UAE Stocks Slide Ahead of August US Inflation Data Release
UAE stocks have taken a hit as investors await the release of US PCE inflation data for August. The FTSE ADX General Index in Abu Dhabi fell by 0.612% and Dubai's DFM General Index slid by 0.458%. Economists are predicting a 0.3% month-on-month increase in headline PCE, along with a 3.7% year-on-year rise.
The core PCE reading, which strips out food and energy costs, is expected to be around 0.3% month-on-month and 3.3% year-on-year. A softer inflation reading could signal that rate pressure is easing, while a hotter reading might revive fears of higher interest rates.
ING has warned that a 0.4% core PCE print, especially alongside firm jobs data, could nudge October rate-hike odds back toward around 20 basis points of tightening priced in. This could have a ripple effect on UAE borrowing costs due to the dirham's peg to the US dollar.
As a result, traders are repriceing the expected path for US policy rates, which can translate into higher funding costs and a higher 'discount rate' used to value future corporate profits. Rate-sensitive stocks in the UAE, including big lenders like Emirates NBD, may feel this impact quickly.