Our Comments and Expectations
External Background: Friday’s session intensified the global market sell-offs. The main negative impact came from U.S. exchanges following a rather weak labor market report, but earlier, the nearly 6% drop in the Japanese market also exacerbated the situation. Furthermore, morning futures suggest that the market will be "red" again today – Nasdaq futures are down by 3.7%, and S&P 500 is down by 1.7%. The main trigger for the U.S. market’s decline was the non-farm payrolls report, which showed that only 114,000 jobs were created in July, compared to an expected 175,000. Unemployment rose to 4.3%, above the expected 4.1%. These weak data led to market dissatisfaction with the decision to keep the federal funds rate unchanged at the last Fed meeting on Wednesday. Wall Street giants like Citigroup and JPMorgan Chase are now calling for more aggressive actions from the Fed. However, Goolsbee from the Chicago Fed stated that the Fed would not react too sharply to any individual data points. Traders in the swap markets are now predicting that the Fed will cut rates by more than a full percentage point in 2024.
Asian markets are seeing a rout this morning – the Japanese Nikkei 225 has fallen by 12.5%, and the Topix index is down by 12.9%, marking the worst day for the market since the Fukushima disaster in 2011. The South Korean Kospi has dropped by 9.5%, while the situation in China is somewhat better – Hang Seng is down 2.6%, and the mainland CSI 300 shows a modest -0.9%.
Oil prices have fallen today to $75.9, gold is up by 0.15%, and copper is neutral.
Bonds: U.S. 10-year bond yields have dropped to the lowest level since December 2023. ETFs for high-quality U.S. corporate bonds (LQD) have risen by almost 1%.
KASE Index: The KASE closed Friday down by 1.4%. Today, investors will prepare to absorb the aftershocks from the external market storm.
Index Stocks: On Friday, the market declined mainly due to Kaspi’s shares. The primary trigger for the decline was likely the report, although we also acknowledge the impact of the price difference between shares listed on two exchanges. We had previously mentioned the risks associated with these price discrepancies, which on Thursday reached 11% in favor of shares listed on KASE. On Monday morning, this difference is around 7%. The negative impact of falling external markets may be reflected in our GDRs and ADS today. These fell between 0.6% and 3.5% on Friday. Since the local market typically shows relatively low inertia to external volatility, we expect milder correction results than in the U.S. and Europe markets (let alone Asia). Defensive instruments will likely be shares in the utility sector (KEGOC), telecommunications sector (KZTK, KCEL), and possibly CCBN. Furthermore, KazTransOil could also show a decrease due to the reduction in domestic oil transport tariffs by 9.4% from September 1, 2024, and by 11.8% next year.
Currency: The dollar is rising against the tenge today to 477.3, despite its decline in global markets. The negative impact could have come from inflation, which rose from 8.4% to 8.6% in Kazakhstan last month.