Gulf Stocks Fall as Warsh's Comments Revive Fed Rate-Hike Bets

Gulf stock markets closed lower on Sunday as investors became cautious after Federal Reserve Chair Kevin Warsh signaled that U.S. interest rates may need to remain elevated to ensure inflation returns to the central bank's 2% target.

Warsh's comments at the Fed's annual economic symposium in Jackson Hole prompted a sharp repricing of U.S. monetary policy expectations, with market-implied odds of another U.S. rate increase climbing to 55.7%, from 35.4% on Thursday, according to CME Group's FedWatch tool.

The shift is significant for Gulf markets because most regional currencies are pegged to the U.S. dollar. Higher U.S. yields can make dollar-denominated bonds more attractive relative to emerging-market equities, while increasing borrowing costs for companies and households.

Saudi Arabia's benchmark index fell 0.7% for a second consecutive session, with most constituents ending in negative territory. Qatar's benchmark index edged 0.1% lower, with financial and communications stocks weighing on the market.