stock market, Meta Intelligence

Economics-Watching: Kuwait’s Banking Sector Posts Solid Credit Growth in October

[from NBK Group’s Economic Research Department, 21 November, 2024]

Kuwait: Solid credit growth in October driven by household credit. Domestic credit increased by a solid 0.4% in October, driving up YTD growth to 2.9% (3.2% y/y). The recovery in household credit continued, with growth in October at a solid 0.5%, resulting in a YTD increase of 2.4%. While y/y growth in household credit remains a limited 2.3%, annualized growth over the past four months is a stronger 4.7%. Business credit inched up by 0.2% in October, pushing YTD growth to 3.6% (2.9% y/y). Industry and trade drove business credit growth in October while construction and trade are the fastest growing YTD at 17% and 8%, respectively. In contrast, the oil/gas sector continued its downtrend, deepening the YTD decrease to 13%. Excluding the oil/gas sector, growth in business credit would increase to a relatively good 5% YTD. Looking ahead, the last couple of months of the year (especially December) are usually the weakest for business credit, likely due to increased repayments and write-offs, but it will not be surprising if the recovery in household credit is generally sustained, especially given the commencement of the interest rate-cutting cycle. Meanwhile, driven by a plunge in the volatile public-institution deposits, resident deposits decreased in October, resulting in YTD growth of 2.4% (4.2% y/y). Private-sector deposits inched up in October driving up YTD growth to 4.5% compared with 10% for government deposits while public-institution deposits are a big drag (-14%). Within private-sector KD deposits, CASA showed further signs of stabilization as there was no decrease for the third straight month while the YTD drawdown is a limited 1%.

Chart 1: Kuwait credit growth

(% y/y)

Chart 2: UK inflation

(%)

Egypt: IMF concludes mission for fourth review, sees external risks. The IMF concluded its visit to Egypt after spending close to 2 weeks, holding several in-person meetings with the Egyptian authorities, private sector, and other stakeholders. The IMF released a statement mentioning that the current ongoing geopolitical tensions in the region in addition to an increasing number of refugees have affected the external sector (Suez Canal receipts down by 70%) and put severe pressure on the fiscal front. The Fund acknowledged the Central Bank of Egypt’s commitment to unify the exchange rate, maintain the flexible exchange rate regime, and keep inflation on a firm downward trend over the medium term by substantially tightening monetary policy. It also highlighted that continued policy discipline was also a key to containing fiscal risks, especially those related to the energy sector. The Fund, as always, re-iterated the need for promoting the private sector mainly through an enhanced tax system and accelerating divestment plans of the state firms. Finally, it also said that the discussions would continue over the coming days to finalize the agreement on the remaining policies and reform plans. However, the release did not provide any clear hints about the conclusion on the government’s earlier request to push the timeline of some of the subsidy moves.

Oman: IMF completes article IV with a strong outlook for the economy in 2025. Oman’s economy continued to expand with growth reaching 1.9% in the first half of 2024 (versus 1.2% in 2023), despite being weighed down by OPEC+ mandated oil production cuts as non-oil GDP grew a stronger 3.8% y/y in H1 (versus 1.8% in 2023). The fiscal and current account balances remain in a comfortable situation evident by a decline in public sector debt and the recent rating upgrade to investment grade. The Fund expects Oman’s economic growth to see a strong rebound in 2025, supported by higher oil production. It also believes that fiscal and current account balances will remain in surplus but at lower levels. Key risks to the outlook stem from oil price volatility and intensifying geopolitical tensions. The IMF also mentioned that further efforts are needed to raise nonhydrocarbon revenues through more tax policy measures and the phasing out of untargeted subsidies which should help in freeing up resources to finance growth under the government’s diversification agenda.

UK: Inflation rises more than forecast, reinforcing BoE’s caution on rate cuts. UK CPI inflation increased to 2.3% y/y in October from 1.7% the previous month, slightly above the market and the Bank of England’s forecast of 2.2%. On a monthly basis too, inflation rose to 0.6%, a seven-month high, from September’s no change. The steep rise was mainly driven by an almost 10% rise in the household energy price cap effective from October. Core inflation also accelerated to 3.3% y/y (0.4% m/m) from 3.2% (0.1% m/m). While goods prices continued to fall (-0.3% y/y), service prices rose at a faster rate of 5% from 4.9%. Recently, the Bank of England had cautioned about inflation quickening next year (projecting a peak rate of 2.8% in Q3 2025), citing the impact of higher insurance contributions and rising minimum wages as outlined in the latest government budget. Therefore, with inflation rising above forecast, the bank will likely slow the pace of monetary easing after delivering two interest rate cuts of 25 bps earlier, with markets now seeing only two additional cuts by the end of 2025.

Eurozone: ECB warns of fiscal and growth risks in its latest Financial Stability Review [archived PDF]. In its most recent Financial Stability Review (November) [archived PDF], the European Central Bank warned that elevated debt and fiscal deficit levels and anemic long-term growth could expose sovereign debt vulnerabilities in the region, stoking concerns of a repeat of the 2011 sovereign debt crisis. Maturing debt being rolled over at much higher borrowing rates raising debt service costs poses risks to countries with little fiscal space and leaves certain governments exposed to market fluctuations. The bank also emphasized the risks of high equity valuations, low liquidity and a greater concentration of exposure among non-banks. Moreover, it sees current geopolitical uncertainties and the possibility of more trade tensions as heightening risks. The Eurozone’s current government debt-to-GDP ratio stands at 88%, but the underlying data suggest a much more precarious situation with Greece, Italy, and France’s ratios at 164%, 137% and 112%. Recently, concerns about France’s high fiscal deficit (around 5.9% of GDP) and elevated debt levels saw yields on the country’s bonds rise steeply, widening the spread gap with German bonds to the highest level in over a decade.

Stock markets	Index	Daily Change (%)	YTD Change (%)
Regional
Abu Dhabi (ADI)	9,405	-0.23	-1.80
Bahrain (ASI)	2,043	-0.37	3.62
Dubai (DFMGI)	4,761	0.61	17.26
Egypt (EGX 30)	30,588	-0.33	23.18
GCC (S&P GCC 40)	709	0.09	-0.52
Kuwait (All Share)	7,353	-0.08	7.86
KSA (TASI)	11,868	-0.07	-0.83
Oman (MSM 30)	4,609	0.00	2.10
Qatar (QE Index)	10,438	0.12	-3.62
International
CSI 300	3,986	0.22	16.17
DAX	19,005	-0.29	13.45
DJIA	43,408	0.32	15.17
Eurostoxx 50	4,730	-0.45	4.60
FTSE 100	8,085	-0.17	4.55
Nikkei 225	38,352	-0.16	14.61
S&P 500	5,917	0.00	24.05

3m interbank rates	%	Daily Change (bps)	YTD Change (bps)
Bahrain	5.86	-1.29	-66.34
Kuwait	3.94	0.00	-37.50
Qatar	6.00	0.00	-25.00
UAE	4.43	3.81	-89.96
Saudi	5.50	-4.75	-73.14
SOFR	4.52	-0.09	-81.13

Bond yields	%	Daily Change (bps)	YTD Change (bps)
Regional
Abu Dhabi 2027	4.66	5.00	33.9
Oman 2027	5.49	6.00	33.0
Qatar 2026	4.68	6.00	16.1
Kuwait 2027	4.69	3.00	35.0
Saudi 2028	4.96	1.00	43.9
International 10-year
US Treasury	4.41	1.77	55.3
German Bund	2.34	0.35	31.2
UK Gilt	4.47	2.60	93.0
Japanese Gov’t Bond	1.07	1.0	45.4

Exchange rates	Rate	Daily Change (%)	YTD Change (%)
KWD per USD	0.31	0.04	-0.05
KWD per EUR	0.32	-0.46	-1.98
USD per EUR	1.05	-0.49	-4.47
JPY per USD	155.43	0.50	10.19
USD per GBP	1.27	-0.25	-0.62
EGP per USD	49.67	0.34	61.00

Commodities	$/unit	Daily Change (%)	YTD Change (%)
Brent crude	72.81	-0.68	-5.49
KEC	73.78	0.74	-7.26
WTI	68.87	-0.75	-3.88
Gold	2,648.2	0.80	28.40

Disclaimer: While every care has been taken in preparing this publication, National Bank of Kuwait accepts no liability whatsoever for any direct or consequential losses arising from its use. Daily Economic Update is distributed on a complimentary and discretionary basis to NBK clients and associates. This report and previous issues can be found in the “News & Insight / Economic Reports” section of the National Bank of Kuwait’s web site. Please visit their web site, nbk.com, for other bank publications.

Education and “Then and Now” Thinking: Zola’s Novel L’Argent

It is amazing to see how certain nineteenth century phenomena, such as Émile Zola’s novel L’Argent (“Money”), eerily echo with our own times. The novel has fundamentalist evangelical Christianity, international financial chicanery, anti-Semitism, the signs of full-blown “casino capitalism” convulsing the whole of society, global technical innovations. The historical background as all this unfolds is explosive and complex.

L’Argent is the eighteenth novel in the Rougon-Macquart series by Émile Zola. It was serialized in the periodical Gil Blas beginning in November 1890, before being published in novel form by Charpentier et Fasquelle in March 1891.

The novel focuses on the financial world of the Second French Empire as embodied in the Paris Bourse and exemplified by the fictional character of Aristide Saccard. Zola’s intent was to show the terrible effects of speculation and fraudulent company promotion, the culpable negligence of company directors, and the impotency of contemporary financial laws. (Think of Dodd-Frank in our time and how insiders have “noiselessly” dismantled it.)

The novel takes place in 1864-1869, beginning a few months after the death of Saccard’s second wife Renée (see La Curée). Saccard is bankrupt and an outcast among the Bourse financiers. Searching for a way to reestablish himself, Saccard is struck by plans developed by his upstairs neighbor, the engineer Georges Hamelin, who dreams of restoring Christianity to the Middle East through great public works: rail lines linking important cities, improved roads and transportation, renovated eastern Mediterranean ports, and fleets of modern ships to move goods around the world.

Saccard decides to institute a financial establishment to fund these projects. He is motivated primarily by the potential to make incredible amounts of money and reestablish himself on the Bourse. In addition, Saccard has an intense rivalry with his brother Eugène Rougon, a powerful Cabinet minister who refuses to help him after his bankruptcy and who is promoting a more liberal, less Catholic agenda for the Empire. Furthermore, Saccard, an intense anti-Semite, sees the enterprise as a strike against the Jewish bankers who dominate the Bourse. From the beginning, Saccard’s Banque Universelle (Universal Bank) stands on shaky ground.

In order to manipulate the price of the stock, Saccard and his colleagues in the syndicate, which he has set up to jumpstart the enterprise, buy their own stock and hide the proceeds of this illegal practice in a dummy account fronted by a straw man.

While Hamelin travels to Constantinople to lay the groundwork for their enterprise, the Banque Universelle goes from strength to strength. Stock prices soar, going from 500 francs a share to more than 3,000 francs in three years. Furthermore, Saccard buys several newspapers which serve to maintain the illusion of legitimacy, promote the Banque, excite the public, and attack Rougon.

The novel follows the fortunes of about 20 characters, cutting across all social strata, showing the effects of stock market speculation on rich and poor. The financial events of the novel are played against Saccard’s personal life. Hamelin lives with his sister Caroline, who, against her better judgment, invests in the Banque Universelle and later becomes Saccard’s mistress. Caroline learns that Saccard fathered a son, Victor, during his first days in Paris. She rescues Victor from his life of abject poverty, placing him in a charitable institution. But Victor is completely unredeemable, given over to greed, laziness, and thievery. After he attacks one of the women at the institution, he disappears into the streets, never to be seen again.

Eventually, the Banque Universelle cannot sustain itself. Saccard’s principal rival on the Bourse, the Jewish financier Gundermann, learns about Saccard’s financial trickery and attacks, losing stock upon the market, devaluing its price, and forcing Saccard to buy millions of shares to keep the price up. At the final collapse, the Banque holds one-fourth of its own shares worth 200 million francs. The fall of the Banque is felt across the entire financial world. Indeed, all of France feels the force of its collapse. The effects on the characters of L’Argent are disastrous, including complete ruin, suicide, and exile, though some of Saccard’s syndicate members escape and Gundermann experiences a windfall.

History itself is of course “bubbling along” and does not go away:

Because the financial world is closely linked with politics, L’Argent encompasses many historical events, including:

The 1860 Druze massacre of Maronite Christians in Syria.
France’s invasion of Mexico (1861–1867).
The construction of the Suez Canal, opened in 1869.
The Austro-Prussian War, including the Battle of Königgrätz at Sadová in 1866.
The Third Italian War of Independence (1866).
The Universal Exposition of 1867.
The publication of Das Kapital in 1867 and the advent of Marxism.
The 1882 collapse of the Union Générale bank.

By the end of the novel, the stage is set for the Franco-Prussian War (1870–1871) and the fall of the Second Empire.

The twentieth century world and the twenty-first century one do resonate with Zola’s novel. That tells you, the student, that there are deep structures underlying endless changes.

The arrival of cars and planes, computers and lasers, internet and AI have not altered these substructures entirely and that is educational, since “then and now” thinking is part of a meta-intelligent (i.e., perspectival) education process.

Essay 92: How to See the Rise of Speculative Finance via Novels: Trollope

Anthony Trollope (died in 1882), the great British novelist, gives us a glimpse of the world of speculative finance in the nineteenth century where to some extent the stock market becomes a kind of “betting parlor” where abstract bets can be made on previous bets in a kind of “infinite regress.”

The example here concerns coffee, guano, and something called “Kauri gum” which is the title of a chapter in The Prime Minister, Trollope’s novel, which introduces us to the “betting parlor” tendency, which is not unique to the prelude to our own Great Recession of 2008.

Sexty Parker sympathized with him to the full, — especially as that first 500 pounds, which he had received from Mr Wharton, had gone into Sexty’s coffers. At that time Lopez and Sexty were together committed to large speculations in the guano trade, and Sexty’s mind was by no means easy in the early periods of the day. As he went into town by his train he would think of his wife and family and of the terrible things that might happen to them. But yet, up to this period, money had always been forthcoming from Lopez when absolutely wanted, and Sexty was quite alive to the fact that he was living with a freedom of expenditure in his own household that he had never known before, and that without apparent damage. Whenever, therefore, at some critical moment, a much-needed sum of money was produced Sexty would become lighthearted, triumphant, and very sympathetic. ‘Well; — I never heard such a story,’ he had said when Lopez was insisting on his wrongs. ‘That’s what the Dukes and Duchesses call honour among thieves! Well, Ferdy, my boy, if you stand that you’ll stand anything.’ In these latter days Sexty had become very intimate with his partner.
It was evident on that day to Sexty Parker that his partner was a man of great resources. Though things sometimes looked very bad, yet money always ‘turned up’. Some of their buyings and sellings had answered pretty well. Some had been great failures. No great stroke had been made as yet, but then the great stroke was always being expected. Sexty’s fears were greatly exaggerated by the feeling that the coffee and guano were not always real coffee and guano. His partner, indeed, was of the opinion that in such a trade as this they were following there was no need at all of real coffee or real guano, and explained his theory with considerable eloquence. ‘If I buy a ton of coffee and keep it six weeks, why do I buy it and keep it, and why does the seller sell it instead of keeping it? The seller sells it because he thinks he can do best by parting with it now at a certain price. I buy it because I think I can make money by keeping it. It is just the same as though we were back to our opinions. He backs the fall. I back the rise. You needn’t have coffee and you needn’t have guano to do this. Indeed the possession of the coffee or guano is only a very clumsy addition to the trouble of your profession. I make it my study to watch the markets; — but I needn’t buy everything I see in order to make money by my labour and intelligence.’ Sexty Parker before his lunch always thought that his partner was wrong, but after that ceremony he almost daily became a convert to the great doctrine. Coffee and guano still had to be bought because the world was dull and would not learn the tricks of trade as taught by Ferdinand Lopez, — also possibly because somebody might want such articles, — but our enterprising hero looked for a time in which no such dull burden should be imposed on him.
On this day, when the Duke’s 500 pounds was turned into the business, Sexty yielded in a large matter which his partner had been pressing upon him for the last week. They bought a cargo of Kauri gum, coming from New Zealand. Lopez had reasons for thinking that Kauri gum must have a great rise. There was an immense demand for amber, and Kauri gum might be used as a substitute, and in six months’ time would be double its present value. This unfortunately was a real cargo. He could not find an individual so enterprising as to venture to deal in a cargo of Kauri gum after his fashion. But the next best thing was done. The real cargo was bought, and his name and Sexty’s name were on the bills given for the goods. On that day he returned home in high spirits for he did believe in his own intelligence and good fortune.

(Trollope, The Prime Minister, Chapter 43, “Kauri Gum”)

One could “marry” this mini-essay to the previous one about Dreiser’s novel to get a fuller picture of the story of our technology-and-finance strand of the present world.

There is a potentially unhealthy “dephysicalization” of finance whereby you don’t need to think about actual “coffee and guano and Kauri gum” at all but only on the “betting structure” (i.e., horse races without horses, so to speak).