Global Economy

USA: Federal Reserve Chair Jay Powell indicated on Friday that the central bank is likely to cut its key interest rate soon in response to slowing economic growth and cooling inflation. Speaking at the Fed’s annual summit in Jackson Hole, Wyoming, Powell stated that “the time has come for policy to adjust,” noting that inflation has decreased significantly and the labor market has softened from its pre-pandemic tightness. His comments sparked a positive reaction in the markets, with the Dow Jones Industrial Average rising 462 points (1.14%), the Nasdaq Composite gaining 1.47%, and the S&P 500 climbing 1.15%, keeping all three indexes near their all-time highs. However, Powell did not specify the timing or extent of the expected rate cut, leaving investors uncertain about the Fed’s precise outlook on economic growth.

Sub-Saharan African Economies

 

 

Euro Area: In July, Eurozone inflation rose to 2.6%, up from 2.5% in June and exceeding expectations. The increase, driven by services (contributing 1.82% to the rise) and other key sectors, dampened hopes for swift rate cuts by the European Central Bank (ECB) and boosted the euro’s value. Core inflation held steady at 2.9%, indicating ongoing price pressures. Among eurozone countries, Finland, Latvia, and Denmark had the lowest inflation rates, while Romania, Belgium, and Hungary saw the highest. The ECB this week also reported a record €51 billion current account surplus in June, bringing the 12-month total to €370 billion.

South Africa: South Africa’s annual inflation rate fell to 4.6% in July 2024, the lowest in three years, down from 5.1% in June, bringing it closer to the central bank’s 4.5% target. The decline was led by lower increases in food, transport, and housing costs. Core inflation also dropped to a two-year low of 4.3%. On a monthly basis, consumer prices rose by 0.4%.

Rwanda: The National Bank of Rwanda cut its key interest rate by 50 basis points to 6.5% during its meeting on August 21, 2024, marking the second consecutive reduction. Policymakers explained that the decision was based on projections showing inflation would remain within the target band, around 5%, for both this year and 2025. Overall inflation, which peaked at 33.8% in November 2022, has stayed below 5% since the start of the year.

Morocco: Morocco’s annual inflation rate dropped to 1.3% in July 2024, down from 1.8% in the previous month, driven by a sharp decrease in food and non-alcoholic beverage prices, which eased significantly to 0.3% compared to 1.6% in June 2024. Additionally, price increases slowed for clothing and footwear, dipping to 1.8% after 2.1%, and for restaurants and hotels, which edged down to 3.1% from 3.2%. On the other hand, prices accelerated for housing and utilities, rising to 3.8% versus 3.7%, and for transportation, climbing to 2.6% against 2.3%. On a monthly basis, prices deflated by 0.2%, following a 0.4% increase in the prior month.

 

Domestic Economy

Major updates during the week:

  • The Debt Management Office (DMO) has launched a $500 million, 5-year bond with a 9.75% yield as part of a broader $2 billion domestic dollar bond program aimed at attracting foreign investment and bolstering Nigeria’s external reserves.
  • The CBN reported a 130% year-over-year surge in remittances to $553 million in July 2024, driven by recent policy reforms.
  • Oando Plc has completed its acquisition of Eni’s subsidiary, NAOC, for $783 million

Nigerian Equity Market: Market sentiment turns negative as profit-taking accelerates

The Nigerian stock market experienced a downturn this week, with the NGXASI index shedding 1.16% to close at 95,973.45 points. This reversal was primarily driven by profit-taking in large-cap stocks like Dangote Cement. While sectors like Oil & Gas, Insurance, and Banking posted gains, Industrial and Consumer Goods sectors declined. Key decliners included Transcorp Hotel, Dangote Cement, and Beta Glass. Despite the weekly decline, the market remains up 28.35% year-to-date.

Nigerian Fixed-Income Market: The green zone

The Debt Management Office (DMO) signaled a more cautious approach in the treasury bills market following the under-issuance at the recent auction. The total amount offered was N409.0bn, but only N291bn was issued. Consequently, the stop rate declined further by 53bps across the maturities. In contrast, at the bond auction, despite a reduction in the size on offer, the DMO sold N184.7bn more than the N190.0bn initially offered.

In the secondary market, there was a bullish trend in treasury bills, with yields declining by 251bps week-on-week (WoW). This bullish sentiment was particularly pronounced at the short end of the curve. There was also mild buying interest in the bond market, with the average yield declining by 8bps WoW. The Eurobond market closed the week on a bullish note as well, with the average yield declining by 21bps WoW to 10.13%. We anticipate increased interest in the market in the upcoming trading week due to improved system liquidity.