Go slow and steady with rate cuts, says the BIS: The Bank for International Settlements (BIS) warned central banks in its annual report (pdf) against cutting interest rates too soon, cautioning that it could reignite inflation. Despite signs that the global economy is headed towards “smooth landing” with cooling inflation and steady growth, the BIS says central banks need to set a “high bar” for easing policies.

REMEMBER- Central banks around the world are preparing to ease monetary tightening policies this year. The European Central Bank got the ball rolling with a 25 bps rate cut last month, ahead of the US Federal Reserve, which is set to start cutting rates by September.

“A premature easing could reignite inflationary pressures and force a costly policy reversal — all the costlier because credibility would be undermined,” BIS General Manager Agustín Carstens said.

Central banks should keep an eye on potential risks like high public debt and falling commercial property values, as well as inflation spikes in service prices and wages, Carstens said.

Service prices relative to core goods remain lower than pre-pandemic levels, while real wages have yet to keep up with higher costs — but a reversion of these trends that happens too fast will only spur inflation. The BIS estimates that catching up on lost purchasing power could raise inflation by up to 1.5% in major Eurozone economies by 2026.

MARKETS THIS MORNING-

Asian markets are mixed this morning, with the Nikkei and Kospi in the green and the ASX 200 and Shanghai Composite in the red. Markets are closed in Hong Kong this morning for a national holiday. Futures suggest US equities will start the trading week in the green, as will most major European benchmarks. The exception: France, where the CAC 40 looks set to come under selling pressure at the opening bell as investors digest the far-right Rassemblement National’s strong showing in the first phase of parliamentary elections.

ADX

9,061

+0.6% (YTD: -5.4%)

DFM

4,030

+0.5% (YTD: -0.7%)

Nasdaq Dubai UAE20

3,485

+0.7% (YTD: -9.3%)

USD : AED CBUAE

Buy 3.67

Sell 3.67

EIBOR

4.9% o/n

5.5% 1 yr

TASI

11,680

-0.4% (YTD: -2.4%)

EGX30

27,766

1.0% (YTD: +11.5%)

S&P 500

5,460

-0.4% (YTD: +14.5%)

FTSE 100

8,164

-0.2% (YTD: +5.6%)

Euro Stoxx 50

4,894

-0.2% (YTD: +8.2%)

Brent crude

USD 85.0

-0.3%

Natural gas (Nymex)

USD 2.60

-3.1%

Gold

USD 2,340

+0.1%

BTC

USD 61,974

+1.7% (YTD: +47.4%)

THE CLOSING BELL-

The ADX rose 0.6% yesterday on turnover of AED 1.7 bn. The index is down 5.4% YTD.

In the green: Abu Dhabi National Ins. Company (+12.4%), Union Ins. Company (+8.3%) and Taqa (+7.5%).

In the red: Rapco Investment (-9.8%), Commercial Bank International (-4.8%) and Emirates Stallions Group (-4.8%).

Over on the DFM, the index closed up 0.5% on turnover of AED 709.8 mn. Meanwhile Nasdaq Dubai closed up 0.7%.

CORPORATE ACTIONS-

SCA greenlights Apex-IHC Real Estate share swap: IHC Real Estate is set to finalize the acquisition of nearly 155 mn shares — equivalent to less than a 0.3% stake — in Abu Dhabi investment firm Q Holding via a share swap with IHC subsidiary Apex Investment today, according to a disclosure (pdf). This comes after the Securities and Commodities Authority (SCA) approved the transaction on Saturday. Apex will obtain some 29.5 mn shares of equal value held by IHC Capital in the investment holding company Alpha Dhabi in return.

Background: Apex Investment’s board approved the sale (pdf) in April. IHC Real Estate currently owns 32.3% of Q Holding after transferring 49% of its stake to Q Holding in February, according to the ADX. Meanwhile, IHC Capital holds a 76.14% stake in Alpha Dhabi.

Tags: