What shaped the past week?
Global: Asia-Pacific markets had a tepid week of mixed trading. Initially markets started of the week lower due to global economic concerns and Wall Street losses, it later saw influences from the situation in Russia, US economic data, and regional indicators. Investors closely watched hawkish remarks from Fed Chair Jerome Powell as well. Positive sentiment emerged towards the week’s end, partly driven by gains on Wall Street as the first half of the year concluded.
European stock exchanges started off the week mixed and indecisive. Investors analyzed data releases, including Germany’s deteriorating business climate and disappointing economic indicators. However, major European stocks ended the week on a positive note, with attention turning to Moscow’s handling of the Wagner Group’s rebellion. The EU signed a free trade agreement with New Zealand, and the European Commission announced plans to issue €40 billion in long-term EU-Bonds for NextGenerationEU and Ukraine support. While major European stock indexes traded mixed, the week concluded with extended gains fueled by lower-than-expected inflation in the Eurozone
Wall Street had a positive week of trading. Initially, stocks started the week in the red due to geopolitical uncertainty and interest in safe-haven assets. However, positive data eased recession fears, leading to significant gains during the rest of the week. Federal Reserve Chair Jerome Powell’s comments during the week hinted at future rate hikes, over the summer. Meanwhile, the Dow Jones climbed over 250 points following an upward revision in GDP. Additionally, all banks passed stress tests, providing investor reassurance. Powell’s remarks remained under evaluation as market participants closely monitored the evolving economic landscape.
Domestic Economy: On Monday, power distribution companies in Nigeria reversed their earlier announcement of a tariff increase scheduled to commence on July 1, 2023. They cited the lack of approval from the Nigerian Electricity Regulatory Commission (NERC) as the reason for the backtrack. Previously, several public notices issued by some of the distribution companies (Discos) on Sunday had indicated that electricity tariffs would be raised by approximately 30 to 40 percent for selected consumer categories starting July 1, 2023. However, due to the absence of NERC’s approval, the tariff hike has been put on hold. The decision to increase tariffs was contingent upon the revision of the exchange rate, which was expected to impact electricity tariffs. Nonetheless, the implementation of the proposed tariff adjustment is dependent on NERC’s authorization.
Equities: The equities market traded on bullish note, driven by broad based gains across the NGX. Investor optimism in the Oil and Gas space remains strong, evidenced by a 4.56% w/w gain for the sector; its performance was driven by players in the downstream space. Likewise, it was a positive one for the nation’s lenders, as the banking space returned 7.78% w/w aided by the performances of ACCESSCORP (+11.04% w/w) and ZENITHBANK (+7.03% w/w). Moving to the Industrial and Consumer goods spaces, both sectors returned 0.63% and 1.12% w/w. Finally, our VETIVA Griffin 30 ETF performed well, rising 2.82% w/w.
Fixed Income: The secondary market traded on a bullish note this week, as ample liquidity levels spurred buying activity. Investor focus was largely on the bonds space, where yields across benchmark bonds fell 56bps w/w. Interest was broad-based with them snapping up attractive offers across the bonds curve; in particular, the 12.50% FGN-JAN-2026 paper eased 158bps settling at 9.79% and 14.40%. Moving to the NTB space, while activity was sparse throughout the week, with yields closing flat w/w.
What will shape markets in the coming week?
Equity market: We anticipate a mixed week in the equities space, as investors seek to book profits made on gains this week.
Fixed Income: Given the limited changes to the drivers of activity in the market, we expect a bullish trading session in the coming week, amidst buoyant liquidity levels.
SSA Inflation Update – June 2023: Price developments were mixed in May
Inflation rose in 5 out of the top 10 economies in Africa. The largest increases were observed in Egypt (+2.1 ppts), Ghana (+1.0 ppts) and Nigeria (+0.2 ppts). On the flip side, the largest declines were observed in Ethiopia (-2.7 ppts), Morocco (-0.7 ppts) and South Africa (-0.5 ppts).
Inflation retraces in Ghana after a brief downturn
In May 2023, headline inflation rose to 42.2% y/y, slightly higher than a six-month low of 41.2% y/y. The primary driver behind this upward trend was a significant acceleration in food inflation to 51.8% (Apr’23: 48.7%). Conversely, non-food inflation showed a slight easing, decreasing to 34.6% from 35.4%. Nevertheless, the Bank of Ghana decided to maintain its benchmark monetary policy rate at a historically high level of 29.5% in May. This decision came after the bank had previously increased the rate by 150 basis points (bps) in March.
Angola: Fuel subsidy cuts drive inflation slightly higher in May
Following a recent government decision to reduce gasoline subsidies, Angola is experiencing indications of increasing price pressures. This move resulted in nearly doubling pump prices in a country that previously boasted some of the lowest fuel costs globally. Consequently, the annual inflation rate in Angola rose to 10.62% in May 2023, ending a streak of 15 consecutive months of declining consumer inflation, which had reached a near eight-year low of 10.59% in April.
Kenya: Inflation ticks slightly up
In May 2023, Kenya experienced a rise in its annual inflation rate, reaching 8% compared to the previous month’s figure of 7.9%, a ten-month low at the time. This unexpected increase was primarily driven by surging sugar prices, which prompted outgoing Central Bank Governor Patrick Njoroge to caution about potential risks to the monetary authority’s expectations of easing price growth. During its meeting on 29 May, the Monetary Policy Committee (MPC) of the Central Bank of Kenya decided to maintain the Central Bank Rate at 9.50%, following a rate hike in March.
South Africa experiences further moderation in inflation
In May 2023, South Africa witnessed a further easing of its annual inflation rate, reaching a 13-month low of 6.3% compared to April’s 6.8%. This decline was mainly driven by slower price increases in the food and non-alcoholic beverages category, with annual inflation at 11.8% in May, down from 13.9% in April. On a monthly basis, consumer prices in South Africa rose by 0.2% in May, representing the least increase in four months. During its May meeting, the South African Reserve Bank surprised the market by raising its main lending rate by 50 basis points to 8.25%.
Nigeria: Elevated energy prices sends inflation to new highs
In May, headline inflation surged to an 18-year high of 22.4%, primarily driven by increased energy prices when compared to the previous year. It is important to note that this data does not yet capture the reforms announced by the new administration. However, we anticipate the full impact of subsidy removal to manifest in June. Looking ahead, FX reforms could keep Premium Motor Spirit (PMS) prices elevated, contributing to higher inflation in the coming months.