August 17, 2019 / 08:00AM / By ARM Research
This week, global equity and bond markets went into a tailspin, following an inversion of the U.S yield curve which spooked recession concerns. However, strong U.S retail sales data which serves as a proxy for consumer spending tapered the fears of an imminent recession, steering a breather across markets today. Also, US inflation increased to 1.8% YoY in July (June: 1.6%) beating consensus expectation of 1.7%, pumped by the movement in energy prices and core inflation (2.2% vs. June: 2.1%). Food inflation at the other end eased by 1bp to 1.8% YoY. Over in the EU, Q2 GDP growth was confirmed at 0.2% QoQ (Q1: 0.4%) in the second flash estimates released this week. Among key member countries, Germany recorded a second quarter of contraction, signalling the economy may be heading towards recession. Also, the U.K economy contracted by 0.1% amid lingering Brexit concerns, while growth in Italy flatlined at 0.1%. Meanwhile, China’s industrial production grew by only 4.8% in July (June: 6.3%), which is the slowest in 17years and missing analyst’s expectations of 5.8% -- signalling slowing demand in the Chinese economy amidst continued trade spat with the U.S.
Headline inflation took a downward trajectory over the month of July printing at 11.08% YoY (June: 11.22% YoY) – the lowest level since July 2018, anchored by a moderation in food inflation. For clarity, food inflation dipped by 17bps to 13.39% YoY due to decline in prices of farm produce by 24bps to 13.72% YoY (June: 13.96% YoY). Also, Core Inflation moderated further by 4bps to 8.80% YoY reflecting the curtailed nature of PMS prices. On a monthly basis, headline inflation followed a similar pattern, declining by 6bps to 1.01% MoM. Elsewhere, in a bid to encourage economic diversification, discourage dependence of foreign food and invariably boost economic growth, President Muhammadu Buhari directed the CBN to cease the provision of forex for food importation into the country.
The Nigerian bourse continued its bearish trend, declining 1.40% WoW (YTD: -14.33%) to close at 26,925.29 points with market capitalization losing N185.9 billion. On sectoral performance, we witnessed losses across all indices, save for the Telecoms sector (+2.13% WoW) which again, closed in the positive territory. An inquiry into the sectoral performances revealed losses in FBNH (-7.07%), STANBIC (-13.39% WoW), ETI (-17.24%), WAPCO (-6.67%), UNILEVER (-12.81%), NESTLE (-10.00%), muting gains in MTNN (+3.05%).
Both NTB and OMO auctions held during the holiday-shortened week. At the former, the FG sold N34.38 billion worth of bills (same as offered), despite elevated appetite with subscription levels at 4.3x. Also, stop rate for the 1 yr bill increased for the first time since May to 12% (prior: 11.18%). At the OMO auction, the FG offered a total amount of N150 billion but sold only N88.66 billion (subscription: 1.06x) with the 1yr stop rate also printing higher at 12.88% (prior:12%), the highest level since May. Over in the secondary market, average fixed income yields closed 54bps higher WoW to 13.66% with expansions at both ends of the curve. NTB yields rose 58bps WoW to 13%, driven by selloff of the 182-day bill (- 203bps). Similarly, sentiments in the bond market were bearish, as average yields inched up 50bps to 14.33%, owing to sell pressure in the Feb-2020 (+193 bps) bond.
Take-Away For The Week
Trend In Inflation & One Year T-Bills
This week, we feature trend in inflation, one year average treasury bills as well as real return.
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