks have abstained from issuing hybrid instruments, others have almost a quarter of their TAC in hybrids. Most GCC banks have also issued only additional Tier 1 instruments, which absorb losses or conserve cash while operational.  

For instance, banks in the UAE and Bahrain issued a large portion of their AT1 instruments on the international capital market in hard currencies. In contrast, Saudi Arabia and Qatar focused on the local market, with issuance denominated in local currencies. 

Local investors, in this case, may include cash-rich governments and their related entities, which invested in providing support for banks while receiving a defined return. 

“Both Islamic and conventional hybrid AT1 instruments allow issuers to suspend payments —periodic distributions for the Islamic instruments and coupons for the conventional instruments — without triggering a default, while the bank is still a going concern,” said Damak in the rating report.  

With low-cost hybrid instruments no longer available, S&P Global expects more noncall decisions in the GCC, such as Qatari and Omani issuers choosing to refrain from redeeming hybrid instruments on the first call date over the past three years.