Global Economy

USA: The U.S unemployment rate rose to 4% for the first time since January 2022, exceeding economists’ expectations of an unchanged rate at 3.9% from April. This increase occurred even though the labor force participation rate declined by 0.2 percentage point to 62.5%. Additionally, the household survey used to calculate the unemployment rate indicated that the number of people reporting employment dropped by 408,000.

 

Sub-Saharan African Economies

Europe: For the first time in 5 years, the European Central Bank (ECB) announced a decrease in its three key interest rates by 25 basis points. Christine Lagarde, the president of the ECB, stated that the inflation outlook had significantly improved, allowing for the rate cut. However, she cautioned that inflation would likely remain above the bank’s 2% target “well into next year,” with projections of 2.5% in 2024 and 2.2% in 2025.

Kenya: The Central Bank of Kenya (CBK) decided to keep its benchmark interest rate at 13%, the highest level since 2012, during its meeting last week. In May, inflation remained steady at 5.1%, primarily driven by significant increases in food prices due to supply disruptions caused by heavy rains.

 

 

 

Egypt: The Central Bank of Egypt (CBE) announced that the country’s net foreign reserves surged by USD 12.9 billion in May to $46.13 billion. This increase surpasses the pre-Covid peak of USD 45.5 billion. The surge follows the delivery of the second tranche of the landmark $35 billion Ras El Hekma agreement by Abu Dhabi wealth fund ADQ in mid-May. This tranche totaled $20 billion, with USD 14 billion in new inflows and $6 billion from a previous UAE deposit at the central bank.

Uganda: The Bank of Uganda maintained its benchmark interest rate at 10.25% during its meeting last week, keeping borrowing costs at their highest levels since 2017. The deputy governor  stated that the current monetary policy stance is sufficient to keep inflation around its medium-term target while also fostering economic growth. In May, inflation increased slightly to 3.6% from April’s 3.2%, remaining below the central bank’s target of 5%.

 

Domestic Economy

Major updates during the week:

  • Purchasing Managers’ Index (PMI) Increased to 52.1 in May 2024. This indicates the private sectors’ continued modest expansion despite higher inflationary pressures.
  • Nigeria to procure 3.5 million electricity meters in 2024 to raise revenue.
  • CBN revokes the banking license of Heritage Bank Plc, in accordance with its mandate to promote a sound financial system.

Nigerian equity market: Stock Market Rebounds

After a mixed performance week, the local bourse concluded the week on a bearish tone, dropping 0.08% after four days of losses. The All-Share Index closed at 99,221.14 points, erasing N44.27 billion in investor wealth and bringing the year-to-date return down to 32.7%. Insurance stocks emerged as the week’s leaders with a gain of 0.84%, while banking stocks suffered the most significant decline of 0.62%.

 

 

Nigerian fixed-income market: A dominance of the bears

During the week, the DMO sold NGN278.43bn worth of treasury bills (NTB) across three maturities, at an average stop rate of 18.22% (vs 18.21%) at the last auction. For proper context, the 91-day stop rate was maintained at 16.50%, the 182-day stop rate edged higher to 17.50% and the 364-day stop rate declined to 20.67% indicating that the DMO is still cautious of high debt servicing costs.

The secondary NTB market closed slightly bearish as the average yield printed higher by 28bps WoW. It was a quiet week at the bonds market as the average yield leaped slightly by 4bps WoW to 18.73%. The Nigerian Eurobond Market also closed bearish as the average yield increased by 5bps to 9.90%.

We expect the treasury bills market to trade slightly bearish at the initial days of the next trading week due to the scheduled treasury bills auction.