Gulf Markets React to U.S. Rate Cut Prospects Amid Policy Uncertainty

U.S. Federal Reserve policymakers' recent dovish statements have reignited speculation about a December rate cut, triggering mixed performances in Gulf stock markets. Fed Governor Christopher Waller indicated on Monday that the labor market's softening "justifies a 25-basis-point rate cut at the December meeting," though further easing depends on delayed economic data from the government shutdown. This follows New York Fed President John Williams' assertion that interest rates are "likely to decline in the near term," further fueling market expectations. According to the CME FedWatch Tool, investors now price an 81% probability of a December cut, up from 40% the previous week.

The Gulf's financial markets, where most currencies are dollar-pegged, exhibit divergent responses to these developments. Dubai's DFMGI index rose 0.4%, driven by gains in infrastructure operator Salik Company (1.7%) and developer Emaar Properties (1.1%). This aligns with the emirate's approval of a 2026-2028 budget totaling 302.7 billion dirhams ($82.42 billion) in expenditures and 329.2 billion dirhams ($89.64 billion) in projected revenues. Conversely, Saudi Arabia's TASI index fell 0.2%, pressured by a 1.2% drop in Saudi Aramco shares and a 3.2% decline in the Saudi Tadawul Group. The oil giant is reportedly exploring asset sales to raise "several billion dollars," according to Bloomberg.

Oil prices, a critical driver for Gulf markets, declined on Tuesday as concerns over potential global supply gluts outweighed worries about Russian export sanctions. This volatility underscores the region's exposure to U.S. monetary policy and global energy dynamics. In Abu Dhabi, the FADGI index edged up 0.2%, while Qatar's GNRI index fell 0.7%, with Qatar Islamic Bank shares dropping 0.7%.

Meanwhile, financial institutions globally are responding to rate-cut expectations. Banks and other financial firms saw share price gains as mixed economic data heightened bets on policy easing. In the Netherlands, ABN Amro announced plans to cut thousands of jobs over three years to improve profitability. Separately, Optimum Communications filed an antitrust lawsuit against Apollo Global Management and Ares Management, alleging collusion to restrict its access to U.S. credit markets.

The interplay between U.S. monetary policy and Gulf markets highlights the region's dual dependence on dollar-linked currencies and energy exports. Dubai's budgetary framework, with its emphasis on balancing expenditures and revenues, reflects strategic efforts to maintain fiscal stability amid shifting global conditions. Saudi Aramco's potential asset sales signal a broader trend of Gulf states diversifying revenue streams beyond oil, though short-term market volatility persists.

In the broader financial sector, the rise in rate-cut expectations has intensified cost-cutting measures and legal challenges. ABN Amro's restructuring underscores the pressure on banks to adapt to lower-interest-rate environments, while Optimum's lawsuit highlights regulatory risks in competitive credit markets. These developments illustrate how U.S. policy signals ripple through global financial systems, influencing both institutional strategies and market sentiment.