Shares at the Pakistan Stock Exchange (PSX) traded in the red on Monday as the benchmark KSE-100 shed more than 1,100 points which analysts said was “in line with global markets”.
The benchmark KSE-100 index declined by 724.96 points, or 0.93 per cent, to stand at 77,501.02 points from the previous close of 78,225.98 at 2pm. Finally, the index closed at 77,084.48 points, down by 1141.50 points or 1.46pc, from the previous close.
Mohammed Sohail, chief executive of Topline Securities, called the bearish momentum at PSX “in line with global markets”, adding that “selling was observed at PSX though with less intensity”.
He said that local investors remain on the sidelines until the “dust settles down on global markets”.
Yousuf M Farooq, director of research at Chase Securities, said, “The market has reacted to a global sell-off on fears of a slowdown in the US and a rate hike by the Bank of Japan.”
According to a Reuters report, at least two of the Bank of Japan’s nine board members called for an early interest rate increase at a policy meeting in June, minutes showed on Monday, underlining the central bank’s hawkish tilt that provides scope for further hikes ahead.
Moreover, Farooq noted in the local news that the “appointment of Mr Muhammad Ali as a special assistant to the PM led to a small rally in oil stocks in hope of clearing of circular debt”.
A Dawn report confirmed that in an attempt to address the long-standing financial and operational challenges in the country’s power sector, the prime minister announced the formation of a high-level task force dedicated to implementing structural reforms and the former caretaker federal energy minister Muhammad Ali, rehired as the premier’s special assistant on power with the status of minister of state, to serve as the co-chairman of the task force.
“On the other hand, stocks of cement mills based in Punjab remain under pressure on the announcement of additional taxes on the sector,” Farooq added.
“The market witnessed downward pressure due to the combined effects of the global equity sell-off and political uncertainties, which have adversely affected investor sentiment,” Tahir Abbas, head of research at Arif Habib Limited, said.
Awais Ashraf, director research at AKD Securities, echoed the same sentiments.
He said that the index was feeling the impact “of a global equity meltdown driven by fears of a US recession. Investors worry that continued foreign sell-offs, which previously supported the market, might put additional pressure on the KSE-100 index”.
However, he added that the impact of the global downturn “is expected to be less severe for local equities due to the historically low trading price-to-earnings (P/E) ratios of local equities and reduced foreign participation in the KSE-100”.
“Additionally, declining oil prices are likely to bolster the external position by reducing the Current Account Deficit through a lower import bill,” he said.
Stock markets tumbled with Japanese shares at one point exceeding their 1987 “Black Monday” loss, as fears of a US recession sent investors fleeing from risk while wagering that rate cuts would be needed to rescue growth.
The safe haven yen and Swiss franc surged, as crowded carry trades unravelled, sparking speculation that some investors were unloading profitable trades to get money to cover losses elsewhere. Such was the torrent of selling that circuit breakers were triggered on stock exchanges across Asia.
Japan’s benchmark Nikkei average (N225), opens new tab closed 12.40pc lower at 31,458.42, its largest one-day fall since October 1987, while the broader Topix (TOPX), opens new tab lost 12.48pc to 2,220.91.
European stocks (STOXX), opens new tab opened 1.8pc lower with France’s CAC 40 (FCHI), opens new tab down 2.1pc, Spain’s IBEX (.IBEX), opens new tab down 2.8pc the UK’s FTSE 100 (FTSE), opens new tab off 1.7pc on fears of a global recession after weak US data.
Treasury bonds were in demand, with U.S. 10-year yields hitting 3.723pc, the lowest since mid-2023 after rising back to 3.737.
A worryingly weak July payrolls report on Friday saw markets price in a 78pc chance the Federal Reserve will not only cut rates in September, but ease by a full 50 basis points. Futures imply 122 basis points of cuts in the 5.25-5.5pc funds rate this year, and rates of around 3.0% by the end of 2025.
“We have increased our 12-month recession odds by 10pp to 25pc,” said analysts at Goldman Sachs in a note, though they thought the danger was limited by the sheer scope the Fed had to ease policy.
Goldman now expects 25bp cuts in September, November, and December.
“The premise of our forecast is that job growth will recover in August and the FOMC will judge 25 bp cuts a sufficient response to any downside risks,” they added. “If we are wrong and the August employment report is as weak as the July report, then a 50bp cut would be likely in September.”
Analysts at JPMorgan were even more bearish, assigning a 50pc probability to a US recession.
“Now that the Fed looks to be materially behind the curve, we expect a 50bp cut at the September meeting, followed by another 50bp cut in November,” said economist Michael Feroli.
“Indeed, a case could be made for an inter-meeting easing, especially if the data soften further — although Fed officials might worry about how such a move could be (mis)interpreted.”
More to follow
