Stock Watch: KSE-100 gives muted response to rate cut

Pakistan’s equities are poised for fresh gains following a larger-than-expected rate cut and the much-anticipated announcement of a schedule to approve $7 billion in loans aimed at stabilizing the economy.

The IMF’s announcement had been delayed due to the government’s initial inability to secure the required financing. However, assurances from the government have now convinced the IMF to set a date for the approval.

Pakistan stocks faced early-week volatility but gained traction as investors anticipated a rate cut later in the outgoing week.

On Thursday, central bank reduced the policy rate by 200 basis points to 17.5% beating expectations. Additionally, an IMF spokesperson announced that Pakistan has secured the necessary financing assurances from development partners, with the matter set to be discussed at the executive board meeting on September 25, further boosting investor confidence.

The rate cut invigorated the cyclical sector, resulting in the KSE-100 index closing at 79,333 points, a gain of 0.55% or 435 points compared with previous week’s closing of 78,898 points.

Outflow of foreign portfolio investment continued during this week, clocking in at a net sell of $7.5 million compared to a net sell of $6.7 million last week. Major selling was witnessed in fertilizer and banking stocks.

Analysts believe IMF executive board approval, continuation of monetary easing along with an improving external account position and a better country credit rating, would keep foreigners’ interest alive.

Oil

This week, crude oil prices saw significant fluctuations due to a combination of supply disruptions and ongoing demand concerns.

Temporary supply constraints provided some upward pressure, but weak global demand, especially from China, weighed heavily on prices.

Hurricane Francine played a major role in driving oil prices higher midweek. The storm hit the U.S. Gulf of Mexico, causing the shutdown of around 730,000 barrels per day (bpd) of oil production. Consequently, crude oil futures rose by over 2%, with prices briefly surpassing $68 per barrel.

On September 13, Brent crude closed at $74.6 per barrel, up 2.56% from $72.735 per barrel on September 6, 2024.

Gold

After three weeks of consolidation, gold prices surged last week. The immediate catalyst for this rise is the anticipation of a US Federal Reserve rate cut, which is putting downward pressure on US dollar rates. However, broader factors such as geopolitical tensions, inflation concerns, and market uncertainty have been key drivers of gold’s upward trend in 2024.

Geopolitical tensions, especially in Ukraine, the Middle East, and US-China relations, along with central bank gold purchases, are expected to continue supporting gold’s safe-haven demand. On September 13, gold closed at $2,566.85 per ounce, marking a 2.78% increase from $2,497.41 per ounce on September 6, 2024.