European Stocks to Open in Mixed Territory Amid Global Market Volatility

European stocks are expected to open in mixed territory, with London's FTSE looking set to open higher and Germany's DAX, France's CAC 40, and Italy's FTSE MIB set to drop. Market sentiment is cautious due to the Iran-Israel conflict and the US Federal Reserve's decision to keep interest rates steady. The Fed signaled two potential interest rate cuts later this year.

Title: Geopolitical Tensions and Global Oil Prices Influence Central Bank Decisions

June 17, 2025

European stocks are expected to open in mixed territory, with London's FTSE looking set to open higher and Germany's DAX, France's CAC 40, and Italy's FTSE MIB set to drop. Market sentiment is cautious due to the Iran-Israel conflict and the US Federal Reserve's decision to keep interest rates steady. The Fed signaled two potential interest rate cuts later this year.

Pakistan's central bank maintained its cautious stance by keeping its key interest rate unchanged at 11% on Monday, amidst heightened geopolitical tensions and volatile global oil prices. The decision was driven by concerns over the country's fragile external sector and potential inflation risks [1].

The central bank noted that the widening trade deficit and weak financial inflows posed significant risks to the external sector. Additionally, the proposed FY26 budgetary measures may further widen the trade deficit by increasing imports. The bank cited the need to sustain macroeconomic and price stability as reasons for its decision [1].

The decision comes days after Pakistan announced its Rs16.7 trillion ($62 billion) annual budget targeting 4.2% growth, up from a provisional estimate of 2.7% for the current year. Despite the widening trade deficit, the current account remained broadly balanced in April, and foreign exchange reserves rose to $11.7 billion as of June 6 [1].

The central bank paused its policy rate easing cycle in March, following cumulative cuts totaling 1,000 basis points from a record high of 22%, and resumed it with a 100-basis-point reduction in May. Inflation in Pakistan has slowed markedly since peaking at around 40% in May 2023. However, last month it rose to 3.5% year-on-year, above the finance ministry’s projection of up to 2%, partly due to the fading of favorable base effects. The central bank projects average inflation between 5.5% and 7.5% for the fiscal year ending this month [1].

The escalating tensions in key oil-producing regions have triggered a sharp surge in global oil prices. Brent, West Texas Intermediate (WTI), and Arab Light crude oils showed a 12% week-on-week increase, with daily spikes exceeding 6%. Arif Habib Ltd, a Karachi-based research firm, highlighted the impact of these price increases on Pakistan’s trade deficit [1].

Amreen Soorani, head of research at Al Meezan Investment Management, attributed the central bank's decision to emerging geopolitical risks that had affected international oil prices. She noted that the regional tensions posed potential challenges to Pakistan’s balance of payment and inflation rate [1].

Cash-strapped Pakistan spent $17 billion on oil imports last year, with petroleum accounting for approximately 30% of all imports and consuming around 55% of export proceeds. A $5 per barrel increase in average oil prices for the year would worsen Pakistan’s trade deficit by an estimated $900 million annually [1].

Pakistani stocks gained by 82 points to close at 122,225 points, despite geopolitical risks amid speculations over the SBP policy announcement. The rupee declined for the fifth consecutive session and inched down 0.07% to Rs283.17 per dollar. Pakistan’s top trade body, the Federation of Pakistan Chamber of Commerce & Industry (FPCCI) and the Karachi Chamber of Commerce and Industry (KCCI), criticized the central bank’s decision, stating that it had dampened business sentiment at a time when the economy urgently required a boost [1].

In other news, Pakistan’s Punjab province unveiled its Rs5.33 trillion ($18.9 billion) budget for the fiscal year 2025-26, increasing development spending by 47%. The budget allocated Rs4.40 billion for development, Rs2.88 billion for education, and Rs2.24 billion for health sectors. The provincial government also proposed an increase in the minimum wage from Rs37,000 ($131) to Rs40,000 ($142) per month [2].

References

[1] https://www.arabnews.pk/node/2604703/pakistan
[2] https://www.arabnews.pk/node/2604703/pakistan