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KHALEEJ TIMES, Thursday, Jan 10, 2019 | Jumada Al Awwal 4, 1440

Oil, equity markets gain but uncertainty looms ahead

Emirates: Dubai - Oil price and equities markets in the GCC and Asia continued their positive momentum that began from the beginning of the year, helped by a positive outcome of the US-China trade war talks, strong US jobs data as well as dovish comments from Fed Chair Jerome Powell.

But analysts say that the coming weeks could witness heavy volatility due to concerns regarding US government shutdown, Brexit uncertainty and flat global economic growth.

On the equity front, all major Gulf markets rose for a 3rd straight session on Monday, boosted by financial stocks amid rising oil prices, while Saudi Arabia and Qatar gained sharply as most of their banks increased.

The UAE stocks continued their upward momentum in line with surge in regional markets with Dubai bourse rising 0.14 per cent to 2,534 points and Abu Dhabi gaining 0.6 per cent to 4,934 points. Among other regional markets, Saudi Arabia's Tadawul Index gained 1.4 per cent to 8,048 points; Oman's Muscat Securities Market rose 0.23 per cent to 4,312 points; Qatar's index jumped 1.4 per cent to 10,494 points; Kuwait moved up half a per cent to 5,403 points; while Bahrain remained flat at 1,331 points.

In Abu Dhabi, the UAE's largest lender First Abu Dhabi Bank climbed 1 per cent and Emirates NBD, gained 2.1 percent, helping the indices to remain in positive territory.

On Monday, oil prices gained 2 per cent with Brent trading at $58.2 per barrel. Crude price have jumped 12 per cent since last Monday as the market absorbed cuts in Opec output that came in to effect in January.

Lukman Otunuga, research analyst at FXTM, said financial markets are clearly extremely sensitive to US-China trade developments and this continues to be reflected in equities, crude prices and currencies.

"A sense of optimism over US-China trade talks ending on a positive note seems to be supporting risk sentiment today. However, investors could experience a rude awakening if reality fails to mirror expectations. While a breakthrough deal between both sides seems unlikely, any signs of cooperation or plans for further discussions will be a welcome development for global markets as trade tensions cool," Otunuga said.

However, if talks conclude on a sour note - risk aversion is poised to return with a vengeance. "It must be kept in mind that a trade war presents a major threat to global growth and stability. Such unfavourable market conditions will place equity markets, crude prices and riskier currencies in the firing line," he said in a statement to Khaleej Times.

Syed Zeeshan Kazmi, deputy manager, IGI Financial Services, said crude oil price rebound may struggle on US-China trade war fears.

"The spotlight now turns to Beijing, where a delegation from Washington DC has arrived for talks meant to de-escalate the US-China trade war. Traders will be monitoring sound bites emerging from the gathering, which will run through Tuesday. Comments hinting at rapprochement are likely to lift investors' mood, pushing crude oil higher alongside shares while gold falls inversely of rising yields," Kazmi said.

Hussein Sayed, chief market strategist at FXTM, noted that many indicators have indicated a peak in the US. economic cycle, including most recent economic surveys, financial conditions, housing data, and the inversion of the US Treasury yield curve.

"Adding this together with trade tensions, political risk, fading fiscal stimulus, and a tighter US monetary policy; the economic outlook is expected to look much more vulnerable in 2019", remarked Sayed.

Going forward, Otunuga of FXTM believes geopolitical risk factors such as Brexit-related uncertainty, heightened political risk in Europe, chaos in Washington and slowing growth momentum in China continue to weigh heavily on sentiment.

"Fears revolving around plateauing global economic growth remain a drag on equity markets while oversupply concerns and demand worries are seen punishing oil prices down the road. With a government shutdown in the US compounding uncertainty, the coming weeks for financial markets are at threat of being explosively volatile and wildly unpredictable," he added.

European markets retreated Monday as the focus turned to trade issues. Germany's DAX was down 0.6 per cent at 10,706 while the FTSE 100 index of leading British shares and CAC 40 in France fell 0.6 per cent each.

In US, the Dow Jones Industrial Average rose 28.01 points, or 0.12 per cent, at the open to 23,461.17. The S&P 500 opened higher by 3.67 points, or 0.14 per cent, at 2,535.61. The Nasdaq Composite gained 18.68 points, or 0.28 per cent, to 6,757.54 at the opening bell.

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