GulfBase GCC Cap Indices
IndexLevelChg%
Large Cap4,019 -0.10
Med Cap3,848 -0.05
Small Cap4,895 -0.24
Micro Cap8,498 -0.25

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Ticker Price Volume
GFH 0.5 1,361,733
BKSB 0.14 70,617
DANA 0.62 13,288,208
DAMAC 3.85 372,716
DSI 0.39 34,049,322
ALINMA 16.47 22,194,374
SABIC 98.09 2,208,800

Market Review and Outlook

Source: NCB Capital

Saudi Inflation Bites Again
Inflation in Saudi Arabia will stabilize at a high level by the end of this year. The depreciation of the USD together with higher global commodity prices will feed into inflation through higher import costs. Recent data show that inflation has increased for the first time in four months to 4.4% Y/Y in Sep from 4.1% Y/Y in Oct. After falling by an average of 2.6% through the first seven months of the year, food prices increased by 1% M/M in Aug and 1.3% M/M in Sep. This coincided with high seasonal demand during the month of Ramadan. Rents, which increased by 0.3% M/M in Sep, continued to drive inflation as housing supply remains below demand. A weaker USD could also add to wage pressures and input costs in the construction sector. With domestic demand expected to recover in 2010, Saudi Arabia may be at a risk of higher inflation if the USD depreciates further. This, however, will not alter the position of SAMA, which has kept interest rates at the same level since its last cut in Jun. In addition, there has been no pressure on the currency peg, as reflected by the SAR's one-year premium over spot prices. To the extent that Saudi Arabia has fiscal room to increase current expenditure, the government will probably maintain subsidy programs to lessen the impact of inflation on lower income groups.

A “Jobless” Recovery
Last week, news that the US economy grew by 3.5% Y/Y in 3Q09 sparked a wave of optimism in the markets. However, recent employment data, which revealed that the unemployment rate surged from 9.8% to 10.2% in Oct, confirmed that this was but a fleeting sentiment. Non-farm payrolls declined by 190k, illustrating that the recovery in output, which began in 2Q09, is not being matched on the employment side. Job losses continued to pile in the goods producing sector, with manufacturing and construction posting sharp declines of 62k and 61k respectively. In the service providing sector, the overall fall (61k) was buoyed by employment gains in Education & Health (45k) and Professional & Business services (18k). Slightly encouraging is that Oct’s 190k decline is significantly lower than 2Q09’s monthly average labour loss of 225k. While this may suggest that the labour market is starting to stabilize, it remains a long way away from recovery. With employment prospects low and credit conditions still tight, US households will not be able to smooth their consumption pattern, threatening growth. Going forward, the “joblessness” which now characterizes the US economy, will pose a major drain on the recovery.

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