Pakistan Stock Exchange Collapses as International Oil Prices Drop – Businesses

KARACHI (Dunya News) – The stock market collapsed in the early trading hours on Monday, confusion and uncertainty surrounding potential investors due to the drop in international oil prices by around 30 %, the worst crash since the Gulf War in the 1990s.

The benchmark KSE 100 stocks of the Pakistan Stock Exchange (PSX) fell by 2,291.69 points or 6pc around 10h, before rising to 36 905.22 at 13h39. The day's high remained 38,219.67 (the previous close) and 35,917.34, the lowest.

In addition, trading activity was suspended around 9.45 a.m. after a rapid 5.83% drop in share prices and resumed around 10.30 a.m.

Oil prices fell by a third after Saudi Arabia's decision to start a price war after Russia was hesitant to make the further major production cuts proposed by OPEC to stabilize oil markets due to concerns over the global spread of the coronavirus.

Other persistent factors include the collapse of global stocks, the suspension of imports from China and the negative effects on the Asian economy and a sharper than expected slowdown in global economies as the new coronavirus epidemic continues. to invade countries.

Investors continued to sell stocks last week and spend their money on safe haven assets, mainly gold.

Experts say the stock market has sought an appropriate direction for healthy growth, but several factors continue to dominate the feelings of potential investors.

Global stocks toppled by coronavirus shock and oil crash

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Global stock markets fell on Monday as panicked investors fled headlong into bonds to cover the economic trauma of the coronavirus, and oil fell more than 30% after Saudi Arabia turned on the taps. a price war with Russia.

Investors drove 30-year US bond yields below 1% on betting, the Federal Reserve would be forced to cut interest rates by at least 75 basis points when it met March 18, even though it has just provided emergency easing.

The yen refuge jumped across the board, as emerging market currencies exposed to oil, including the Russian ruble and the Mexican peso, fell.

Saudi Arabia had stunned the markets with the intention of increasing production significantly after the collapse of the supply-side supply reduction agreement OPEC with Russia, a seizure of market shares reminiscent of a surge in 2014 which brought prices down by around two-thirds.

Oil shock was seismic, Brent LCOc1 futures slipping from $ 13.53 to $ 31.74 per barrel in chaotic trade, while US crude CLc1 lost $ 13.45 to $ 27.83 .

"Today's price action jeopardizes the fiscal health of the vast majority of sovereign producers and budget cuts and an increase in debt are now looming in the event of extending the period of low prices, "warned Helima Croft, head of global commodity strategy at RBC. Capital markets.

"For the most politically and economically fragile producer states, the results could be severe."

There was also concern that US oil producers who had issued large debts would be made unprofitable by falling prices.

Energy stocks beat and E-Mini futures for the S&P 500 ESc1 plunged 4.89% to fall. The EUROSTOXXX 50 STXEc1 futures contracts fell by 5.9% and the FTSE FFIc1 futures contracts by 6.8%.

The Japanese Nikkei fell 5.2% and the Australian commodity market 6.4%.

The largest MSCI index of Asia-Pacific stocks outside Japan lost 3.9% on its worst day since late 2015, while Shanghai blue chips fell 2.8% .

"Wild is an understatement," said Chris Brankin, managing director of the TD broker Ameritrade Singapore.

"Not just us, but around the world, every broker / reseller would increase their margin requirements … basically trying to protect our customers from the effects of too much risk or guess where the bottom line is."

News of North Korea fired three missiles off its eastern coast on Monday.

And Italian markets will certainly be in the spotlight after the government orders foreclosures of large parts of the north of the country, including the financial capital Milan.

The number of people infected with coronavirus has exceeded 107,000 worldwide, as the epidemic has affected more countries and caused more economic carnage.

"After a week in which the storage of bonds, credit protection and toilet paper has become a thing, let's hope we start to see the reaction more clearly," said Martin Whetton, head of bond and rate strategy at CBA.

"The central banks of the dollar bloc lowered key rates by 125 basis points, not to stop a viral pandemic, but to stem a pandemic of fear," he added, while noting that many are not. ; had hardly any additional room for maneuver.

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BOND BUBBLE

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A tectonic shift saw market prices 100% in a Fed easing on March 18, while a near-zero drop was now considered likely in April.

The European Central Bank will meet on Thursday and will be under intense pressure to act, but the rates there are already deeply negative.

"The burden of proof falls, perhaps inevitably on the actions of governments to abandon budget surpluses and invigorate the demand side of the economy," said Whetton.

Urgent action was clearly needed with data suggesting that the global economy had fallen into recession this quarter. Figures from China over the weekend showed that exports fell 17.2% in January-February, compared to the previous year.

BofA Global Research analysts estimated that the latest sale had seen $ 9 trillion worth of global stocks vaporized in nine days, while the 10-year average return in developed countries reached 16 basis points, the lowest in 120 years.

"The clearest result of the COVID-19 exogenous shock is a collapse in bond yields, which once the panic subsides can induce a huge turnover towards" growth stocks "and" surrogates. bonds "in the stocks," they wrote in a client note.

Yields on 10-year US Treasuries US10YT = RR plunged to 0.48%, once unthinkable, after halving in just three sessions.

US30YT = RR 30-year bond yields plunged 35 basis points on Friday alone, the largest daily decline since the crash of 1987, and slipped less than 1% Monday to 0.96 %.

Falling yields and Fed expectations pulled the carpet under the dollar, placing it at the biggest weekly loss in four years = USD.

The dollar has extended its fall in Asia to 101.60 yen from a low since the end of 2016. It was down 2.4% to 102.80 for the wild trade.

The euro also reached its highest level in more than 13 months at $ 1.1492, to be the last at $ 1.1406.

Gold initially cleared $ 1,700 per XAU ounce = to hit a new seven-year high, falling back to $ 1,669.93 amid discussions that some investors had to sell to raise funds to cover the margin calls in stocks.

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Energy companies hammered

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Jeffrey Halley, senior market analyst at OANDA, said: "Saudi Arabia seems determined to punish Russia.

"Oil prices … will likely be capped in the coming months as the coronavirus slows economic growth, and Saudi Arabia opens the pumps and offers huge discounts on its crude qualities."

Energy companies have been criticized, CNOOC, listed in Hong Kong, dropping 16% and PetroChina by 10%, while in Tokyo, Inpex plunged 13% and Woodside Petroleum in Sydney fell 17%.

"Falling oil prices and the spread of the coronavirus are fueling fears of downside risk to the global economy," said Takuya Kanda of the Gaitame.com Research Institute.

Foreign exchange markets have also been extremely volatile, with traders recovering the yen – considered a hedge against global instability – and selling the dollar due to uncertainty over the US coronavirus.

Marito Ueda, senior trader at FX Prime, told AFP: "Fears over the impact of the virus on the global economy and the fall in US yields have prompted investors to seek the yen. refuge".

"It is essentially a flight of the dollar," he added.

The greenback fell below 103 yen, levels not seen since the third quarter of 2016.

Analysts have warned of further developments, as the epidemic shows no signs of slowing down, with more than 100,000 people infected in 99 countries.

Italy, which is now the hardest hit country outside of China, has detained a quarter of its population, while sporting and public events around the world have been canceled.

"You just don't know which way things are going to go, it's very difficult to set a price right now," said Sarah Hunter, chief economist at BIS Oxford Economics, on Bloomberg TV.

"We see it on the market with the wild oscillations that occur."

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Key figures around 0410 GMT

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Brent Crude: down 29.9% to $ 36.05 per barrel

West Texas Intermediate: down 30.9% to $ 28.52

Tokyo – Nikkei 225: down 5.9% to 19,536.01

Hong Kong – Hang Seng: down 3.5% to 25,230.55 (break)

Shanghai – Composite: down 2.4% to 2,961.29 (station wagon)

Gold: + 1.7% to $ 1,702 per ounce

Dollar / yen: down to 102.43 yen from 105.40 yen at 2200 GMT on Friday

Euro / dollar: up to $ 1.1401 compared to $ 1.1298

Pound / dollar: up to $ 1.3105 compared to $ 1.3051

Euro / pound: UP to 87.00 pence from 86.58 pence

New York – Dow: 1.0% DROP to 25,864.78 (closing)

London – FTSE 100: down 3.6% to 6,462.55 (close)