United States – PCE Figures Affirm the Presence of a Disinflationary Trend
During the week, the US Bureau of Economic Analysis published the Personal Consumption Expenditures Figures for November 2023. According to the report, the PCE index rose 2.6% YoY, down from 2.9% in October. Likewise, the Core PCE Index saw a 3.2% YoY rise, slightly lower than the 3.4% recorded in October 2023.
Source: BLS, Zedcrest Wealth
On a month-to-month basis, the PCE index registered a 0.1% year-on-year decrease (compared to 0.0% in October), while the core PCE index exhibited a 0.1% year-on-year increase, the same as the previous month.
The data continues to underscore disinflationary forces in the US, providing a favorable development for the Federal Reserve as it addresses inflationary concerns. Despite a tight US labor market and sustained economic strength that has surpassed earlier projections of a looming recession this year, we maintain the view that the timeline for rate cuts will likely extend until mid-2024. Additionally, we anticipate a modest increase in December’s inflation, fueled by the projected boost in consumer festive spending, contributing to inflationary trends in the economy.
Source: BLS, Zedcrest Wealth
Bank Of England – Escalating Disinflationary Trends Point to Potential Rate Cut in Early 2024
According to the November 2023 Inflation report released by the United Kingdom’s Office of National Statistics, the Consumer Price Index, including Owner Occupiers’ Housing Costs (CPIH), rose by 4.2%, compared to 4.7% YoY in October. Similarly, the Consumer Price Index (CPI) rose by 3.9% YoY (vs 4.6% YoY in October). For context, Core CPI — which excludes volatile food, energy, alcohol, and tobacco prices — tapered to 5.1% YoY in November compared to 5.7% in October 2023. The largest downward contribution to inflation came from transport, recreation, and culture, and food and non-alcoholic beverages.
Source: ONS, Zedcrest Wealth
Currently, the inflation rate in the United States does not align with that of its Eurozone counterparts, particularly France. The year-on-year inflation deceleration this month surpassed expectations at 4.1%. This highlights a delayed response to the effects of monetary policy tightening. Analysts speculate that this development could prompt the Bank of England to initiate an early rate cut. However, our perspective suggests that rate reductions are more likely to commence in mid-2024, contingent on the continuation of the current disinflationary trend.
Domestic Economy
Price Watch: Prices Keep Going Higher
During the week, the National Bureau of Statistics released the Price Watch for November 2023. According to the report, there was an upward trend in the average prices of key energy commodities. Liquified Petroleum Gas rose 9.57% year-on-year (YoY) to N11,155.15 per 12.5kg, Automotive Gas Oil saw a substantial 30.50% YoY rise to N1,055.57, and Premium Motor Spirit surged by 220.49% YoY to N648.93. The across-the-board escalation can be attributed to a series of policy changes implemented during the year and external factors that have influenced the trajectory of energy prices.
On the domestic front, we attribute the surge in the prices of the mentioned items to several key factors:
1) The removal of the fuel subsidy by the federal government, combined with its abrupt announcement by the President on his inauguration day, triggered an increase in petroleum prices.
2) Insufficient investment in natural gas exploration and challenges such as crude oil theft has hindered gas exploration in the country. Despite having over 200 trillion cubic feet of natural gas reserves, placing it among the top ten countries globally, effective exploration is impeded.
3) Foreign exchange (FX) volatility remains a primary driver behind the surge in diesel prices.
On the global stage, supply disruptions arising from the Russia-Ukraine conflict and the decision of OPEC Plus and its allies to reduce oil production have contributed to volatility in the oil market.
Looking ahead, we anticipate no decline in the prices of these items due to persistent structural issues impacting their effective supply. Additionally, with the ongoing Russia-Ukraine conflict and the commitment of OPEC and its allies to continue reducing oil production, energy prices are expected to remain elevated, though in a more subdued manner compared to the levels observed in 2022 and earlier this year.
Labor Force Statistics Report – To what extent do these figures demonstrate fairness and transparency?
Furthermore, the NBS also released the Labor Force Statistics Report for Q2:2023. As culled from the report, the unemployment rate edged higher by 4.2% compared to 4.1% in Q1:2023.
The labor force participation rate among the working-age population stood at 80.4% in Q2 2023. While the employment-to-population ratio was 77.1% in Q2 2023. 88.00% of workers are self-employed while Informal employment rate was 92.7%. On a gender basis, the employment-to-population ratio was 79.3% for men and 74.9% for women respectively.
Source: NBS, Zedcrest Wealth
Although the labor figures may portray a labor market that is relatively robust, we contend that this does not accurately capture the prevailing challenges confronting the economy. We assert that numerous individuals are involved in jobs where their earnings significantly fall below the minimum wage. Moreover, the current inflationary pressures affecting the economy have diminished the value of the national currency, rendering it weak and considerably less valuable. This situation has left many people in a state of poverty.
The Nigerian Equities Market – Sustained Santa Rally Propels NGX Beyond 74,000 Points
The Nigerian equities market closed the week on a positive note for the 7th consecutive, as the NGX All-Share Index (ASI) advanced 226bps WoW to settle at 74,023.27 points. The Year-to-date (YtD) returns settled at 44.43%.
Leading the gainers chart are INFINITY (+60.64% to NGN4.53), DAARCOMM (+50.00% WoW to NGN0.69) and MULTIVERSE (+41.25% WoW to NGN13.97). The top losers for the week were ABCTRANS (-16.48% WoW to NGN0.76), OMATEK (-12.33% WoW to NGN0.64) and ETRANZACT (-12.32% WoW to NGN6.05). We anticipate a continued upward momentum on the exchange.
The Nigerian Fixed Income Market – Bullish Momentum Persists in the Fixed Income Market
The Treasury Bills market concluded the week on a positive note, witnessing a decline in the average yield by 17bps WoW, settling at 8.12%. This optimistic trend also carried over to the secondary bond market, where the average yield decreased by 2bps WoW, reaching 14.36%, fueled by buying interest throughout the yield curve.
In summary, the Naira fixed income market closed the week with a positive outlook, experiencing a 10bps WoW decrease in the average yield, now at 11.24%. Looking ahead to the coming week, we anticipate a continued bullish sentiment attributed to the improved liquidity in the system.
