Our Comments and Expectations
External background. Global markets experienced another wave of sell-offs yesterday. The S&P 500 fell by 1.66%, once again moving away from its historical highs. The main reason for this risk-off sentiment is the reassessment of the likelihood of a December rate cut by the Federal Reserve, following a series of cautious remarks from Fed officials about further reductions. Specifically, yesterday the President of the St. Louis Fed, Alberto Musalem, stated that policymakers should be cautious about additional rate cuts, while Minneapolis Fed President Neel Kashkari said he did not support the latest cut and has not yet decided on his preferred approach for the December meeting.
The situation is further complicated by the lack of macroeconomic data for the past month due to the U.S. government shutdown. Swap traders have reduced the implied probability of a December cut to about 50%, down from 72% a week earlier.
In Europe—where indices had been outperforming U.S. peers—markets declined by 0.6–1.4% yesterday. This morning, Asian markets are continuing the negative trend: the Hang Seng is down 1.9%, the CSI 300 is down 1.6%, and South Korea’s Kospi is down 3.8%. Futures on the S&P 500 remain weak ahead of Friday trading, down about 0.35%. Oil is attempting to recover after the prior day’s drop, with Brent trading at around $63.75.
Bonds. With expectations of Fed policy easing decreasing, U.S. Treasury yields rose to 4.11% yesterday. Corporate bonds declined.
KASE Index. The KASE Index had a sluggish session yesterday. Trading volumes dropped to their lowest levels since July 30. Most stocks closed in moderately negative territory. Today, the decline at market open is slightly deeper, though the overall picture remains unchanged — the index is still trading above its support levels.
Index components. The largest declines yesterday were in Air Astana shares. We issued an updated valuation and assessed the latest quarterly report as moderately negative due to a significant increase in engineering and maintenance expenses associated with the unplanned removal of defective Pratt & Whitney engines. This caused a sharp decline in net profit and margins, though it did not have the same degree of impact on cash flow generation. Additionally, despite grounded aircraft, revenue growth remained solid. The fundamental target price has been raised to 1,050 tenge. Yesterday on the LSE and today on KASE, the airline’s shares have shown an upward trend.
Halyk Bank also reported yesterday — the initial reading of the results appears positive, though the market has shown only a muted reaction so far. We will analyze the report in detail and publish an updated valuation.
Currency. The U.S. dollar declined to 521.3 tenge today. Earlier, we noted that amid the divergence formation and a short-term correction after the start of the tax period, another local wave of dollar weakening could occur. We continue to maintain our forecast for tenge depreciation in the third decade of the current month.