Reuters
The optimism is welcome – but it may be misplaced. This week the Riyad Bank Purchasing Managers’ Index in Saudi Arabia hit its highest level in more than 10 years – a significant vote of confidence in the Arab world’s largest economy. There was positive news too on jobs in the kingdom. Employment rose “solidly” last year, the survey found.
Elsewhere, the local advisory house Jadwa Investment reported that consumer spending in Saudi Arabia rose by 7.5 percent last year – implying that ordinary people are happy to spend rather than save for the unforeseen. Government revenue and spending were also higher than budgeted, Jadwa said, using finance ministry figures. So far, so good.
But the PMI survey – which tends to reflect sentiment in the wider economy rather than oil – may more be a function of euphoria in international, specifically US, markets in the first weeks of the new administration in Washington. Since then, we have been disabused. Some of the more outlandish valuations in the US tech sector have deflated – thank you, DeepSeek and bad luck, Alphabet – and the international outlook is choppy. Distinctly choppy.
What can we deduce in a fast-moving, fluid period?
1) The GCC states are not for the moment in the sights of the Trump administration. Iran, on the other hand, most certainly is. See the Fox News interview with new secretary of state Marco Rubio. See also the evasions by President Trump when asked about Iran while hosting Israeli prime minister Benjamin Netanyahu in the White House.
2) Trump and his team are more committed to trade wars – or brinkmanship – than they were in his first term. US presidents have a history of making campaign commitments on tariffs to workers and then rolling back in whole or in part in office. But this does not appear to be the case this time. Trade is front and centre.
3) US interest rates are likely to stay higher for longer. As we all know, currencies in the GCC march in lockstep with the US Fed so that means the cost of borrowing in this part of the world will also remain higher for longer. The dollar and GCC currencies should remain strong.
4) Iranian barrels are likely to be removed from the oil market – although the effect will be drawn out, given the number estimated to be at sea. This will probably be offset by weaker Chinese hydrocarbon demand following the imposition of 10 percent tariffs.
5) Mexico, Colombia and Canada have for the moment escaped the Trump blunderbuss but China is copping it. Others are almost certain to follow.
6) There is a reward for mastery of detail and there is a point in much of what Trump says – although sometimes not. There are grounds for suggesting that Canadian lumber enjoys subsidy – see stumpage fees; the Mexican elite is shielded from the realities of the cartels and is often negligent (at best) of their activities; and China dumps steel. But allegations of illicit subsidy for European vehicles seem wide of the mark. Maybe, just maybe, German cars are better than their US counterparts euro for euro, dollar for dollar.
A small prediction: hedge funds will have a good year. Perhaps a good four years. Why? Because volatility is their friend. Markets whipsawed on Monday in response to the administration’s comments over the weekend.
Hedge fund strategies cover a multitude of sins but those that are focused on listed markets tend to like volatility to make money. Why? Because tough market conditions favour optionality – providers of insurance – expertise, and deep pockets.
Just a small prediction at a volatile time.
