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Global stocks tank on fears of second coronavirus wave

September 21, 2020: World equity markets suffered heavy losses Monday as investors reacted to mounting fears of a second wave of the coronavirus and few signs of additional central bank stimulus, dealers said.

Crude oil prices plunged owing to expectations for less demand just as more supply from Libya becomes available, traders said.

The banking sector was rocked meanwhile by an international media probe that claimed massive sums of allegedly dirty money had flowed for years through some of the world's largest banks.

London stocks fell by 3.4 percent after Health Minister Matt Hancock warned Britain's coronavirus crisis was at a "tipping point", fuelling expectations of more restrictions aimed at curbing Covid-19 as government experts said cases could mushroom.

On Wall Street, the Dow Jones index joined the selloff, sliding by 2.9 percent in midday trading.

The European single currency fell below $1.18 as dealers headed for the US dollar's safe haven.

- 'Virus fears' -

"Virus fears have come back to haunt investors today, as concern rises that the consumer-led recovery is going to falter if lockdowns are re-introduced," noted Fawad Razaqzada, an analyst at ThinkMarkets.

"Stocks have tanked, the dollar has jumped, and the pound has been pounded," he added.

Russ Mould, at the online broker AJ Bell, added that "travel stocks again faced severe turbulence amid the rising fears over new (government) restrictions."

Most Asian bourses had already fallen sharply earlier in the day.

- Banking turmoil -

Shares in major banks dived after BuzzFeed News and the International Consortium of Investigative Journalists published findings over dirty money allegedly flowing through the banking system.

"Profits from deadly drug wars, fortunes embezzled from developing countries, and hard-earned savings stolen in a Ponzi scheme were all allowed to flow into and out of these financial institutions, despite warnings from the banks' own employees," according to the probe.

Banks replied that they have been working for several years with national regulators to address many of the issues raised in the report.

- Key figures around 1600 GMT -

  • New York - Dow Jones: DOWN 2.9 percent at 26,845.79 points
  • London - FTSE 100: DOWN 3.4 percent at 5,804.29 (close)
  • Frankfurt - DAX 30: DOWN 4.4 percent at 12,542.44 (close)
  • Paris - CAC 40: DOWN 3.7 percent at 4,949.76 (close)
  • EURO STOXX 50: DOWN 3.7 percent at 3,160.95
  • Hong Kong - Hang Seng: DOWN 2.1 percent at 23,950.69 (close)
  • Shanghai - Composite: DOWN 0.6 percent at 3,316.94 (close)
  • Tokyo - Nikkei 225: Closed for a holiday
  • Euro/dollar: DOWN at $1.1740 from $1.1840 at 2100 GMT
  • Pound/dollar: DOWN at $1.2799 from $1.2917
  • Euro/pound: UP at 91.73 pence from 91.66 pence
  • Dollar/yen: UP at 104.68 yen from 104.57 yen
  • West Texas Intermediate: DOWN 5.5 percent at $38.87 per barrel
  • Brent North Sea crude: DOWN 4.5 percent at $41.21

AFP/APP

Gold drops to $1932 an ounce owing to strong...

September 21, 2020 (MLN): Gold prices dropped on Monday due to heavy selling pressure amid a broad-based US dollar rebound. In the international market, gold fell to US $1932 an ounce while silver pegged at $26.38 per ounce.

Following the global market, the price of 24 Karat gold on Monday decreased by Rs 200 to Rs 114,700 in the domestic bullion market. The precious yellow metal of 24-Karat had closed at Rs 114,900 per tola on the last day.

According to the data released by the All Sindh Saraf Jewellers Association, the price of 10-gram gold also witnessed a decrease of Rs 171 to settle at Rs 98,337 against the previous close of Rs 98,508 per-gram.

On the other hand, the price of silver tola and 10-gram silver remained unchanged at Rs 1,300 and Rs 1,114.54, respectively, the association reported.

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Closing Bell: Anxiety

September 21, 2020 (MLN): A day after a bullish run at the local bourse, the KSE-100 index on Monday glided on profit-booking, as investors remained cautious over the monetary policy announcement later in the day.

The KSE-100 concluded the volatile session on a negative note by losing 330 points today and closed at 42,174 points. This was 0.42% lower compared to the previous closing.

The benchmark index followed the route of global markets as most of the Asian markets fell on Monday following another disappointing performance on Wall Street with investors growing concerned about an uptick in infections in Europe and the US, as well as the lack of movement in Washington on a new stimulus.

The choppy performance of the market was also induced by recent trade data releases pertaining to various sectors. Investors reacted to the trade figures released by PBS which showed a decline in export earnings by 4.27% YoY during 2MFY21. However, a decline in imports by 5.86% YoY kept the trade deficit down by 7.45% YoY in 2MFY21.

According to the closing note by Aba Ali Habib, the trading activity was knocked by the rollover week which dragged the index in red zone, wherein phenomenal activities of offloading the stocks purchased earlier at attractive valuation kicks in.

With regards to interest rate decision, Governor State Bank of Pakistan, Dr. Reza Baqir, will give a press conference on monetary policy after the MPC meeting. The SBP is largely expected to maintain the status quo, keeping the interest rate unchanged at 7 percent.

Moreover, investors hoped to learn more about SBP’s decision to allow periods of lower inflation within the target range of 7%- 9% for FY21.

In corporate news, Avanceon Limited and its subsidiary Avanceon FZE signed Supply, Installation, Maintenance and Upgradation Contracts worth over 100 Million PKR with a major supplier of natural gas in Pakistan.

The Index traded in a range of 432.35 points or 1.02 percent of previous close, showing an intraday high of 42,553.23 and a low of 42,120.88.

Of the 97 traded companies in the KSE100 Index 24 closed up 73 closed down, while 0 remained unchanged. Total volume traded for the index was 231.11 million shares.

Sector wise, the index was let down by Commercial Banks with 91 points, Fertilizer with 52 points, Oil & Gas Exploration Companies with 50 points, Oil & Gas Marketing Companies with 22 points and Power Generation & Distribution with 22 points.

The most points taken off the index was by OGDC which stripped the index of 27 points followed by UBL with 21 points, HBL with 21 points, FFC with 21 points and ENGRO with 19 points.

Sectors propping up the index were Food & Personal Care Products with 4 points, Pharmaceuticals with 3 points, Automobile Assembler with 3 points and Vanaspati & Allied Industries with 1 points.

The most points added to the index was by KTML which contributed 8 points followed by NATF with 6 points, MUREB with 6 points, HCAR with 5 points and LUCK with 5 points.

All Share Volume decreased by 82.18 Million to 433.94 Million Shares. Market Cap decreased by Rs.53.16 Billion.

Total companies traded were 408 compared to 417 from the previous session. Of the scrips traded 115 closed up, 277 closed down while 16 remained unchanged.

Total trades decreased by 12,508 to 112,911.

Value Traded decreased by 2.25 Billion to Rs.11.32 Billion

CompanyVolume

Top Ten by Volume

Aisha Steel Mills58,910,000
Unity Foods48,202,000
Fauji Foods36,014,000
Pakistan International Bulk Terminal34,630,500
K-Electric29,596,000
Hascol Petroleum17,270,000
Al Shaheer Corporation10,598,000
Pakistan Stock Exchange10,387,500
National Bank of Pakistan9,138,500
Pakistan Refinery9,002,500

 

SectorVolume

Top Sector by Volume

Engineering65,007,600
Food & Personal Care Products55,511,550
Vanaspati & Allied Industries48,237,400
Power Generation & Distribution40,190,217
Transport36,929,400
Commercial Banks26,922,364
Technology & Communication26,089,400
Oil & Gas Marketing Companies22,392,044
Cement21,375,015
Inv. Banks / Inv. Cos. / Securities Cos.19,744,000

 

 

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SBP Keeps Policy Rate Unchanged at 7.00 Percent

September 21, 2020( MLN): The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) in its meeting held on September 21, 2020 in Karachi, has decided to maintain the Policy Rate at 7 percent.

The Market expectation was that the Central Bank would maintain status quo.

The MPC noted that compared to the time of the last meeting in June 2020, business confidence and the outlook for growth have improved. This reflects the decline in Covid-19 cases in Pakistan and the easing of lockdowns, as well as the timely stimulus provided by the Government and SBP. At the same time, the forecast for inflation has risen slightly, primarily due to recent supply side shocks to food prices. Average inflation is now expected to fall within the previously announced range of 7 – 9 percent during FY21, rather than marginally below.

The MPC noted that financial conditions continue to be accommodative with real interest rates remaining slightly below zero on a forward-looking basis. In addition, the series of targeted measures undertaken by SBP since the Covid-19 outbreak have injected significant liquidity and further lowered funding costs for many businesses and households. Together, these monetary measures have injected an estimated stimulus of Rs. 1.58 trillion, or about 3.8 percent of GDP, in the cash flow of businesses and households. In addition, the government has undertaken a number of significant measures to support economic activity including the Ehsaas emergency cash program, commodity financing, a risk-sharing facility for SMEs, and acceleration of tax refunds.

Taking into account the changes in the outlook for inflation and growth since the last MPC and the impact of the stimulus measures undertaken by the Government and SBP, the MPC was of the view that the stance of monetary policy remained appropriate to provide needed support to the emerging recovery, while keeping inflation expectations well-anchored and maintaining financial stability.

In reaching its decision, the MPC considered key trends and prospects in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation.

Real Sector

Following a deep contraction between March and June, the large-scale manufacturing (LSM) index returned to expansion in July, growing at 5 percent (y/y). High-frequency demand indicators including auto sales, cement dispatches, POL sales, and electricity consumption also reflect an encouraging pick-up in economic activity. Nonetheless, the economic recovery remains uneven across industries, with the hospitality and certain services sectors especially lagging, and the level of activity generally still remains below pre-Corona levels. Going forward, growth is projected to recover to slightly above 2 percent in FY21, after falling to -0.4 percent last year. The recovery is expected to be driven mainly by manufacturing-related activities and construction, which are being supported by various financial policies from SBP including the Temporary Economic Refinance Facility and the government’s incentives for the housing and construction sectors. The growth outlook is subject to uncertainty. On the downside, risks include a potential second wave of Covid-19 domestic infections, a possible sharp increase in infections in the winter months in Pakistan’s major export markets in Europe and the US, and the threat to agriculture from locust attacks. On the upside, a faster global recovery could lift exports higher.

External Sector

Despite a challenging environment, the external sector has remained resilient since the Coronavirus outbreak. The flexible market-determined exchange rate, introduced in May 2019, has played its valuable role as a shock absorber, as witnessed in orderly two-way movement of the currency. Low global oil prices and subdued domestic demand helped to reduce the current account deficit further during the onset of the Coronavirus. More recently, a gradual recovery is expected in exports and remittances have performed strongly on the back of orderly exchange rate conditions as well as supportive policy steps taken by the Government and SBP under the Pakistan Remittance Initiative. Remittances rose to a record monthly high in July and have topped US$ 2 billion for the last three months. By supporting the current account, which swung into a surplus in July, these developments have helped to restore SBP’s foreign exchange reserves to their pre-pandemic level of around US$ 12.8 billion. As a result, Pakistan’s reserve adequacy is now back above the important global benchmark of 3 months of import cover. Looking ahead, the current account deficit is expected to remain bounded at around 2 percent of GDP. This, together with expected private and official flows, should continue to keep Pakistan’s external position stable in FY21.

Financial Sector

Despite severe pressures from the Coronavirus and contrary to expectations, the fiscal deficit for FY20 ended lower than in FY19 and the increase in public debt was contained to around 1 percent of GDP. This largely reflects the strong steps taken by the government to ensure a primary surplus in the first nine months of FY20, which helped provide fiscal space to respond to the Coronavirus outbreak. During the first two months of FY21, in line with the gradual pick-up in economic activity, tax revenues returned to positivegrowth, averaging around 1.2 percent (y/y). While far below pre-pandemic growth rates, this recovery in tax collections represents an encouraging turnaround from the double-digit reduction observed during the last quarter of FY20, although risks remain around achieving the revenue target. Federal PSDP-related outlaysalmost doubled during July-August 2020 compared to the same period last year. Overall, in line with this year’s budget, the MPC expects that the pre-pandemic path of fiscal consolidation will resume as economic activity recovers in coming quarters.

Monetary and Inflation Outlook

The MPC noted that, notwithstanding an uptick in headline inflation during June and July, core inflation has been relatively stable and demand-side risks to inflation remain well- contained. Like growth, the inflation outlook is also subject to certain risks. On the upside, risks revolve around food prices, especially in the wake of recent flood-related damages and potential locust attacks. On the downside, the main risk stems from a lower-than-expected pickup in domestic activity. On the global front, the future trajectory of oil prices will also have an important bearing on the domestic inflation outlook.

In the wake of heightened risk aversion from banks due to the Coronavirus pandemic, private sector credit has recently been supported to a significant extent by SBP refinance facilities. These facilities, coupled with other supervisory actions related to deferment and restructuring of loans, have ensured the availability of necessary funding to businesses and households, providing important support to growth and employment.

Overall, the MPC was of the view that the current monetary policy stance is appropriate to support the emerging recovery while safeguarding inflation expectations and financial stability

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FinCEN Files: 6 Pakistani Banks accused of carrying out...

September 21, 2020 (MLN): There were as many as 29 suspicious transactions that took place between Pakistani banks and the rest of the world, an investigation by ICIJ revealed on Monday.

The investigation titled ‘FinCEN Files’ further revealed that nearly USD 1,942,560 were received by Pakistan and USD 425,000 were sent to various parts across the world.

Furthermore, up to 6 Pakistani Banks, namely Allied Bank Limited, United Bank Limited, Habib Metropolitan Bank Limited, Bank Alfalah Limited, Standard Chartered Bank, and Habib Bank Limited, were flagged as potentially suspicious in the FinCEN Files documents.

Allied Bank topped the list for making 12 transactions out of the total 29, with receipts totaling USD 1,001,170. UBL, on the other hand, made 8 transactions for receiving USD 399,620.

Habib Metro allegedly made 2 transactions for receiving USD 74,980, whereas Standard Charted made 4 transactions for receiving USD 199,860. Habib Bank Limited was part of only one transaction wherein it received USD 167,450.

Bank Alfalah emerged as the only Pakistani bank that was a part of a two-way transaction, as it sent UD 452,000 and received USD 99,480.

It was further revealed that these transactions were processed via 2 U.S.-based banks, which filed suspicious activity reports with FinCEN.

Some of the main highlights of the investigation show that global banks moved more than $2 trillion between 1999 and 2017 in payments they believed were suspicious, and flagged bank clients in more than 170 countries who were identified as being involved in potentially illicit transactions. The figures include $514 billion at JPMorgan Chase and $1.3 trillion at Deutsche Bank.

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