Global anxieties set to trickle down

Further bouts of volatility are expected to hit local and global markets this week as concerns about the global economy persist.

Anxieties in the regional markets have been stoked by Standard & Poor's downgrading of the US's top-notch credit rating and fears the euro-zone debt crisis might deepen. Ali Haider / EPA

Fresh volatility is likely to hit regional markets as worries about the global economy filter down to local investors.

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Gulf markets will resume digesting global news after a hiatus because of the Eid Al Fitr holidays.

"More volatility is to be expected," said Jarmo Kotilaine, the chief economist of NCB in Saudi Arabia. "Clearly, the basic assumption about the expectations for the global economy have been downgraded quite significantly."

Before the break, most regional markets had begun to claw back losses after a period of heavy selling across global bourses last month. Anxieties had been stoked by Standard & Poor's downgrading of the US's top-notch credit rating and fears the euro-zone debt crisis might deepen.

Before the break began on Tuesday, the Dubai Financial Market General Index rose 1.22 per cent to 1,492.44 points, its highest close since August 4.

The Abu Dhabi Securities Exchange General Index ended near a four-week high, closing 0.54 per cent up at 2,616.02.

Yesterday, Saudi Arabia's Tadawul All Share Index, the first regional bourse to reopen after the break, continued the trend. It edged up 2.1 per cent to 6,106.93 at close of trading.

Investor focus this week will be on several global events. Barack Obama, the US president, will make a speech to Congress on Thursday in which he may explain how he plans to create jobs needed to stimulate the economy. Investors will also be closely watching the speech for any signs the government may be poised to pour more stimulus funds into the financial system.

Friday's weak jobs data added to expectations the Federal Reserve may be poised to embark on a fresh round of quantitative easing after it next meets on September 20.

The Fed discussed how to bolster the country's recovery and private-sector hiring at its last meeting on August 9. Eyes will also be trained on the Group of Seven finance ministers and central bankers meeting in Marseilles on Friday and Saturday.

Investors will be looking for some signs of cohesion and agreement from the meeting about both the seriousness of the economic dip and how it can be arrested.

Some central banks, including the European Central Bank, also meet during the week as the euro-zone debt crisis rumbles on.

In Germany, the country's constitutional court will rule on Wednesday whether the government's contribution to sovereign bailout packages was legal.

The past week has already included some worrying reminders about the fragility of growth.

For the first time in nearly a year, the US economy failed to add jobs, data showed on Friday. The poor jobs report, together with a lack of progress in assisting debt-straddled Greece, rocked financial markets. The S&P 500 closed 2.7 per cent lower at 1,171.90. In Europe, London's FTSE 100 ended down 2.3 per cent at 5,292, while Frankfurt's Dax closed 3.4 per cent lower at 5,538.3.

A series of weak global manufacturing reports from the US, China and Germany also added to the gloom last week.