United States and Britain target Yemen

The United States and Britain carried out a series of strikes against Houthi targets in Yemen, according to US Central Command.

In addition, the US unilaterally destroyed eight aerial attack drones over Yemen and the Red Sea.

The coalition strikes targeted 13 Houthi targets in parts of Yemen controlled by the Iran-backed group.

This marked the fifth round of coalition strikes against the Houthis, who have repeatedly attacked US Navy ships and commercial vessels in the Red Sea and the Gulf of Aden. The two waterways, separated by the Bab-el-Mandeb strait, are critical to international shipping routes.

The last round of strikes occurred on February 24, as the US and Britain targeted Houthi weapons and radar sites.

The US has tried to disrupt the Houthi’s ability to target commercial vessels and US warships by going after their primary weapons, including anti-ship cruise missiles, ballistic missiles and one-way attack drones. The US has also destroyed maritime drones and underwater drones. The resumption of strikes follows an uptick in Houthi attacks over the last week.

During this past week, the US destroyed Houthi missile launchers in Yemen and intercepted aerial attack drones.

On Tuesday, three Houthi anti-ship ballistic missiles struck a Greek-owned and operated merchant ship in the Red Sea, according to US Central Command. There were no injuries, according to Central Command, and the M/V Lax was able to continue its voyage.

The US spearheaded Operation Prosperity Guardian in December to protect international shipping, banding together with other nations to intercept Houthi attacks.

The aircraft carrier USS Dwight D. Eisenhower and a number of destroyers have patrolled the waters of the region to intercept Houthi launches.

The USS Carney, a guided missile destroyer that recently returned from the Middle East, had 51 engagements in six months, which Defense Secretary Lloyd Austin said last week was “the most direct Navy engagement with a foe since World War II.”

Pakistan Stock Exchange remains under pressure

Pakistan Stock Exchange remained volatile throughout the week, with early correction leading the benchmark index to dip below the psychological barrier of 75,000 points. However, the bulls staged comeback on the last trading day, gaining 1,000 points.

 Overall, the KSE-100 index ended the week down by 105 points or 0.14%WoW, closing at 75,878 points on May 31, 2024.

Uncertainty surrounding the upcoming budget fueled volatility and profit-taking. With just a week remaining before the budget announcement, concerns have risen over the IMF’s high tax proposals.

Reports suggest abolishing all sales tax exemptions, except for some essential food items, and increasing the standard GST from 18% to 19%.

The budget announcement is expected to coincide with the upcoming Monetary Policy Committee (MPC) meeting, potentially causing delays as Prime Minister Shahbaz Sharif will be on an official visit to China.

May 2024 CPI inflation is projected to be 12.8% YoY. As the inflation outlook eases, the cut-off yields in the latest T-Bills auction dropped by 60bps for 3-month papers. Similarly, secondary market yields for 3-month papers fell by 118bps to 20.44%. The declining yields indicate a potential coupon rate cut in the upcoming MPC, which brought some positivity to the market.

However, with the budget’s impact still uncertain, an imminent interest rate cut in the upcoming MPC seems unlikely.

With an overall volatility in market, participation also decreased by 8.5%WoW, with the average daily traded volume falling to 511 million shares from 558 million shares a week ago.

On the currency front, PKR depreciated by 0.04%WoW to close at PKR278.33/US$.

Other major news flows during the week included: FBR announced plan to collect PKR1.296 trillion through duties, 2) Country borrowed US$7.142 billion during Jul-Apr period, and 3) Credit to private sector declined 39.7%YoY.

Top performing sectors were: Inv. Banks/ securities, Leather & Tanneries, Engineering were amongst the top performers, while laggards included: Transport, Woollen, and Property.

Flow wise, major net selling was recorded by Mutual Funds with a net sell of US$8.9 million. Insurance companies absorbed most of the selling with a net buy of US$13.1 million.

Top performing scrips of the week were: MUGHAL, FABL, FCCL, SYS, and SCBPL, while the laggards included: SHEL, PSX, BNWM, GLAXO, and YOUW.

Market performance is expected to hinge on the upcoming Federal Budget 2025, with the next MPC meeting also remaining in the spotlight.

Though, the possibility of a coupon rate cut is slim, however, any cut would likely boost positivity, especially in the cyclical sector.

Following the budget approval, the next IMF program will take center stage and become a key market trigger in the near term.

 

 

Gaza the most expensive war in Israel’s history

When Israel vastly ramped up defense spending in the 1970s to address security risks exposed in the 1973 Yom Kippur War, the economic side effects were devastating. Economists are now worried about a repeat.

The ongoing war in Gaza is the most expensive in the country’s history: The central bank has estimated the total cost of the conflict will run to 250 billion shekels or US$67.4 billion through 2025.

Defense spending before the war was at an all-time low of 4.5% of GDP. It’s set to double this year to 9%, according to Manuel Trajtenberg, a professor emeritus in the economics department of Tel Aviv University.

“The decisive test will be the government’s ability to lower the defense-spending-to-GDP ratio back to reasonable levels within several years,” he says. “Otherwise, we may slide back into another lost decade.”

Working in Israel’s favor is that its starting point was strong. Over the past 15 years, the nation’s per-capita GDP has risen above that of Britain, France and Japan.

But costs are apparent. When Hamas attacked and some 300,000 reservists rushed into uniform, Israel’s powerhouse tech industry suddenly found itself short of labor, while businesses in and around the Tel Aviv area lost some of their best customers.

With Prime Minister Benjamin Netanyahu having committed billions of shekels for spending demanded by his ultra-Orthodox coalition partners, many economists worry of a “spiral of collapse” — where Israel’s better-educated, high-earning citizens choose to emigrate rather than shoulder the fiscal burden of supporting large Orthodox families.

Scores of economists conveyed that message recently to the government, in a letter calling for an end to public support for schools that don’t train students for the modern labor market and requiring ultra-Orthodox to be drafted.

Israel already underinvests in areas such as education and health compared with developed economies. If policymakers look to free up funds for military upgrades by paring back those priorities, along with transportation and welfare, it’s the economy that may pay the price.

 

US pier constructed off Gaza broken apart

The temporary pier constructed by the US military to transport aid into Gaza broke apart and sustained damage in heavy seas on Tuesday in a major blow to the US-led effort to create a maritime corridor for humanitarian supplies into the war-torn enclave, the Pentagon said.

The pier was damaged and sections of the pier need rebuilding and repairing, Pentagon deputy press secretary Sabrina Singh said on Tuesday. The pier will be removed from its location on the Gaza coast over the next 48 hours and taken to the Israeli port of Ashdod, where US Central Command will carry out repairs, Singh said. The repairs will take more than a week, further delaying the effort to get the maritime corridor fully operating.

Part of the pier, which consists of a narrow causeway to drive aid into Gaza and a wider parking area to drop off supplies transported by ship, had disconnected on Sunday, the officials said. The parking area will have to be reconnected to the causeway before the pier can be used again.

The damage, first reported by NBC News, occurred three days after heavy seas forced two small US Army vessels to beach in Israel, according to US Central Command, while another two vessels broke free of their moorings and were anchored near the pier.

“I believe most of our soldiers were able to remain on the vessels and still are currently on them,” Singh said during Tuesday’s Pentagon press briefing. “And ... within the next 24 or 48 hours, the Israeli Navy will be helping push those vessels back and hopefully they’ll be fully operational by then.”

The pier, which cost US$320 million, had only begun operating on May 17 when heavy seas forced the maritime shipments to stop one week later on May 24, two days before part of the pier disconnected. It is unclear when shipments will resume.

The temporary pier, called the Joint Logistics Over the Shore (JLOTS), requires very good sea conditions to operate. CNN reported previously that JLOTS can only be operated safely in a maximum of 3-foot waves and winds less than approximately 15 miles per hour.

Heavier sea conditions delayed the deployment of the pier for several weeks, as the system sat docked in the Israeli port of Ashdod waiting for favorable conditions.

The US has stressed that the temporary pier is only meant to augment humanitarian shipments going through the land crossings between Israel and Gaza.

On Thursday, Vice Adm. Brad Cooper, deputy commander of US Central Command, said 820 metric tons of aid had been delivered through the pier to the Gaza beach, where the United Nations was responsible for distributing it to the Palestinian population. The Pentagon said Thursday that more than 1,000 metric tons of aid had been delivered before the temporary pier had to halt operations.

Daniel Dieckhaus, the director of USAID’s Levant Response Management Team, told reporters Thursday that there were “thousands and thousands of tons” of aid waiting in Cyprus to be delivered through the maritime corridor. But those shipments are now paused with the temporary pier inoperable

Iran: Finding Ebrahim Raisi Replacement

The next president of Iran is likely to be a hardliner unwaveringly loyal to Ayatollah Ali Khamenei, with a background in the Revolutionary Guards. It has to be someone with an unblemished background and devoid of political rivalries.

It is believed that Khamenei, Iran's ageing ultimate decision maker, seeks a fiercely loyal president in the June 28 election to run the country day-to-day and be a trusted ally who can ensure stability, amid manoeuvring over the eventual succession to his own position.

Registration for candidates opens on Thursday, although that is only the beginning of a process that will see hopefuls vetted by the Guardian Council, a hardline watchdog body that disqualifies candidates without always publicizing the reason.

The primary goal seems to be securing the election of a president who is intensely loyal to the supreme leader and his ideals. The victory of a hardline president is aimed shaping a smooth transition at the pinnacle of power, nevertheless presents a conundrum for the ruling clerics managing the vote next month.

To ensure the winner is a diehard Khamenei loyalist, it is likely the upcoming election will be dominated by hardliners.

The west fears that restricting the choice on the ballot is likely to dampen voters' interest and keep turnout low.

The quandary is a familiar one in Iran. In a race where those who run are carefully reviewed, typically the challenge for the clerical establishment is securing a high turnout.

The Guardian Council will publish the list of qualified candidates on June 11, 2024.

Raisi clinched victory in 2021 election on a turnout of about 49% - a significant drop from the 70% seen in 2017 and 76% in 2013.

Critics say the turnout reflected discontent over economic hardship and social and political restrictions which drove months of protests ignited by the death of a young woman arrested by the morality police in 2022.

Including low-key moderate candidates on the ballot might be a way to attract a larger turnout, some analysts say.

Currently sidelined from power, reformists remain faithful to Iran's theocratic rule but advocate improved relations with the West, and gradual moves towards more freedom of expression and a loosening of strict Islamic dress code.

Reformist former senior official Mohammad Ali Abtahi said the pro-reform camp would contest the election if its candidate was permitted to participate.

The cycle of low voter turnout, which has ensured hardliner victories in past parliament and presidential elections, can be changed.

The reformists' electoral strength remains unclear, as some voters believe they failed to bring greater freedoms in the periods when they were in power.

The 2022 protests exposed a widening breach between the reformists and demonstrators demanding regime change.

Even allowing a few known moderates to contest election might not be enough to get people to turn out. Voters have been repeatedly misled by the idea that reform-minded candidates ... would produce real change.

A new president would be unlikely to make any change to Iran's nuclear or foreign policy, both of which are controlled by the supreme leader.

The registration of candidates could include Parviz Fattah, a former Guards member who heads an investment fund linked to the leader, and Saeed Jalili, a former chief nuclear negotiator who in 2001 ran Khamenei's office for four years.

Interim President Mohammad Mokhber and former parliament speaker and a Khamenei adviser, Ali Larijani, have also been mentioned in Iranian media as possible candidates, Larijani was barred from participating in 2021 presidential race.

 

Rafah strike doesn’t cross red line, says Kirby

Since October 07, 2023 Israel has killed over 35,000 people in Gaza, mostly women and children. More than 80% of the enclave has been turned into heap of debris. Infrastructure has been destroyed completely and Gazans are living in famine like situation. However, the US administration still believes that Israel has not crossed red line. Will the White House spokesperson John Kirby tell the world US definition of red line in case of Rafah?

The White House on Tuesday indicated an Israeli strike that killed dozens of Palestinians in Rafah did not cross a “red line” that would lead to a change in US policy.

Multiple administration officials in press briefings Tuesday described the images out of Rafah as “heartbreaking,” “tragic” and “horrific.” But there was no sign of an impending policy change as a result, because it was an airstrike and not a major ground operation.

“We still don’t believe that a major ground operation in Rafah is warranted. We still don’t want to see the Israelis, as we say, smash into Rafah with large units over large pieces of territory. We still believe that, and we haven’t seen that at this point,” Kirby told reporters.

“As a result of this strike on Sunday, I have no policy changes to speak to,” he added. “It just happened. The Israelis are going to investigate it. We’re going to be taking great interest in what they find in that investigation. And we’ll see where it goes from there.”

President Biden earlier this month warned he would stop supplying Israel with offensive weapons such as bombs and artillery shells if it launched a long-promised invasion of Rafah.

National security adviser Jake Sullivan last week told reporters there was “no mathematical formula” for assessing Israel’s conduct in Rafah, but officials would look at “whether there is a lot of death and destruction from this operation or if it is more precise and proportional.”

Administration officials said Tuesday that Sunday’s airstrike, which was the deadliest incident in Rafah since Israel launched an offensive there, did not amount to what the White House has warned against.

“It is still our assessment that what is happening in Rafah and what the [Israeli military] are doing, it is limited in scope,” Pentagon deputy press secretary Sabrina Singh told reporters.

Israel Prime Minister Benjamin Netanyahu described the Rafah fire as tragic and said Israel is “investigating it thoroughly and will learn from it, as is our policy and longstanding conduct.”

Israeli officials reportedly told the US that shrapnel from a targeted strike on senior Hamas leaders struck a fuel tank near a displaced persons camp.

But the resulting carnage underscored international alarm over the conduct of Israel’s military operations, and it came only days after a top United Nations court issued a ruling for Israel to halt its military operations in Rafah.

 

 

 

Tanker owners await OPEC Plus announcement

OPEC Plus is scheduled to hold its next meeting on Sunday and its decisions on production strategy will have far reaching implications for the tanker owners.

According to Seatrade Maritime News, sector analysts say the picture in far from clear. In its weekly report, Gibson suggests that there could be three possible outcomes.

1- OPEC Plus members could decide to continue with the production cuts in place today.

2- They could implement further cuts, allowing oil producers outside the cartel to boost their market share.

3- They could decide to ease voluntary production cuts to meet the wishes of members hoping to boost oil revenue streams. 

OPEC Plus member states account for more than 40% of global crude tanker trade where rising oil demand in China is likely to underpin crude oil growth of 2.2 million barrels per day this year, according to the projections.

Crude demand is also climbing in other non-OECD countries, notably India, and other countries in Asia, Middle East, and Latin America, Gibson said.

However, the broker notes that few analysts are as bullish about oil demand prospects.

The International Energy Agency (IEA), for example, reckons that likely growth could reach 1.1 million barrels per day, just half the OPEC Plus estimate. The IEA reckons that demand will grow more slowly now that the post-Covid surge has come to an end.

Meanwhile, declining oil demand in Europe is likely to reduce OECD demand which, the IEA suggests, could fall by 140,000 bpd this year. This is the result of the industrial downturn and a mild winter.

Gasoil demand in all three OECD regions over the first quarter fell by 330,000 bpd year-on-year.

Gibson points to lower oil prices, with Brent crude now trading at around US$81-83 a barrel, down from an average of US $89 in April.

These lower prices may suggest a current oversupply, a factor supported by weaker demand growth. These prevailing market fundamentals may deter OPEC Plus from loosening their production cuts too soon, Gibson said.