Interpreting Middle East Economic News and Analyzing Market Trends

Archive for April, 2013

Falling oil price is actually a bad sign for the stock market

It’s too early to celebrate the falling oil price.  While there are obvious benefits to a falling oil price, namely cheaper gas at the pump for those in the developed world, the correlation with the stock market should not be discounted.  According to a recent story from CNBC, Brent Crude, the main benchmark for oil, has dropped 18% since February this year and there are still signs of lower prices coming up.  The reasons given for this drop were sluggish demand from China, Europe and the US. 

 

The oil price drop is being celebrated as a win for Japan, which has been relying more and more on oil for its energy since the Fukushima disaster in 2011.  A lower oil price for Japan means lower import cost (better trade balance) and lower inflation numbers (which I don’t think Japan wants right now).  However, a closer look at how the price of oil has been behaving in relation to the stock market and you can see that there really is no cause for celebration.

 

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Bailouts of bad debts do more harm than good

Kuwait’s dysfunctional parliament recently approved bailouts of bad consumer loans dating back as early as 2002.  The UAE and Saudi Arabia have both came up with similar solutions to bailout their citizens of their piles of bad debts, but is this good?  Who really benefits from bailouts and what is likely to happen down the road?  We’ve reported on this topic several times over the past few months, here, here, here and here.  Now it seems that a major ratings agency has come out against these bailouts due to their longer term effects on the economy.

 

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Abu Dhabi set to become largest foreign investor in Malaysia

Gulf countries have invested billions of dollars in Malaysia over the past decade.  Kuwait and Saudi Arabia were the earliest to invest, followed by Dubai.  The two most recent investors in Malaysia have been Qatar and Abu Dhabi. Up until now, Qatar was expected to be the largest foreign investor in the country, but now it looks as if Abu Dhabi might take that title.

 

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Earthquakes in Iran shake Gulf country leaders into discussing nuclear safety

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Source: BBC News

  

Two earthquakes one week apart near Iran’s Bushehr nuclear power plant not only shook buildings across the Gulf, but also shook the leaders of Gulf countries.  They are now rushing to take a close look at nuclear safety.  The Bushehr power plant sits right across the Gulf from Kuwait and Saudi Arabia’s main oil export terminals.  Any Fukushima-type event in Bushehr will affect millions of people in the region and will surely hit world markets as the Gulf’s main oil export routes are only a short distance away.

 

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Qatar backtracks on aid to Egypt, Libya joins in and gives Egypt $2 billion interest-free loan

Qatar has had a change of heart on giving more aid to Egypt.  Last month, Qatar announced that it was not going to give Egypt additional aid after pumping $5 billion into the country.  See our earlier post on this here.  Libya also joined in and is giving Egypt a $2 billion interest-free loan, which would have been unheard of before the Arab Spring.  Here’s the story from Reuters:

 

Arab allies Qatar and Libya gave cash-strapped Egypt a $5 billion double boost on Wednesday as the Arab world’s most populous nation struggles to secure an IMF loan to ease its deepening economic crisis.

Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani said after talks with Egyptian Prime Minister Hisham Kandil that Qatar would provide an extra $3 billion on top of some $5 billion the Gulf state has already given Cairo, and would extend gas supplies to Egypt this summer as needed.

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