The OECD warns of higher-for-longer rates in 2024, contrary to bullish markets

Central banks could keep rates higher than expected in 2024: The OECD reckons that central banks will maintain a hawkish monetary policy despite a historic rally in financial markets, according to its most recent Economic Outlook.

What gives? Continuing cost pressures for businesses alongside rising food and energy prices for consumers could drive a tighter monetary policy than is currently projected for 2024, according to the report. Rising geopolitical tensions if the war in Gaza were to persist or become a wider conflict are also a concern, the OECD said.

Bullish market behavior is saying something else: The Bloomberg US Aggregate bond index has risen to 4.3% so far this month, putting bonds on track for their best monthly performance since 1985, as traders hedge their calls that the Federal Reserve has finally stopped raising interest rates. Markets picked up further speed this week after a Fed official hinted at the possibility of rate cuts in the coming months, sending the USD to its lowest level in three months.

Refresher: The Fed embarked on an aggressive monetary tightening policy in March 2022 in the wake of soaring inflation triggered by the Ukraine war. Its recent decision to hold rates steady at a 22-year high at 5.25-5.5% for the second consecutive month after encouraging inflationary data had pundits saying the Fed might have taken rates as far as it is willing.

Too much monetary tightening could risk an economic downturn, with a “more severe slowdown in spending, rising unemployment and higher bankruptcies,” the report warns.

And the US economy certainly seems to be in good shape, persistent hand-wringing about a recession notwithstanding: US GDP grew at a 5.2% clip in 3Q, slightly higher than the 5% analysts penciled in, despite persisting concerns about the possibility of a recession, Reuters and CNBC reported overnight.

The OECD sees global GDP growth slowing to 2.7% in 2024, down from the organization’s previous 2024 projection of 2.9%. G20 countries are expected to take a hit, with US growth in particular falling from 2.4% this year to 1.5% in 2024. That would present a challenge to policymakers who have been aiming for a “soft landing.”

But 2025 could be better, the group says, saying falling inflation and real income growth could see global output grow at a 3% clip in 2025.

On interest rates, a higher-for-longer approach would take a toll on emerging markets:Restrictive monetary policy would put pressure on debt repayments for emerging-market and developing countries with large stocks of FX debt, the OECD warned.

That’s a risk for us: Egypt’s external debt accounted for 41.8% of its GDP in 2023, and we’re due to cough up some USD 29 bn next year. With tighter rates translating to a stronger USD, a hawkish Fed would see imports even more expensive here at the same time as we look at the prospect of the EGP floating after December’s presidential poll.

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Dubai Taxi’s USD 315 mn IPO got USD 41 bn in orders: Dubai Taxi received AED 150 bn (USD 41 bn) in orders for its AED 1.2 bn (USD 315 mn) initial public offering, with orders from investors covering the transaction 130x, according to a statement (pdf) from the company. The appetite came from both institutional and individual investors, it said.

The transaction: The Dubai government is selling a 25% stake at AED 1.85 per share and has priced the offering at the top of the range it had initially offered on the back of strong demand, valuing the company at AED 4.6 bn (c. USD 1.26 bn).

More retail shares will be on offer after global coordinators retail tranche to 12% of the offering from 10% originally.

ADVISORS- Rothschild & Co. Middle East is serving as the financial advisor. CitiGroup, Merrill Lynch and Emirates NBD are global coordinators and joint bookrunners. Our friends at EFG Hermes and FAB are also bookrunners on the transaction.

GPCA to set up shop in Abu Dhabi: The Global Private Capital Association (GPCA) will collaborate with the Middle East Venture Capital Association (MEVCA), according to a press release. Under the partnership, New York and Singapore-based GPCA will set up its first Middle East headquarters in Abu Dhabi.

THE CLOSING BELL-

The TASI rose 0.02% yesterday on turnover of SAR 4.3 bn.The index is up 6% YTD.

In the green: Anaam Holding (+9.1%), SPIMACO (+8.3%) and Albaha (+7.1%).

In the red: SRMG (-4.3%), Naseej (-3.6%) and Lumi (-3.2%).

CORPORATE ACTIONS-

It’s official- Gulf General Cooperative Ins. is going to tighten up its capital:Gulf GeneralCooperative Ins. Co. said it has submitted the company’s capital reduction application file to the Capital Markets Authority (CMA) for approval, it said in a disclosure to Tadawul yesterday. The ins. company seeks a capital reduction of SAR 200 mn from accumulated losses through a write-off of 20 mn shares. The write-off will bring the company’s capital to SAR 300 mn, it said.

We’ve been expecting this: Earlier this month, Gulf General Cooperative Ins. appointedYaqeen Capital as its financial advisor to help manage the capital production process.