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Middle East Daily
SOOJIN KIM
Research Analyst
DIFC Branch – Dubai
T: +44(4)387 5031
E: soojin.kim@ae.mufg.jp
MUFG Bank, Ltd. and MUFG Securities plc
A member of MUFG, a global financial group
Middle East Daily
COMMODITIES / ENERGY
Oil slips as OPEC+ boosts supply and Trump threatens new tariff. Oil prices fell for the third time in four days, pressured by concerns over new US trade tariffs and OPEC+’s decision to boost supply in August. Brent dropped toward USD69/b and WTI fell below USD68/b. President Trump issued tariff warning letters to major trade partners, though duties won’t take effect until 1 August, keeping markets on edge. Meanwhile, rising tensions in the Middle East, highlighted by Houthi attacks on ships in the Red Sea, added to volatility, though no major disruptions have occurred yet. Traders are balancing geopolitical risks with fears of weaker global demand due to trade tensions and potential oversupply. Diesel markets are showing signs of tightness, with US inventories at their lowest for this time of year since 1996, and European prices signalling a tighter market.
Gold holds steady amid trade war uncertainty and tariff delays. Gold stabilised after reversing earlier losses, supported by ongoing investor demand for safe-haven assets amid rising trade tensions. Gold ended 7 July largely unchanged and remained flat around USD3,335/oz on 8 July, after initially dropping as much as 1.2%. President Trump began notifying countries such as Japan and South Korea of new 25% tariffs, sparking a selloff in their currencies and strengthening the US dollar, typically a negative for gold. However, concern over a broader US-led trade war and its potential impact on global growth fuelled demand for gold. While Trump delayed tariff implementation until 1 August to allow time for negotiations, markets remain wary, with geopolitical tensions further reinforcing gold’s appeal as a hedge against uncertainty.
MIDDLE EAST - CREDIT TRADING
End of day comment – 07 July 2025. A quieter start to the week in MENA external debt. The morning was an extension of the US holiday with light two way flows. In the afternoon activity picked up, and the selling picked up as well. That said the market seems to trade short as bonds were not only well absorbed, but also absorbed on tighter spread levels. To be sure the steepening of the UST curve is starting to weigh on cash prices, but IG curves are still going out 3/5bp tighter. Long end ADGB and QATAR closing about -0.125pt/-5bp. OMAN still has a strong bid in the belly of the curve, where 29s/31s/32s closed +0.125pt/-7bp but started to see a bit of profit taking into the close. MOROC was very quiet closing broadly unch/-5bp. Fins saw small selling of AT1s ahead of Saudi banks supply but without moving prices. In corps DPWDU still see most interest and 33s and 35s are the preferred assets for buyers closing unch/-5bp. The market overall still feels strong but is a bit in a wait and see mode before tariff deadlines and news. The strong technicals provide a good bid for now, but the market going out has a weaker feel than the spread moves suggest.
MIDDLE EAST - MACRO / MARKETS
Israel holds rates steady as Shekel strengthens. Bank of Israel (BoI) kept its benchmark interest rate unchanged at 4.5% for the 12th straight meeting, opting to let the shekel’s recent appreciation help cool inflation before considering rate cuts. The currency’s rally, fuelled by last month’s Israel-Iran ceasefire, has erased prior losses tied to domestic unrest and conflict, making the shekel the top performer among major currencies in recent weeks. With inflation still above at 3.1%, the BoI sees currency strength as a disinflationary force, but remains cautious given lingering risks from labour shortages tied to military reserve duties. In June, the BoI sold USD273 million to support the currency, its first direct intervention since October 2023. While markets are now pricing in greater confidence, as reflected in falling credit default swaps, policymakers are balancing economic recovery prospects with inflation risks.
Moody’s affirms Israel’s Baa1 rating with negative outlook. Moody’s has affirmed Israel’s Baa1 long-term issuer and senior unsecured ratings, maintaining a negative outlook due to heightened geopolitical risks, especially following the recent 12-day conflict with Iran. The rating reflects Israel’s weakened fiscal position, driven by rising defence costs and slower economic growth, with debt-to-GDP now projected to peak at 75%, up from 70% previously forecast. Despite this, Israel’s strong market access and resilient economy, bolstered by high-tech sector investment and robust demand for government bonds, support the rating. Moody’s expects GDP growth of 2.0% in 2025, rebounding to 4.5% in 2026, fuelled by reconstruction and stronger consumption. However, the negative outlook highlights continued downside risks from fragile ceasefires, potential conflict escalation, and persistent security threats, which could further strain Israel’s fiscal and economic stability.
