Bonds Rise on Rate-Cut Bets; Gold Dips Below $5,000 | Horizons Middle East & Africa 2/16/2026

Key Concepts

• CPI (Consumer Price Index): A measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
• Supercore Inflation: Inflation excluding volatile components like food and energy, providing a clearer picture of underlying price pressures.
• Yield Curve: A graphical representation of the yields of bonds with different maturities. A steepening yield curve can benefit banks.
• Goldilocks Economy: An economic condition characterized by moderate economic growth and stable inflation.
• Lunar New Year: A significant cultural holiday in many Asian countries, often resulting in market closures.
• Takaichi Trade: A reference to the potential benefits of proactive government spending policies in Japan, named after a key proponent.
• Geopolitical Risk: Risks stemming from political events or instability in different regions.
• De-risking: Reducing exposure to risk, often through diversification or hedging.
• Basel III: A set of international banking regulations designed to strengthen the regulation, supervision and risk management of banks.

U.S. & Global Economic Overview & Market Analysis (February 19, 2024)

This broadcast of "Horizons Middle East and Africa" covered global market movements, geopolitical developments, and economic data releases as of February 19, 2024. The session was impacted by the Lunar New Year holiday closures in Asia and President’s Day in the U.S., resulting in thinner trading volumes.

1. Market Performance & Economic Data

• U.S. CPI Data: U.S. CPI data released Friday came in slightly higher than expected (2.4% year-on-year), mildly dampening expectations for aggressive interest rate cuts. However, the “supercore” inflation (excluding food and energy) is around 2%, aligning with the Federal Reserve’s target when volatile components are removed.
• Interest Rate Expectations: Despite the CPI data, markets are still pricing in approximately 60 basis points of rate cuts by the end of the year.
• Currency Movements: The U.S. Dollar (USD) was slightly positive, up seven basis points, despite reduced expectations for rate cuts. Gold slipped 1.3% following the CPI release.
• European Markets: European markets were leaning positive, influenced by geopolitical factors and takeaways from the Munich Security Conference.
• S&P Futures: S&P futures were leaning toward positivity despite the holiday.
• Yen Weakness: The Japanese Yen weakened after Japan’s fourth-quarter GDP came in lower than expected, bolstering the case for Prime Minister Kishida’s proactive spending policies (the “Takaichi Trade”).

2. Geopolitical Landscape & Security Concerns

• U.S.-Europe Relations: U.S. Secretary of State Marco Rubio emphasized the shared Western values between the U.S. and Europe, while also expressing concern over Europe’s drift from those values. He stated, “Ultimately it’s that we are heirs to the same civilization and it’s a great civilization…one on which America is built.”
• Ukraine Conflict: Rubio acknowledged the significant losses suffered by Ukraine (7,000 soldiers per week) and the extensive damage to its infrastructure. He emphasized the U.S.’s role in facilitating potential negotiations, stating, “We don’t provide arms to Russia. We provide arms to Ukraine…We’re going to keep trying. In the end this war will not be solved militarily.” He dismissed concerns about a transatlantic rift if Ukraine loses, asserting that history will understand the U.S.’s support.
• Syria: Discussions at the Munich Security Conference included the situation in Syria. Rubio indicated a shift in U.S. policy towards engaging with the current Syrian government, while acknowledging the need to address concerns about minority rights and U.S. investments. The exiled Syrian Crown Prince advocated for U.S. military intervention on the side of opposition forces.
• Iran: The U.S. and Iran are expected to hold a second round of talks in Geneva.

3. Investment Strategy & Market Insights (Interview with ING Belgium Chief Investment Strategist)

• Goldilocks Economy: The ING strategist described the current economic environment as a “Goldilocks economy” – strong economic growth combined with declining inflation, supportive of equity markets.
• Tech Sector Re-evaluation: The strategist advocated for selective buying of dips in the tech sector, particularly software stocks, despite earnings growth profile re-evaluations. He cautioned against assuming AI development will benefit all companies, citing past examples (e.g., Google and DeepSeek) where initial hype didn’t translate into immediate dominance. He emphasized the need for active management in the AI space.
• Banking Sector Outlook: The strategist expressed a constructive outlook for banks, particularly in Europe, where valuations remain low (around 1x price-to-book ratio). He highlighted the benefits of a steepening yield curve and increasing asset management business in Europe. He acknowledged headwinds for U.S. banks due to potential regulatory changes (e.g., capping credit card fees) but noted potential deregulation could offset this.
• AI and Banking: The strategist noted that AI is more valuable for active managers in the current market environment.

4. Commodity Markets – Metals Focus (Interview with Bloomberg’s Asia Equities Deputy Managing Editor)

• Copper & Silver Supply Squeezes: Copper and silver are particularly susceptible to supply squeezes due to tariffs and disruptions in supply chains, driven by demand from the energy transition and electronics industries.
• Aluminum Tariffs: The potential repeal or reduction of aluminum tariffs is a key factor influencing the market. The U.S. has significantly reduced domestic aluminum production, relying heavily on imports from Canada and Mexico.
• Retail Demand: Increased retail demand from India and China is a new dynamic in the metals market, driving prices higher.
• Geopolitical Factors: Geopolitical tensions and interest rate expectations are major drivers of precious metals prices.

5. Regional Developments

• Mecca Real Estate: Saudi Arabia is opening up its real estate market in Mecca, attracting foreign investment and driving up prices. This is part of a broader effort to diversify the Saudi economy and accommodate the growing number of pilgrims.
• Lebanon & IMF: Lebanon’s government believes it can overcome differences with the IMF regarding a recovery plan for the banking sector, focusing on clarifying the hierarchy of claims and the central bank’s debt to the Ministry of Finance.
• Senegal Trade Finance: Senegal secured a $747 million trade finance facility from the International Islamic Trade Finance Corporation to bolster funding for essential commodities.

6. Other Notable News

• Trump Administration & Gaza: The Trump administration is seeking pledges of over $1 billion from countries for a stabilization force in Gaza.
• Israel-Iran Negotiations: Israeli Prime Minister Netanyahu proposed terms for de-escalation with Iran, including limitations on uranium enrichment and missile range.
• China & Pentagon List: Chinese stocks, including Alibaba, were briefly added to a Pentagon list of companies cooperating with the Chinese military, but were later withdrawn.

Conclusion:

The broadcast highlighted a complex global landscape characterized by geopolitical tensions, shifting economic conditions, and evolving investment strategies. While concerns remain about inflation and potential recessions, opportunities exist in select sectors like technology and banking, particularly in Europe. The opening of Mecca’s real estate market and ongoing negotiations in Lebanon and Iran demonstrate the dynamic nature of the Middle East and Africa region. The overall tone was cautiously optimistic, emphasizing the importance of active management and diversification in navigating the current market environment.