Wall Street outlook on global economy sours

Top Wall Street bankers said they’re pessimistic about the outlook of the global economy next year with elections in the U.S., monetary policies and escalating Middle East tensions weighing on sentiment. 

“If you take the time horizon, the monetary policies that we are going to see will have greater effects on the world, it’s difficult to be optimistic about that,” Bridgewater Associates founder Ray Dalio said during a panel on the first day of Saudi Arabia’s Future Investment Initiative. The upcoming U.S. elections will be about irreconcilable differences to do with wealth and power, he added.

Speaking alongside Dalio and JPMorgan & Chase Co. CEO Jamie Dimon, Citigroup Inc.’s Jane Fraser echoed those comments. “We’re sitting here with a backdrop of the terrorist attack in Israel and the events that have unfolded since, and it’s desperately sad,” she said. “So it’s hard not to be a little pessimistic.”

Meanwhile, BlackRock Inc. CEO Larry Fink said the Federal Reserve “is going to have to raise rates higher,” for longer, which means that by 2025 there may be either a soft or hard landing. In 2024, he doesn’t expect either, he said.

“This reminds me of the 70’s, the 70’s were about bad policy, today it’s about bad policy again, a big macro-shift,” Fink said. Although consumer power in the U.S. is comforting, other parts of the world like in Europe, are facing much more “severe headwinds.”

Executives have descended on Riyadh for this year’s investment summit despite growing tensions between Israel and Hamas, which is designated a terrorist group by the US and Europe. French President Emmanuel Macron became the latest world leader to visit Israel, where he’ll meet Prime Minister Benjamin Netanyahu and is expected to call for the resumption of the Israeli-Palestinian peace process.

Organizers of this week’s event insist that the show will go on and that there have only been 10-20 cancellations as a result of the war, out of over 6,000 people planning to attend. Most of those were due to corporate travel policies changing, or travel insurance costs.

Other sessions later in the day will include Saudi Energy Minister Prince Abdulaziz bin Salman, Aramco CEO Amin Nasser and the bosses of TotalEnergies, Engie and Vale. Oil trader Pierre Andurand and FIFA President Gianni Infantino are also due to speak.

CITIGROUP’S FRASER SAYS THE ‘NEW S’ IN ESG IS SECURITY

The escalating tensions between Israel and Hamas are prompting global business chiefs to think more about security issues, according to Citigroup’s Fraser. 

“There is a new S in ESG which is security, be it food security, energy security, it could be defense, or financial security,” she said. “That’s certainly a theme for all CEOs around the world — how to build more resilient companies and countries.”

SAUDI PIF CHIEF PLEDGES TO BE ‘CATALYST FOR CHANGE’

The head of Saudi Arabia’s $760 billion sovereign wealth fund kicked off the kingdom’s flagship investment conference with a pledge to be a “catalyst for change.” 

“In every corner of the world, humanity needs to find common ground and the prospect of a peaceful better future for our children,” Yasir Al-Rumayyan, governor of the Public Investment Fund. With its large financial resources, Saudi Arabia is “open and willing to serve as a catalyst for change.”

Al-Rumayyan, who is also the chairman of Aramco, also said the oil giant and Neom plan to build a plant to make low carbon synthetic fuels, as the kingdom looks to invest in a transition away from fossil fuels. The plant, which will be small scale initially, is part of Saudi attempts to diversify the oil dependent economy and invest in industries of the future.

STATE STREET CEO SAYS 10-YEAR YIELDS WILL PROBABLY TOP OUT AT 5%

The yield on 10-year U.S. Treasuries will “probably” top out at 5%, according to the head of one of the world’s largest asset managers.

“If you talk to our chief investment officer, she would say this is the time to start thinking about adding some duration,” State Street Corp. Chief Executive Ron O’Hanley said in an interview with Bloomberg TV. “I don’t think anyone can call the top, but when you look at the 10-year just touching a bit over 5%, probably it is.”

Yields on 10-year Treasuries exceeded 5% for the first time since 2007 on Monday and then retreated. They have surged a full percentage point since early August as policymakers signaled rates will stay higher for longer. For now, officials in the Federal Open Market Committee see the continued run-up in borrowing costs as a feature of their bid to tame inflation rather than a drawback, as tighter financial conditions help cool economic growth.

SAUDIS NEED $100s OF BILLIONS FOR POWER INVESTMENT BY 2030

Saudi Arabia will need to attract investment in the hundreds of billions of dollars this decade to expand renewable energy and natural gas-fired electricity to meet its generation capacity targets, according to the head of Riyadh-based ACWA Power Co.

The project will require building 60 to 80 gigawatts of power plants using renewable sources like wind and solar and about 30 G of gas-fired plants, ACWA Power Chief Executive Marco Arcelli said in an interview in the Saudi capital. ACWA Power is mandated to take part in developing 70% of Saudi Arabia’s renewable energy needs.