Economy

According to LSEG data, investors racked up a net $5.97 billion worth of U.S. equity funds during the week, marking their largest weekly net purchase since July 17.A benign inflation report last week and the Fed meeting minutes on Wednesday, indicating a potential rate cut in September, boosted investor appetite for risk assets.Meanwhile, strong U.S. retail sales data and upbeat consumer sentiment numbers last week alleviated earlier fears of a sharp slowdown, and propped up stock markets.Investors scooped up a robust $5.19 billion worth of U.S. large-cap funds in their largest weekly net purchase since July 24. They also acquired $1.77 billion worth of small-cap funds, but sold mid-cap and multi-cap funds to the tune of $1.29 billion and $807 million, respectively.Among sectoral funds, consumer staples, financials, consumer discretionary, and tech attracted significant inflows, worth $768 million, $589 million, $309 million and $257 million respectively.Investors, meanwhile, withdrew about $620 million from utilities, snapping a five-week buying trend.Demand for U.S. bond funds continued for a 12th successive week as investors allocated about $4.43 billion to these funds on a net basis.U.S. government bond funds secured a hefty $2.26 billion, the fourth straight weekly inflow. High yield and general domestic taxable fixed income funds also observed a notable $1.83 billion and $865 million worth of net purchases, respectively.Meanwhile, money market funds remained popular for a third week as investors poured about $19.19 billion into these funds. More

JACKSON HOLE, Wyoming (Reuters) -U.S. economic data is giving the Federal Reserve the green light to cut interest rates, financial markets are aligned for the first move, and the central bank all but gave the game away on Wednesday when a readout of its July meeting showed a “vast majority” of policymakers agreed the policy easing likely would begin next month.With all that in place, Fed Chair Jerome Powell’s goal in his keynote speech on Friday to the Kansas City Fed’s annual Jackson Hole research conference may be less about further shaping expectations and more about assessing where the economy stands ahead of what he has called a “consequential” first step.”I don’t think he needs to do a lot beyond the press conference in July,” said Richard Clarida, a former Fed vice chair who is now global economic adviser for Pimco, referring to how Powell leaned strongly toward a rate cut at the Sept. 17-18 meeting in remarks to reporters after the July 30-31 meeting.”You will not get ‘mission accomplished,'” Clarida said, “but he might look back at the last two years, where we were and where we are, and acknowledge that they are close” to taming the worst outbreak of inflation in 40 years.Powell will take the podium at 10 a.m. EDT (1400 GMT) in a remote lodge in Wyoming’s Grand Teton National Park to address a gathering that has become a global platform for central bank officials to shape views of monetary policy and the economy.With one exception, the six speeches Powell has delivered to the conference since becoming Fed chief in 2018 have been largely explanatory, designed less to influence short-term policy expectations than to lay out how officials were thinking about major structural issues or, since the start of the COVID-19 pandemic, detailing the mechanics of inflation.The exception was in 2022 as the Fed fought to keep public expectations about high inflation in check: Powell delivered a terse, market-moving address meant to convey his seriousness about defending the central bank’s 2% inflation target. Some called it his “Volcker moment,” a reference to Paul Volcker, the Fed chief who triggered a recession in the early 1980s with punishing interest rates to break an inflationary cycle. REACTION FUNCTIONThat’s a consequence the Powell Fed has dodged – so far. Inflation crested at levels not seen since the Volcker era and two years later is roughly half a percentage point above target. The unemployment rate, at 4.3%, is well below its 5.7% long-run average. And financial markets seem in sync with where the Fed is heading.In light of that, former Fed staff, policymakers and outside analysts said Powell may well revert to his explanatory norm, perhaps sketching out in broad terms how the central bank will approach its coming easing cycle or delving into lessons learned over two years about inflation’s causes and cures.The conference theme – how monetary policy impacts the economy – would fit either.William English, a former head of the Fed’s monetary affairs division who is now a professor at the Yale School of Management, said he felt the moment called for a general outline about the approach to cutting rates.Because Fed policymakers at next month’s meeting will update their interest rate projections for this year and 2025, Powell won’t want to provide detailed forward guidance about what’s to come – a risk in itself for the possible market reaction it could trigger, or the possibility coming data could push in a different direction.Powell instead could provide some background for the public and markets to understand how the Fed will respond as the economy evolves, English said. “Let’s say the economy does not go as we expect. What would that mean for policy? … What is it going to take to move faster or slower?”THE OTHER MANDATEPowell and other Fed officials have become fans of describing different economic scenarios, a strategy that allows them to provide a baseline outlook, but also convey uncertainty around what might happen and how different outcomes might cause them to react.Some, for example, have begun to worry the economy is at a point where the unemployment rate could rise fast and far enough to derail the “soft-landing” from inflation that they thought was within reach.Yet it is unclear how the Fed, at this point, thinks about “maximum employment” – one of its two goals alongside stable inflation – and the degree to which officials are willing to tolerate rising joblessness to wring another one quarter or one half of a percentage point from inflation.Antulio Bomfim, a former special adviser to Powell and now the head of global macro for Northern Trust (NASDAQ:NTRS) Asset Management’s fixed-income team, agreed that the Fed chief will likely steer clear of short-term guidance in favor of a discussion about broader issues – perhaps trying to capture what the central bank has just lived through and how coming labor and inflation dynamics may differ from those before the pandemic.”We’re kind of at an inflection point for policy, potentially for the economy too … Inflection points are very difficult to navigate,” Bomfim said. Open questions linger about the economy that’s emerging, including whether inflation will prove a more persistent headache for central banks after years of running soft before the pandemic, and whether job market dynamics have shifted and may imply higher unemployment rates than the Fed thought it could achieve based on the economy’s pre-COVID-19 performance.With inflation being such a high priority “over the past couple of years, the Federal Reserve … was behaving like a single mandate central bank,” Bomfim said. “And now we are not just in the transition from hikes to cuts, but also transitioning back to what I would call a more normal state of affairs.” More

According to LSEG data, investors snapped up $15.73 billion worth of global equity funds during the week, marking their largest weekly net purchase since July 17. Expectations of Fed rate cuts soared as the latest meeting minutes revealed that a majority of policymakers support a September interest rate cut if the data aligns with expectations.Investors are now poised for Fed Chair Jerome Powell’s upcoming remarks on Friday at the Jackson Hole Economic Symposium, seeking confirmation that the Fed will proceed with the anticipated rate cut. Meanwhile, strong U.S. retail sales data, upbeat consumer sentiment numbers and a benign inflation reading last week signalled a robust economic footing, boosting investor appetite, despite earlier fears of a sharp slowdown sparked by a disappointing jobs report at the start of the month.Investors placed $5.97 billion into U.S. equity funds, the biggest amount in five weeks. European and Asian funds also gained $5.55 billion and $4.39 billion, respectively in inflows.The technology and consumer staples sectors booked net inflows of $931 million and $825 million, respectively, while utilities suffered a significant outflow of $612 million.Global investors bought bond funds for a 35th successive week on a net basis, allocating about $11.29 billion, the largest amount in three weeks.They funnelled a net $2.96 billion into corporate bond funds, the most in five weeks, and added about $2.71 billion worth of government bond funds, but discarded a net $336 million worth of loan participation funds.Gold and other precious metal funds saw the sharpest demand in about 2-1/2 years as they received $1.5 billion of inflows during the week. Investors also acquired a net $138 million of energy funds, broadly reversing a $193 million outflow during the prior week. Data covering 29,604 emerging market funds showed equity funds lost $679 million, as outflows continued for an 11th successive week. In contrast, bond funds remained popular for the ninth consecutive week, with about $531 million in net purchases. More

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The kingdom’s $925 billion sovereign wealth fund, the Public Investment Fund, saw its assets jump 29% in 2023 — and domestic investment was a major driver.
“The days of viewing Saudi Arabia as a mere financial reservoir are ending,” one business executive told CNBC.
Saudi Arabia’s recently-updated Investment Law seeks to attract more foreign investment as well — and it’s set itself a lofty goal of attracting $100 billion in annual foreign direct investment by 2030.

Riyadh, Saudi Arabia.
Xavierarnau | E+ | Getty Images

Saudi Arabia is moving full steam ahead with its focus on domestic investment — and with that, higher requirements for foreigners coming to the kingdom to take capital elsewhere.
The kingdom’s $925 billion sovereign wealth fund, the Public Investment Fund, saw its assets jump 29% to 2.87 trillion Saudi riyals ($765.2 billion) in 2023, its annual report published earlier this week revealed — and local investment was a major driver.

The fund’s investments in domestic infrastructure and real estate development grew 15% year-on-year to 233 billion riyals, while its foreign investments increased 14% to 586 billion riyals. At the same time, the Saudi government introduced laws and reforms to facilitate and even mandate investment in the country as it builds out its Vision 2030 plan to diversity its oil-reliant economy.
“The PIF’s report marks a shift from externally driven investments to a focus on domestic opportunities. The days of viewing Saudi Arabia as a mere financial reservoir are ending,” Tarik Solomon, chairman emeritus at the American Chamber of Commerce in Saudi Arabia, told CNBC.
“Today, success with the PIF hinges on partnerships grounded in mutual trust and long-term vision, where stakeholders are expected to contribute meaningfully with capital and not just seek profits.”
One example is the kingdom’s headquarters law, which went into effect on Jan. 1, 2024, and requires foreign companies operating in the Gulf to base their Middle Eastern HQ offices in Riyadh if they want contracts with the Saudi government.

Saudi Arabia’s recently-updated Investment Law seeks to attract more foreign investment as well — and it’s set itself a lofty goal of $100 billion in annual foreign direct investment by 2030.

Currently, that figure has averaged around $12 billion per year since Vision 2030 was announced in 2017, according to data from the kingdom’s investment ministry — still a long way from that goal.
Some observers in the region are skeptical as to whether the $100 billion figure is realistic.
“The new investment law is absolutely critical to facilitating more FDI, but it remains to be seen whether it will lead to the huge increase and quantum of capital required,” a financier based in the Gulf told CNBC, speaking anonymously due to professional restrictions.
Solomon echoed the sentiment, pointing out that higher spending on major projects will require higher breakeven oil prices for the Saudi budget.
“It remains to be seen whether the PIF’s domestic investments will deliver the anticipated returns, especially in a region full of instability and oil-dependent budgets facing prolonged periods of low oil prices,” he said.

Still, the new law will “improve local business conditions to attract investment from abroad,” James Swanston, Middle East and North Africa economist at Capital Economics, wrote in a recent report.
Investors have long complained that murky and often ad-hoc rules deterred greater involvement with the Saudi economy. The new law will make foreign investors’ rights and duties uniform with those of citizens, introduce a simplified registration process to replace license requirements, and ease the judicial process, among other things, according to the Saudi government.
“We’ve argued for a long time that so-called ‘wasta’ (loosely translated as ‘who you know’) has been a major deterrent to foreign companies establishing themselves in Saudi,” Swanston wrote.
Spurring greater foreign buy-in “should also ease the burden that has recently been placed on the Public Investment Fund to offset the weaker foreign investment into the Kingdom,” he added.

No more ‘dumb money’

The turn toward greater scrutiny and domestic priorities is not exactly new — rather, it’s picked up more speed each year.
While many overseas firms have long seen the Gulf as a source of “dumb money,” some local investment managers said — referring to the stereotype of oil-rich sheikhdoms throwing cash at whoever wants it — investment from the region has become much more sophisticated, employing deeper due diligence and being more selective than in past years.
“Before it was much easier to come and say, ‘I’m a fund manager from San Francisco, please give me a couple million’,” Marc Nassim, partner and managing director at Dubai-based investment bank Awad Capital, told CNBC in 2023.
“I think that a very small minority of them will be able to take money from the region — they are much more selective than before.”
If the kingdom’s priority was not clear to foreign investors before, it is now, the Gulf-based financier who declined to be named said.
“PIF has been focused on co-opting investment into Saudi for last several years,” he said. “It took a while for bankers to fully appreciate the scope and scale of the pivot. It’s rightly all about transforming the economy.” More

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