Expect US interest rates to be front and center on the news agenda this week as the Federal Reserve holds its two-day federal open markets committee meeting Tuesday and Wednesday.

There’s no clear trigger in sight for the Fed to start cutting rates, and Fed boss Jay Powell has made clear that the central bank is in no hurry after a surprise uptick in US inflation this year.

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And some traders are now putting money on what the Financial Times says was until recently “unthinkable”: The (still small) chance that the Fed could raise rates once again, so fearful is it of inflation. Options data reviewed by the salmon-colored paper suggests there’s a 20% probability the Fed will raise rates in the next 12 months — compared to a probability of less than 10% at the beginning of the year. Food for thought.

Perhaps the bigger question in the long term: Where do rates settle, the Wall StreetJournal wonders this morning. “At issue is the neutral rate of interest: the rate that keeps the demand and supply of savings in equilibrium, leading to stable economic growth and inflation.”

What’s the neutral interest rate (or “r-star” or r* in insider-speak) likely to be? It’s tough to tell, because you can only really judge it in your rearview mirror. Five years ago, many figured it was below 2.4%. Today, with US businesses and consumers shrugging off interest rates north of 5%, some wonder if it isn’t set higher thanks to new dynamics in the global economy.

What dynamics? Per the WSJ: “Soaring government deficits and strong investment driven by the green-energy transition and an artificial-intelligence-fueled frenzy for electricity-intensive data centers. Higher productivity from AI could also lift long-run growth” and, with it, the neutral rate.

MARKETS THIS MORNING-

Asian benchmarks are in the green in early trading this morning, with the Shanghai Composite the only outlier (it’s down less than 0.1%). Markets are closed in Japan today for Shōwa Day, which honors the birthday of Emperor Hirohito. Stock futures for European and major US indexes are comfortably in the green right now, suggesting they’re likely to open in positive territory later today.

TASI

12,231

-0.2% (YTD: +2.2%)

MSCI Tadawul 30

1,545

+0.4% (YTD: -0.3%)

NomuC

26,231

-1.7% (YTD: +6.9%)

USD : SAR (SAMA)

3.75 Buy

3.75 Sell

Interest rates

6% repo

5.5% reverse repo

EGX30

24,640

-4.9% (YTD: -1%)

ADX

9,042

+0.01% (YTD: -5.6%)

DFM

4,148

-0.5% (YTD: +2.2%)

S&P 500

5,100

+1% (YTD: +6.9%)

FTSE 100

8,140

+0.8% (YTD: +5.3%)

Euro Stoxx 50

5,007

+1.4% (YTD: +10.7%)

Brent crude

USD 89.50

+0.6%

Natural gas (Nymex)

USD 1.92

-3.2%

Gold

USD 2,347

+0.2%

BTC

USD 63,602

+0.5% (YTD: +50.6%)

THE CLOSING BELL: TADAWUL-

The TASI fell 0.2% yesterday on turnover of SAR 4.9 bn. The index is up 2.2% YTD.

In the green: Thimar (+9.9%), SSP (+5.1%) and APC (+5.1%).

In the red: Chubb (-9.9%), AlSagr Ins. (-8%) and Salama (-7.2%).

THE CLOSING BELL: NOMU-

The NomuC fell 1.7% yesterdayon turnover of SAR 31.3 mn. The index is up 6.9% YTD.

In the green: View (+9.4%), Watani Steel (+5.4%) and Nofoth (+4.8%).

In the red: United Mining (-10.6%), Meyar (-7.7%) and Apico (-7.3%)

CORPORATE ACTIONS-

#1- Leading food company Savola submitted an application to the Capital Market Authority (CMA) to more than double its capital to SAR 11.3 bn through a SAR 6 bn rights issue, it said in a disclosure to Tadawul.

#2- STC’s shareholders approved a special one-time dividend of SAR 4.9 bn at SAR 1 per share for 2023, it said in a filing to Tadawul (pdf). Payments are set to roll out on Wednesday, 15 May, it added.

#3- Shareholders of Nomu-listed Marble Design approved a dividend payout of SAR 10.2 mn at SAR 1.7 a share for 2H 2023, it said in a disclosure to Tadawul.

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