Global Economy

Equities: Hedge funds rapidly increased bearish bets on Japanese stocks during the week, marking the fastest pace in over five years, according to a note from Goldman Sachs. The Nikkei index faced a significant downturn on Monday, with that being the worst day for the index since Black Monday in 1987. During this period, equity long/short hedge funds added 1.7 short positions for every long position sold, reflecting a strong shift in sentiment. The sell-off was driven by economic concerns and the unwinding of a popular yen trade that had been supporting stock investments, which sent shockwaves through global markets. Portfolio managers net sold Japanese stocks on four out of the five trading days, with Tuesday being the only exception. By Friday, net exposure of hedge funds to Japanese equities had dropped to 4.8%, down from 5.6% the previous week.

 

Sub-Saharan African Economies

 

China: China’s annual inflation rate rose to 0.5% in July 2024, up from 0.2% in June, surpassing market expectations of 0.3% and marking the highest level since February. This increase reflects the sixth consecutive month of rising consumer inflation after four months of consistent deflation, fueled by Beijing’s efforts to stimulate spending. Food prices, which had been declining over the past year, stabilized amidst adverse weather, while non-food prices continued to climb, particularly in clothing, housing, health, and education sectors.

Kenya: The Central Bank of Kenya lowered its benchmark rate to 12.75% on August 6, 2024, citing improved global economic conditions and easing inflation, with the inflation rate dropping to 4.3% in July. Despite strong GDP growth of 5.0% in Q1 2024, driven by agriculture and services, the Stanbic Bank Kenya PMI fell to 43.1 in July, marking the second month of private sector contraction due to political instability. Business activity declined across most sectors, with agriculture hit hardest, while input and output prices continued to rise. Business confidence remains low, with ongoing concerns about geopolitical tensions and the impact of protests.

Egypt: In July 2024, Egypt’s annual urban inflation rate moderated to 25.7%, down from 27.5% in June, marking the lowest level since December 2022. Although still significantly above the central bank’s target range of 5-9%, the easing trend is expected to continue, despite the upcoming subsidy cuts. The slowdown in inflation was primarily driven by lower price increases in key sectors such as food and non-alcoholic beverages, housing and utilities, and recreation. On a monthly basis, consumer prices rose by 0.4%, down from 1.6% in June.

Ghana: July 2024 saw the S&P Global Ghana PMI rise to 50.1 from 49.7 in the previous month, indicating slight growth. While both input and output prices increased, the inflation rate moderated. The cedi’s depreciation led to higher purchase costs, but firms ramped up activity in response to rising new orders. Employment grew for the sixth consecutive month, with moderate improvements in input purchases, stocks, and vendor performance. Business optimism stayed strong, though concerns about the cedi’s stability remained.

 

Domestic Economy

Major updates during the week:

  • The Central Bank of Nigeria (CBN) injected $876.26 million through the Retail Dutch Auction System (RDAS) into the foreign exchange market at a rate of N1,495 per dollar to alleviate pressure on the naira and clear a backlog of customer demands.
  • Fitch Ratings has downgraded Dangote Industries Limited’s credit rating to B+, citing liquidity concerns and operational challenges.
  • CBN has approved the merger between Providus Bank Limited and Unity Bank Plc, marking the first approved merger since the recapitalization directive.

Nigerian Equity Market: Bullish Sentiment Drives Equity Market Upward

The Nigerian equities market extended its positive run, with the NGXASI closing 0.88% higher at 98,605.79 points. Market capitalization increased by N269 billion, pushing year-to-date returns to 31.87%. While trading activity slowed down, sectoral performance was mixed. The banking sector led gains, followed by consumer goods and oil & gas. Conversely, the insurance sector dipped, while the industrial sector remained flat. Key gainers included MTNN, Zenith, FBNH, Oando.

Nigerian Fixed-Income Market: The DMO stays cautious

The DMO maintained a cautious stance at this week’s Treasury bill auction, fully allotting the N216 billion offered despite receiving over twice that amount in bids. Notably, the stop rate for the 364-day bill declined to 21.89% from 22.10%. The secondary Treasury bill market closed bearish with the average yield rising by 18bps to 25.67%. However, specific maturities such as 6th Feb. 2025 (-183bps) and 10th Apr. 2025 (-99bps) witnessed buying interest. The bond market also closed on a bearish note, with the average yield increasing by 23 bps to 22.86%. Conversely, the 19.89% coupon 2033 bond attracted strong buying interest, causing its yield to decrease by 22 basis points. This demand likely stems from the recent reduction in the bond auction size.

The Eurobond market displayed mixed sentiment, closing relatively flat. Our anticipations for the upcoming week lean towards mild buying interest in selected bonds and the newly issued Treasury bills.