US inflation slips in May, boosting hopes of more rate cuts this year despite policymakers signaling one rate cut

A handful of stories are competing for attention on planet finance, including US inflation figures — and the Fed’s decision to hold rates steady — and EY’s UK boss’ resignation. Closer to home, Saudi Arabia could be mulling changes to its tax regime to attract foreign investors to its local debt markets.

#1- US consumer prices remained unchanged in May, driven by lower gasoline prices offsetting higher costs for rental housing, according to the US Labor Department. This is down from a 0.3% increase in April.

The positive inflation reading boosted hopes for two rate cuts this year, one in September and another in December, despite policymakers indicating just a single rate cut in December in the Fed’s dot plot, Reuters reports. On the bright side, 2025 is expected to see four rate cuts — amounting to a 100 bps cut.

The US Federal Reserve kept its benchmark federal funds rate steady at a 5.25% to 5.5% range at yesterday’s meeting.

#2- CLOSER TO HOME- Is KSA mulling easing taxes to lure foreign investments in local debt? The Saudi Capital Market Authority (CMA) is considering eliminating a 5% withholding tax on interest payments for debt instruments, it said in a report (pdf) outlining a strategy to develop the Kingdom’s debt capital market. The potential tax change is one of several proposals on the table to help attract foreign investors to local corporate bonds.

The pitch: The withholding is “unattractive and discouraging for foreign institutional investors,” the CMA said in its report. The regulator will also look into easing requirements for debt offerings to encourage local issuances and work on facilitating trading, settlement and clearing of foreign-currency denominated debt instruments by local companies.

The rationale: The Saudi debt capital market is still nascent, particularly when compared to the equity market, which “has been a point of strength” in Saudi “thanks in part to a thriving environment for initial public offerings,” Bloomberg notes. Our friend EFG Hermes Head of Research Ahmed Shams El Din also told EnterpriseAM Saudi earlier this year that the “dark horse in Saudi Arabia is debt capital markets,” which are still lagging behind most emerging markets. A lacking debt capital market will make “the hype” on equity capital markets “not sustainable,” he told us.

ALSO- EY’s UK’s head Hywel Ball handed in his resignation, setting off a leadership race while the Big Four firm navigates a market downturn, the Financial Times reports, citing an email it has seen. Ball — who has helmed EY UK since 2020 and was handed a second tenure extension in January — wrote in the email that it was time to “hand the baton” to new leadership, with the internal selection process slated to be kicked off in 2H 2024, EY said in a statement.

MARKETS THIS MORNING-

Asian markets are rallying on news of the Fed keeping interest rates unchanged and gains in EV stocks in Hong Kong. Wall Street futures also rose, indicating a continued strong streak for US benchmarks this week.

THE CLOSING BELL-

The DFM fell 0.7% yesterday on turnover of AED 275. mn. The index is down 2.0% YTD.

In the green: Agility The Public Warehousing Company (+3.7%), Watania International Holding (+2.8%) and Orascom Construction (+1.8%).

In the red: Al Salam Sudan (-4.8%), Dubai Islamic Insurance and Reinsurance Co. (-3.9%) and Air Arabia (-3.5%).

Over on the ADX, the index closed down 0.8% on turnover of AED 485.4 mn. Meanwhile Nasdaq Dubai closed down 0.43%.

CORPORATE ACTIONS-

Naeem Holding for Investment approved the purchase of 7 mn treasury shares, amounting to 2% of the company’s total shares, on the condition that the transaction is completed within one month from today, according to a DFM disclosure (pdf).