Global Economy

USA: The annual PCE inflation rate in the US decreased to 2.5% in June from 2.6% in May, aligning with market forecasts. According to the Commerce Department, the personal consumption expenditures price index rose 0.1% month-over-month and 2.5% year-over-year. Coming off the back of a 2.6% year-over-year increase in May, The Federal Reserve’s main indicator for inflation remained above the preset 2% long-term target. Core inflation, which excludes food and energy, increased by 0.2% monthly and 2.6% annually, both in line with expectations. Policymakers continue to focus on core inflation, regarding it as a more accurate measure of long-term trends given the volatility in gas and grocery prices.

 

 

Sub-Saharan African Economies

 

China: The People’s Bank of China cut key lending rates to new record lows in July to support a fragile economic recovery. The one-year loan prime rate (LPR), which serves as the benchmark for most corporate and household loans, was reduced by 10 basis points to 3.35%. Similarly, the five-year rate, a reference for property mortgages, was lowered by the same margin to 3.85%.

Nigeria: Nigeria’s central bank raised its benchmark lending rate by 50 basis points to 26.75%, marking the fourth consecutive hike this year. Previous increases included 150 basis points in May, 200 in March, and 400 in February, the largest in 17 years. This move aims to curb rising inflation, which reached 34.2% in June due to partial fuel subsidy removal and a naira depreciation. The central bank’s Monetary Policy Committee emphasized the need to address inflationary pressures while remaining hopeful for price stabilization.

South Africa: South Africa’s annual inflation rate eased to 5.1% in June 2024, down slightly from 5.2% in the previous two months, but still above the central bank’s 4.5% target. This is the lowest reading since December 2023, with price reductions observed in several CPI categories, including food and non-alcoholic beverages, housing and utilities, health, and recreation and culture. Transport costs also moderated due to lower fuel prices.

Zambia: Zambia’s annual inflation rate rose to 15.4% in July 2024, the highest since December 2021, up from 15.2% in the previous month. This increase was driven by higher prices for food and non-alcoholic beverages (17.4% vs 16.8% in June), housing and utilities (11.7% vs 11.3%), communication (2.1% vs 1.3%), and recreation and culture (14.1% vs 12.1%). Conversely, prices decelerated for transport (22.3% vs 26.1%), clothing and footwear (8.5% vs 8.7%), and restaurants and hotels (11.3% vs 12.3%). Every month, prices rose by 1%, down from a 1.3% increase in the prior month.

 

Domestic Economy

Major updates during the week:

  • CBN Raises Interest Rate To 26.75% Amid Soaring Inflation
  • FG to raise $500m through domestic FX-denominated bonds in August in a bid to bolster the foreign reserves and enhance FX liquidity
  • The initial FX revaluation gain tax on banks that was set at 50% by the federal government has been increased to 70%
  • FG proposes an 800% increase in aircraft navigation fees and charges

 

Nigerian Equity Market: Bears Dominate Nigerian Equity  Market

The Nigerian stock market experienced a bearish week, with the NGXASI plunging 2.33% to close below the 100,000 points mark with all sectors recording losses. Profit-taking in blue-chip stocks like Dangote Cement (-9.99%) and Zenith Bank (-3.11%) exacerbated the sell-off. While some stocks like Jberger (+10.86%) and Oando (+11.51%) bucked the trend, they were unable to offset the broader market weakness. Investors remain cautious due to recent macroeconomic policy changes.

 

Nigerian Fixed-Income market: DMO exercises caution.

At the recent bond auction, the DMO raised NGN 225.7 billion against the NGN 300 billion on offer. The stop rates increased slightly for the APR-2029, FEB-2031, and MAR-2033 bonds from 19.64%, 20.19%, and 21.50% to 19.89%, 21.00%, and 21.98% respectively. At the bills auction, the DMO sold NGN 277.9 billion despite receiving NGN 373.9 billion in bids. The average stop rate for all maturities rose to 20.03%, up from 18.33%, as the market responded to the recent 50bps hike in MPR. Notably, this is the first treasury bills auction this year where the DMO sold the exact amount on offer, indicating concerns about the country’s debt sustainability.

At the secondary treasury bill market, we saw a moderate buying interest across all maturities except for the 10-Apr-2025, 27-Mar-2025, and 06-Feb-2025 maturities resulting in a 34bps increase in the average yield to 25.23%. The bond market remained relatively quiet, with the average yield increasing by 4bps to 19.45%. The Eurobond market closed the week somewhat bearish, with the average yield declining by 8bps to 10.14% due to selling interest across the curve. We expect similar market sentiment at the next trading week.