Monday, May 15, 2017 6:12 PM / FSDH Research
In the countries we monitored, the prices of government bonds appreciated in more countries in April 2017 than they depreciated.
The 8.80% September 2023 Turkey Government Bond; the 12.71% June 2022 Kenya Government Bond and the 7.75% February 2023 South Africa Government Bond recorded the highest month-on-month price increase of 2.53%, 1.01% and 1.01% to 93.10, 98.61 and 98.40, respectively.
The 3.52% February 2023 China Government Bond recorded the highest month-on-month price decrease of 1.48% to 100.77.
This was followed by the 16.39% January 2022 Nigeria Government Bond with a decrease of 1.27% to 101.12.
The China, Kenya, India, Russia and South Africa Bonds closed the month at positive real yields. Other bonds we monitored closed the month at negative real yields.
The Russia Government Bond offers the most attractive real yield amongst the selected bonds in March 2017.
According to the data from the United States (U.S.) Bureau of Economic Analysis, personal spending in the U.S was unchanged for the second straight month in March 2017, missing market expectations of 0.2% gain.
An increase in spending for services, notably spending for household utilities was partially offset by a decrease in spending for durable goods, mainly in motor vehicles and parts.
Meanwhile, the inflation rate in the U.S stood at 2.4% in March 2017, lower than 2.7% recorded in February 2017 and below market expectations of 2.6%.
It is the lowest inflation rate in three months due to a decline in energy and services cost. On a monthly basis, consumer prices decreased by 0.3%, the first drop in 13 months.
The Global GDP
According to the International Monetary Fund (IMF), the global economy gained speed in Q4 2016 and the momentum is expected to persist in 2017.
The IMF forecasts that global economic growth would increase from 3.1% in 2016 to 3.5% in 2017 and 3.6% in 2018, slightly above the October 2016 World Economic Outlook (WEO) forecasts.
The major drivers are the buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade. The IMF’s forecast envisages a stronger rebound in advanced economies.
It added that while growth is still expected to pick up notably for the emerging market and developing economies, weaker-than-expected activity in some large countries has led to small downward revisions to growth prospects for 2017.
In advanced economies, projected growth was revised upward in the U.S, reflecting the assumed fiscal policy easing and an uptick in confidence, which will reinforce the cyclical momentum.
The outlook has also improved for Europe and Japan based on a cyclical recovery in global manufacturing and trade that started in HY2 2016.
The report added that the downward revisions to growth forecasts for emerging market and developing economies, result from a weaker outlook in several large economies. China was marked-up, reflecting stronger-than-expected policy support.
The IMF added that since the U.S. election, expectations of expansionary fiscal policy in the U.S have contributed to a stronger U.S Dollar and higher U.S. Treasury interest rates.
According to the IMF, structural impediments continue to hold back stronger global recovery, and the balance of risks remains tilted to the downside, especially over the medium term.
The IMF added that with persistent structural problems—such as low productivity growth and high income inequality—pressures for inward-looking policies are increasing in advanced economies.
These it says, threaten global economic integration and the cooperative global economic order that has served the world economy, especially emerging market and developing economies.
Purchasing Manager Index (PMI)
The Manufacturing Purchasing Manager’s Index (PMI) in Nigeria increased marginally to 51.1% in April 2017, compared with 47.7% in March 2017.
This is according to the Central Bank of Nigeria (CBN). This implies an expansion in the manufacturing sector activities after three months of contraction. Of the 16 manufacturing sub-sectors, 14 recorded growth in the review month.
We believe the increase in the PMI is sustainable in the short-to-medium-term provided policies that increase access to credit and create an enabling business environment are pursued.
The CBN added that the composite PMI for the non-manufacturing sector is at the edge of growth after 16 months of decline.
Business activity and new orders growing from contraction; employment level and raw materials inventories declining at a slower rate in April 2017.
Of the 18 non-manufacturing sub-sectors, eight recorded decline in the month of April 2017.
The inflation rate (Year on Year) dropped to 17.26% in March 2017, from 17.78% in February 2017. The fall in the inflation rate was mainly on account of base effect of previous year’s increase in the Consumer Price Index (CPI).
The stabilising effects of the current high food and non-food product prices also led to a decrease in the inflation rate in March 2017.
The month-on-month change in the CPI of 1.72% was the highest increase since July 2016. This means that inflationary pressure still persists in Nigeria.
The CPI in March 2017 was driven by the faster growth in all major divisions of the Headline Index. Year-on-year (y-o-y), the Food Price Index (FPI) increased by 18.44% in March 2017, from 18.53% in February 2017.
The FPI was driven by higher prices of Bread; Cereals; Meat; Fish; Potatoes; yams and Other tubers; and wine. The Core Index increased by 15.40% in March 2017, lower than 16% recorded in February 2017.
In March 2017, the largest increase in the Core Index were recorded in the Electricity; Solid Fuels; Clothing and Other Articles of Clothing; Liquid Fuel; Spirits; and Fuels and Lubricants for Personal Transport Equipment.
Although we expect the inflation rate to trend downward, the level of drop will depend on FGN’s decision on fuel price and electricity tariff.
We estimate that the inflation rate would be at 17.11% in April 2017 as shown on table 6 below. This may impact the yields on the fixed income securities.
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