How Rising Geopolitical Tensions & the Unwinding Yen Carry Trade Are Impacting UAE Equities & CBUAE Decisions

Dubai, 19 August 2024- After the yen carry trade triggered a spike in the VIX index, global equities, including those in the UAE, rebounded significantly. This recovery came in line with the positive expectations of a 25 basis points rate cut by the Federal Reserve in September.

Recent U.S. inflation data shows a slight uptick in the core Consumer Price Index (CPI) month-over-month from 0.1% to 0.2%, with the overall monthly CPI also increasing from -0.1% to 0.2%. This rise, driven by higher services inflation, suggests a 25-bps rate cut is more likely in September than a 50-bps cut. Meanwhile, the annual CPI decreased from 3% to 2.9%, revisiting 2021 levels. These developments have strengthened expectations for a rate cut by both the Fed and the Central Bank of the UAE (CBUAE).

Dubai, 10 July 2024 – Despite an air of uncertainty stemming from the US Presidential Elections and recent U.S. economic indicators demonstrating a decline in leading economic activity metrics, the UAE economy has been holding up with the latest CPI year-over-year figure decreasing from a six-month high of 3.91% to 3.81% at the second half of the year. Meanwhile, the U.S. CPI year-over-year has fallen from 3.4% to 3.3%.

Expecting a sluggish growth of commodity prices, wages, rents, as well as the increase of the UAE Dirham due to a strong US Dollar that could consequently moderate levels of inflation further, the CBUAE’s June 2024 outlook revised the 2024 inflation forecast down from 2.5% to 2.3%.