Investors are fearing another slack trading week driven by events overseas as a slump in the price of oil pushes Brent crude below US$100 per barrel for the first time in two years.
Dismal economic data from the US sent the price of oil to new lows on Friday. Brent crude futures fell $3.27 to $99.76 per barrel, the lowest since February last year, while Nymex crude lost $3.30 to $83.23 per barrel.
Both of the UAE's market measures sank last week, with the Dubai Financial Market General Index ending off 0.5 per cent at 1,471.49 and the Abu Dhabi Securities Exchange General Index falling 0.9 per cent to 2,441.03, capping its fifth consecutive week of declines.
The S&P AFE 40 index of Arab blue-chip stocks lost 1.3 per cent last week to 53.55.
Markets could fall further during the week ahead, with investor anxiety about spillover from Europe's economic misadventures set to intensify, said Marwan Shurrab, chief trader at Gulfmena Alternative Investments.
"Currently, we're held hostage by international events, and that's been dictating performance for the markets here in the region," he said. "The fears are not only about Greece but contagion from Greece."
Any signal of how events in Athens will play out on the euro zone's sovereign debt crisis would have a major impact on local market performance, Mr Shurrab added.
Greece is set for a second round of elections on June 17, following last month's poll, which failed to produce a government.
Egypt's presidential run-off vote, which takes place on June 16 and 17, could make for an equally bumpy ride for investors.
Investor jumpiness over the Egyptian election could heighten further as the result remains too close to call, analysts from Bank of America Merrill Lynch wrote in a research report.
"The presidential run-off race remains divisive and close, potentially undermining the legitimacy of an incoming government," the bank said.
Most closely watched of all will be the prospects of a $3.2 billion (Dh11.75bn) IMF loan intended to shore up Egypt's quickly deteriorating public finances.
"An IMF deal would likely be delayed further in the absence of a political consensus and power-share arrangements, in our view," Merrill's report added.
"As the IMF programme requires broad political support, achieving a political consensus on multilateral aid and reforms would be paramount."
In Abu Dhabi, the days ahead are expected to shine light on merger talks between Aldar and Sorouh, after they announced in March they would study plans for a tie-up with the "blessing" of government.
Details of the potential merger are expected to be released by June 11.
Meanwhile, disappointing jobs numbers did little to lift spirits on Wall Street on Friday, which is expected to weigh on Gulf markets when trading resumes.
The world's largest economy added only 69,000 jobs last month to leave the unemployment rate unchanged at 8.2 per cent, according to the Bureau of Labour Statistics.
Adding less than half the number of jobs forecast by economists, the employment report pointed to a decelerating pace of recovery in the US, analysts from Capital Economics wrote in a research note.
"Given the marked slowdown in employment growth, Fed chairman Ben Bernanke's congressional testimony on the economic outlook on Thursday is now going to be even more closely watched for any hint that a third round of quantitative easing (QE3) is coming," the report said. "We still don't think it is the near certainty some commentators seem to believe. Nevertheless, it does now appear that the global slowdown and events in Europe in particular are beginning to have a more marked impact on the US economy."
The Saudi Tadawul All-Share Index lost 4.22 per cent to 6,681.18 yesterday, the only Gulf market trading.
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