Pakistan: Central bank must cut interest rate

Pakistan, already suffering from cost pushed inflation faces two challenges. The Monetary Policy Committee (MPC) has to make a difficult decision of cutting interest rate for making debt servicing sustainable.

The business community is already jittery due to likely introduction of new taxes, no reduction in interest rate, but more distressing hike in electricity and gas tariffs.

Analysts believe, Pakistan’s current account just can’t be improved without restoring competitiveness of the local manufacturers.

During this past week, Moody’s statement suggesting a status quo in the upcoming MPC meeting exerted some pressure on the stock market.

Looking ahead, the upcoming MPC meeting on June 10 will be in the spotlight, with any rate cut expected to shift the market’s focus towards cyclical sectors.

More than two years into the steepest interest-rate tightening cycle in decades, central banks around the world are grappling with how fast to unwind the policy. Policymakers from South Korea to Canada are weighing progress on slowing inflation, and some have started cutting rates.

Policymakers in Latin America have been trimming since earlier this year. While that all marks a major milestone, price pressures have proven stubborn, a strong dollar has roiled developing nations and geopolitical tensions have added a layer of uncertainty to the post-pandemic economic recovery.

US Federal Reserve officials will meet next week and are widely expected to hold interest rates steady as the US economy hums along and the labor market keeps firing on all thrusters. 

The Labor Department data this week suggesting last year’s payroll gains might not have been as robust as first counted, there’s now the risk that Fed Chair Jerome Powell and his colleagues could keep monetary policy too tight for too long.

Even as the Fed’s central bank peers diverge (the en-vogue term for the current unwinding cycle), rate cuts by the European Central Bank and the Bank of Canada “are less bold departures and more like components of a mosaic,” Daniel Moss writes in Bloomberg Opinion. “Harmony has been breaking down for a while.”

 

US military repairs Gaza pier

A top US military official said humanitarian aid would begin flowing again in the coming days through the maritime corridor. The pier has been attached back to the Gaza beach after the causeway, the part that connects to the shore, was broken apart during high winds and heavy seas on May 25.

Vice Admiral, Brad Cooper, deputy commander of US Central Command, said the US military was moving with a sense of urgency to re-open the pier to deliver critical humanitarian aid to Gaza.

"We want to seize this opportunity and get the aid to the people as quickly as possible," he said. 

The pier is just one point of access for humanitarian aid to reach Gaza, but in its roughly weeklong operation before it broke apart, more than two million pounds of aid entered the territory. 

Cooper said he expects one million pounds of aid to be delivered over every two-day period once operations resume.

The Gaza pier has cost the US about US$230 million, which includes the cost of repairing it. Still, that figure is down US$90 million from an initial estimate.

Sen. Roger Wicker, ranking member of the Senate Armed Services Committee, said continuing operations with the pier was a bad idea. "It continues to put US troops in harm's way without any plan for ensuring that aid is delivered successfully to Gazans in need," said Wicker, calling it an "irresponsible" and "expensive experiment."

Cooper acknowledged concerns that the pier could face more trouble from bad weather but stressed the US military had backup plans.

"We do have a series of contingency plans to adjust and adapt to the weather,” he said. 

Israel controls all of the crossings into Gaza, where Palestinians are struggling to access food and water as Israeli forces wage war against militant group Hamas, and says it is doing everything possible to get aid into the strip.

The United Nations Office for the Coordination of Humanitarian Affairs said in an update that 9 out of 10 children are experiencing severe food poverty in Gaza.

The office also said that recent Israeli military activities, including in the southern city of Rafah, "have significantly destabilized humanitarian aid flows, forcing UN and partners to reorganize the entire operation."

 

Biden must be held accountable for Israeli genocide in Gaza

The Israeli military is committing genocide against Palestinians in Gaza, as documented by Defense for Children International – Palestine. Images of Palestinian children’s bodies circulate on social media, while Israeli leaders openly discuss their plans for ethnic cleansing. Despite this, the Biden administration continues to support Israel diplomatically and militarily.

President Biden, who claims no one is above the law, has refused to back South Africa's genocide case against Israel at the International Court of Justice (ICJ) and has dismissed preliminary findings supporting these claims. Additionally, Biden undermines the International Criminal Court's efforts to hold Israeli leaders accountable for war crimes.

The US legal system, while holding former President Trump accountable, has yet to address Biden's complicity in this genocide. An appellate court in San Francisco will soon reconsider a lawsuit aimed at stopping US arms transfers to Israel during this crisis. The Center for Constitutional Rights, representing various Palestinian and American groups, argues that the Biden administration's support for Israel constitutes complicity in genocide.

Despite court dismissals on jurisdictional grounds, Palestinian testimonies highlight the devastating impacts of US weapons in Gaza. Even as Israeli forces continue their brutal campaign, targeting civilians, journalists, doctors, and aid workers, Biden's administration has expedited weapon transfers to Israel.

The Israeli military's use of American-made bombs in attacks on displacement camps has resulted in thousands of Palestinian deaths, including many children. Despite State Department reports acknowledging the misuse of US defense articles, Biden has maintained unwavering support for Israel.

The US courts now face a critical decision: they can either allow the lawsuit to proceed, offering a chance to hold the Biden administration accountable, or they can permit ongoing impunity.

The continued US support for Israel’s actions has led to the deaths of thousands of Palestinian children, a toll that many US voters find unacceptable.

Pakistan Stock Exchange posts 2.8%WoW decline

Pakistan Stock Exchange remained lackluster throughout the week ended on June 07, 2024, closing at 73,754 points with benchmark index losing 2,124 points or 2.8%WoW.

The downward pressure was primarily driven by concerns over the potential elimination of the final tax status for CGT and dividends, which would align their tax rates with the normal income tax rate.

Additionally, Moody’s statement suggesting a status quo in the upcoming Monetary Policy Committee (MPC) meeting also exerted some pressure on the market. These negatives overshadowed positive developments during the week.

On the macro front, inflation in May'24 eased to a 30-month low of 11.8%YoY, resulting in positive real interest rates exceeding 1,000bps. This fueled market participants' expectations for rate cuts in the June 10 MPC meeting.

Furthermore, the announcement of monetary easing from developed economies, including the European Central Bank and the Bank of Canada, amplified this sentiment.

May trade deficit shrank by 15%MoM to US$2.1 billion, while record-high remittance inflows of US$3.2 billion, hinting at another potential current account surplus, raising expectations that FY24’s current account could close in surplus.

As the FY25 budget approaches, new tax measures have surfaced with the IMF demanding an additional PKR2.0 trillion in revenue, while the local officials considering additional taxation of PKR1.4 trillion.

With an overall volatility in market, participation also decreased by 5.3%WoW, with the average daily traded volume falling to 423 million shares as compared to 447 million shares a week ago.

On the currency front, PKR appreciated by 0.05%WoW to close at 278.2/US$.

Other major news flows during the week included: 1) FBR tax collection in May exceeded target by RPK15.21 billion, 2) Pakistan has to repay US$10 billion by July, 3) May Petroleum products sales was up 7% to 1.39 million Tons YoY, and 4) Cement sales was Up by almost 8% during May.

Top performing sectors included: Paper & Board, Jute, and Textile spinning, while the laagered included: Inv. Banks/ securities cos., E&Ps and Refinery

Major net selling was recorded by Individuals with a net sell of US$8.9 million. Insurance and Banks/ DFI absorbed most of the selling with a net buy of US$7.0 million and US$6.8 million.

Top performing scrips of the week were: YOUW, SHEL, MTL, SEARL and TRG, while the laggards included: CEPB, FFBL, PSX, PIBTL and OGDC.

Looking ahead, the upcoming MPC meeting on June 10th will be in the spotlight, with any rate cut expected to shift the market’s focus towards cyclical sectors.

Additionally, the Federal Budget 2025 will significantly influence investor sentiment. Given the prevailing uncertainties, the market is likely to remain volatile in the short run, with clarity expected to emerge after the budget announcement. Until then, AKD Securities advises investors to adopt a wait-and-see approach, although any corrections should be seen as opportunities for value buys.

 

US and Iran-Pakistan economic cooperation

Former Pakistani Minister of Information and Broadcasting Fawad Ahmed Hussain Chaudhry has called on Western countries to end their double standard regarding Pakistan's cooperation with Iran, particularly on a joint gas pipeline project between the two neighbors. 

In an exclusive interview with IRNA, Chaudhry argued that Pakistan should not be prevented from benefiting from its neighborly relations with Iran and the opportunity to resolve its energy crisis.

He criticized the West's unilateral sanctions against Iran, which he said have nothing to do with the cooperation between Tehran and Islamabad.

"Either the West must be accountable for overcoming the energy crisis in Pakistan, or it must refrain from the double standard towards Islamabad's bilateral collaborations with Tehran," he asserted.

Chaudhry emphasized that the Iran-Pakistan joint gas project is the best option to address Pakistan's energy crisis, but the illegal sanctions Washington has imposed on Iran continue to hinder its finalization.

He also praised the role of late Iranian President Ebrahim Raisi in enhancing bilateral ties between Iran and Pakistan, describing his visit to Pakistan as being "of great importance."

In June 2009, Pakistan and Iran entered into a Gas Sales and Purchase Agreement for a pipeline intended to transport gas from Iran's South Pars Field to energy-hungry Pakistan. The pipeline was designed to supply between 750 million and 1,000 million cubic feet of gas per day.

Iran reported the completion of its section of the pipeline in 2011. However, construction on the Pakistani side has faced repeated delays. The US has been pressuring the new Pakistani administration to refrain from picking up on the project. 

Pakistan is currently facing a severe energy crisis resulting from a gap between energy supplies and demands in the country. 

 

Saudi Arabia to boost oil production capacity

Saudi Arabia’s Minister of Energy, Prince Abdulaziz bin Salman, announced the Kingdom's ambitious plan to increase its oil production capacity to 12.3 million barrels per day by 2028. This significant expansion aligns with the Kingdom's strategic goals amidst evolving global energy markets.

The announcement came during a special panel discussion at the St. Petersburg International Economic Forum in Russia. The forum, themed "The Future of the Oil and Gas Market: Global Demand Outlook and Producers' Plans," was attended by several OPEC and non-OPEC ministers.

Prince Abdulaziz, who also serves as the chairman of the OPEC+ ministerial meetings, underscored the robust decisions made during the 37th OPEC and non-OPEC ministerial meeting held on June 02 in Riyadh.

He emphasized that the OPEC Plus agreement allows for flexible adjustments to production, including temporary suspensions or reversals if market conditions necessitate.

Responding to market reactions and media interpretations, Prince Abdulaziz criticized some analysts for their negative portrayal of the OPEC Plus decisions.

He cited recent erroneous reports from major financial institutions, arguing that such narratives misrepresent the strength and foresight of the OPEC Plus strategies.

Prince Abdulaziz reiterated the effectiveness of OPEC Plus actions, particularly highlighting the success of the April 2020 meeting during the COVID-19 pandemic and the recent June meeting.

He dismissed claims that OPEC Plus is focused more on market share than price stabilization, asserting that OPEC Plus consistently acts in the best interest of market stability.

Prince Abdulaziz detailed Saudi Arabia’s plans to progressively increase oil production starting in 2025, with significant increments in 2026 and 2027, reaching the target of 12.3 million barrels per day by 2028.

He also noted the Kingdom's commitment to renewable energy, aiming to save one million barrels of oil currently used for electricity generation by expanding renewable energy sources.

In the broader context of OPEC Plus decisions, the group agreed to gradually reduce production cuts by about 2 million barrels per day starting in October. Despite an initial drop in crude oil prices following the announcement, Prince Abdulaziz remains confident that the market will soon recognize the prudence of OPEC Plus policies.

 

US to sanction International Criminal Court

According to the Saudi Gazette, the US House of Representatives has voted to pass legislation that would sanction the International Criminal Court (ICC) after its prosecutor applied for arrest warrants against Israeli officials. The bill passed in the House, it is not expected to become law.

The move comes after The Hague-based court's prosecutor said Israeli Prime Minister Benjamin Netanyahu and Israeli Defence Minister Yoav Gallant should be arrested on charges relating to the war in Gaza.

The prosecutor is also seeking warrants for three leaders of Hamas.

The bill, proposed by pro-Israel Republicans, targets ICC officials involved in the case by blocking their entry to the United States.

On Tuesday, it passed with a majority of Republican support by a vote of 247-155. Two Republicans voted present and 42 pro-Israel Democrats crossed the aisle to back the legislation.

The legislation will likely be ignored by Democrats who control the US Senate, where it would have to pass before it could be signed into law by the president.

President Joe Biden has also indicated that he strongly opposes the bill and the administration has said it does not support the sanctions.

If it did become law, however, the legislation would also revoke any US visas held by ICC officials and restrict them from making property transactions in the US.

Some Senate Democrats, like John Fetterman of Pennsylvania, an outspoken supporter of Israel, have indicated they would support legislation sanctioning the court.

“I really would like to sanction the ICC for that. That was trash,” Fetterman said of the arrest warrants.

Congressman Chip Roy, a Texas Republican who introduced the legislation in the House, titled the Illegitimate Court Counteraction Act, has called the ICC “a massive threat to US sovereignty”.

The Democrats who opposed the measure largely support Israel, but have criticized Netanyahu's conservative government. Some Democratic opponents said it risked forcing the US to sanction ally nations that support the ICC.

When the measure cleared the House Rules Committee on Monday, Jim McGovern, a Massachusetts Democrat, said, “This bill makes a mockery of the rules-based international order that America helped build.”

The bill's passage comes shortly after Netanyahu was invited by US lawmakers to deliver a speech to Congress this summer, although the date of his speech has not been finalized.

Last month, ICC chief prosecutor Karim Khan said he had "reasonable grounds" to believe that Netanyahu and Gallant, as well as Hamas’s Gaza leader Yahya Sinwar, military chief Mohammed Deif and political leader Ismail Haniyeh, bore "criminal responsibility" for alleged war crimes and crimes against humanity during the war in Gaza.

It marked the first time the ICC has targeted the top leader of a close US ally.

"The ICC has to be punished for this action," Republican Speaker of the House Mike Johnson said on Tuesday. "We cannot allow this to stand."

"If the ICC was allowed to do this and go after the leaders of countries whose actions they disagree with, why would they not come after America?"

Israel’s government and Hamas reacted with outrage to Khan's announcement last month.

Netanyahu denounced the warrant applications against him and Gallant as a “moral outrage of historic proportions”.

Gallant accused the prosecutor of drawing a “despicable” parallel between Israel and Hamas and attempting to deny his country’s right to self-defense.

Hamas — which is proscribed as a terrorist organization by Israel, the US and other countries — demanded the cancellation of the warrant applications for its leaders and denounced what it called Khan's attempts “to equate the victim with the executioner".

If the ICC’s judges decide to issue the arrest warrants, it will be up to its 124 member states — including the UK and many other US allies — to decide whether or not to enforce them.

The White House said in a statement on Monday that while the ICC prosecutor’s warrant applications for Israeli leaders were "outrageous", it did not support sanctioning the ICC.

"There are more effective ways to defend Israel, preserve US positions on the ICC, and promote international justice and accountability, and the administration stands ready to work with the Congress on those options,” it said.

Created by a UN treaty in 2002, the ICC investigates and brings to justice those responsible for genocide, crimes against humanity and war crimes, intervening when national authorities cannot or will not prosecute.

The US — like Israel — is not a member of the ICC and does not recognize its jurisdiction, but has backed its previous prosecutions and arrest warrants not related to Israel and the Palestinians.

In 2020 under the Trump administration, the US imposed sanctions on top ICC officials, including Khan’s predecessor, after the court began investigating alleged war crimes committed by the US and others in the Afghan conflict.