September 2019 Global Monetary Commentary - Comercio Partners


Monday, October 7, 2019 6:00PM / Comercio Partners / Header Image Credit: BNP Paribas


In line with our expectation, global central banks maintained their dovish stance in the current rounds of monetary policy meetings, from china cutting the amount of cash that banks must hold as reserves for the third time this year to European Central Bank president Mario Draghi announcing they would restart quantitative easing measures. The US FED wasn't left out as they also cut the FED Funding rate by 25bps.  Global central banks are still keen on supporting the fragile growth trajectory the global economy has been on over the last two years.

China's People's Bank of China (PBOC) announced its reserve requirement ratio would be cut by 50 basis points and it would further reduce that ratio by 100 basis points for some qualified banks. The move is effective from September 16 with the additional targeted cut taking place on October 15 and November 15. This move will add 900 billion yuan ($126.35 billion) of liquidity into the system. China gross domestic product (GDP) growth had slowed to 6.2% in the second quarter its weakest in at weakest rate in at least 27 years.

In a bid to salvage the economic health of the monetary Union, the European Central Bank (ECB) decided to cut rates in September as well as introduce a stimulus package. The ECB cut its interest rate for deposits by 10 basis points to -0.5% and keep them there or lower until the inflation outlook improves. As part of its quantitative easing drives the bank announced that it would start printing money again, promising to buy €20 billion ($22 billion) in bonds and other financial assets per month starting in November. The bank said it would continue the purchases for as long as necessary - till it meets the inflation target of 2% from 1.3% as at July 2019. The aim of the stimulus is to stoke growth and reflate a flagging economy as the economic slowdown has proven more protracted than expected.

As widely anticipated, the Federal Reserve lowered the target range for the federal funds rate to 1.75%-2.00% percent on a 7-3 vote during its September meeting. The US FED chairman, Powell said policymakers decided on a second cut after global growth slowed and trade tensions worsened over the summer. The Fed's decision to lower rates follows a similar cut in July and marks a reversal from its policy a year ago, when America's healthy economy had convinced policy makers to turn hawkish. Rising from its September meeting, there are indications that that the FED, depending on the health of the global economy could be on a fresh monetary easing path.

The Central Bank of Brazil dropped its benchmark interest rate by 50bps to 5.50 percent during its September meeting. It is the second consecutive rate cut bringing borrowing costs to its lowest on record, amid the global economic slowdown. The recovery is taking longer than initially expected, but the economy gained some steam in the second quarter. GDP expanded 1.0 percent year-on-year in the second quarter of 2019, following a 0.5 percent growth in the previous period and beating market consensus of 0.7 percent.

The South African Reserve Bank decided to leave its benchmark repo rate unchanged at 6.50 percent on September 19th, 2019, after dropping it by it by 25 bps in the prior meeting. GDP rebounded to 3.1% in the second quarter, following a decline of 3.1% in the first quarter. The sharp quarterly rebound was caused by stronger output in nearly all sectors, including investment and government consumption spending.

The Monetary policy Committee of the Central Bank at its July meeting maintained the benchmark interest rate of 13.5%. The bank's governor Godwin Emefiele said at a press conference that tightening rates could constrain growth while loosening it could allow inflation to rise, and that holding rates steady would allow the bank to appraise the impact of current policies. The economy of Nigeria grew 1.94 percent year-on-year in the second quarter of 2019, easing from an upwardly revised 2.10 percent expansion in the prior period.


Chart 1: Dow Jones Industrial Average Index 3 years trend (2010 - 2013)

Proshare Nigeria Pvt. Ltd.

Sources: Bloomberg, Comercio Partners Research



Chart 2: US 10 Year Treasury 3 years trend (2010 - 2013)

Proshare Nigeria Pvt. Ltd.

Sources: Bloomberg, Comercio Partners Research


Chart 3: MSCI Emerging Market Index 3 years trend (2010 - 2013)

Proshare Nigeria Pvt. Ltd.

Sources: Bloomberg, Comercio Partners Research


Chart 4: NSE All Share Index 3 years trend (2010 - 2013)

Proshare Nigeria Pvt. Ltd.

Sources: Bloomberg, Comercio Partners Research


The last time global central banks took a dovish stance was in the wake of the global financial crisis in 2008 with major central banks going further to carry out quantitative easing, a move that was aimed at reflating flagging growth around the world.

The global central banks quantitative easing was in sync from 2010 to 2013, leading to a robust system liquidity in the global market creating opportunities for high yielding risk asset. Emerging market (EM) flows, currencies and equity markets to some extent benefited from this global monetary stimulus with MSCI emerging market gaining 53% from 2010 to 2013 and the Nigeria ASI also gaining 67% during the same period. The US market wasn't left out from this global rally as Dow Jones industrial average index gained 56% while the US treasury also declined to 1.39% in 2012 from 2.90% in 2010.

We expect this new round of global monetary easing to have a positive impact on emerging markets with good fundamentals and attractive yields, barring any negative idiosyncratic factors.


Proshare Nigeria Pvt. Ltd.



Related News

1.      Kenya's Economy: Q2-19 GDP Growth Slows to 5.4%y/y

2.     Advanced Economies at Late Stage in Business Cycle

3.     World GDP Growth to Hit an Eight-Year Low in 2020

4.     South Africa's Economy in Q2-19: Fragile Still?

5.     Can SSA's Biggest Economies Join The 2nd Monetary Easing Cycle?

6.     Protectionism Choking Global Growth Prospects

7.     Xenophobia - Organised Crime or Spontaneous Fear?

8.     UK Political Volatility Means Risk of No-Deal Brexit Is Still Significant

9.     Egypt, Geely Sign MoU For Producing Electric Cars

10.  The AfCFTA: Is Xenophobia a Threat?

11.   Kenya Lending Rate Cap Weighs on Bank Earnings and Loan Growth

12.  Nigeria-South Africa; Trade Not Xenophobia, A Handshake Across the Sub-Sahara

13.  Annual GDP Growth Falling in Virtually All Large Economies

14.  Zambia's Inflation Rate: A Justifiable Outcry For Policy Intervention

15.  Global Economy Continues to Walk on Eggshells, Sentiments Remain Tepid

16.  Great Lake Region: The Economic Impact of Burying the Hatchet

17.  Bank Of Ghana Revokes Licences of 23 Insolvent Savings And Loans Companies And Finance Houses

18.  Namibian MPC delivers Rate Cut Though Bolder Policies remain at Large

19.  Economic Reforms in Egypt and Slowing inflation, What Next for the Central Bank?

20. New US-China Tariffs A Further Risk To Global Growth


Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Related News