Global Economy
United States – The US Labor Market Sustains Resilience
During the week, the US Bureau of Labor Statistics published the employment situation report for July 2023. According to the report, the US labor market displayed resilience despite tightening monetary policy, resulting in the unemployment rate rising to 3.5% (YoY), compared to 3.6% YoY in June 2023. Nonfarm payroll employment increased by 187,000, although this figure was lower than the average monthly gain of 312,000 observed over the previous 12 months.
Furthermore, unemployed individuals declined by 160,000, reaching 5.80 million. The labor force participation rate remained steady at 62.6% for the fifth consecutive month, and the employment-population ratio stood at 60.4%. These statistics indicate the ongoing strength of the US labor market amidst the current economic conditions and policy adjustments.
Industries such as Health Care (+63,000), Social Assistance (+24,000), Financial Activities (+19,000), and Wholesale Trade (+18,000) witnessed the highest employment gains. Also, average hourly earnings (wages) rose 0.4% MoM and 4.4% YoY in July 2022.
We posit that the report will create mixed signals in the market. The increase in average wage earnings might raise concerns for the US Fed, as it has been a significant factor contributing to the uptrend in inflation. On the other hand, the decline in hiring over time could provide the Fed with a reason to reconsider rate hikes. Overall, the recent softening of the US labor market will be a factor in the Fed’s decision-making process.
Source: BEA, Zedcrest Wealth.
In recent news, the Fitch rating agency has downgraded the U.S. government credit rating by one notch, from AAA to AA+. This downgrade comes after major economic indicators released during the week exceeded expectations. The rating agency cited several issues for the downgrade:
1. A steady deterioration in key metrics for the United States over time, with general government debt rising to 113% in 2023 from less than 60% in 2007.
The ongoing “constant brinkmanship” surrounding the debt ceiling among both Republicans and Democrats, creates uncertainties in the country’s fiscal management.
3. Expectations that fiscal deficits may rise over the next three years, and debt levels may continue their upward trend during the same period.
However, the rating agency also mentioned that they will closely monitor the situation for any long-term fiscal solutions aimed at reducing excessive spending, increasing revenue, and decreasing the budget deficit. These measures could potentially lead to a positive reassessment of the credit rating in the future.
United Kingdom – The Bank of England Hikes Interest Rate Further by 25bps
Last Thursday, the Bank of England (BoE) implemented another 25bps interest rate hike, bringing it to 5.25%. This marks the 14th consecutive tightening of monetary policy. The decision was made by the Monetary Policy Committee, with a vote of 6-3 in favor of the 25bps increase. Two members advocated for a second consecutive 50bps hike, while one member voted to keep rates unchanged. Going forward, we anticipate that inflation in the UK will remain subdued as the effects of these successive rate hikes continue to unfold.
Oil Production Cut – OPEC +, Saudi Arabia, and Russia Decide
During the week, Saudi Arabia and Russia made new announcements to reduce oil production by 1,000,000 barrels per day (bpd) and 500,000 bpd, respectively. These cuts are in addition to the 1.66 million bpd production cut previously agreed upon by OPEC+ during the coalition’s ministerial meeting in June. This decision indicates the potential for an increase in oil prices in Nigeria, especially considering the removal of oil subsidies and the prevailing forces of demand and supply influencing oil prices.
Domestic Economy – Foreign Investors Remain Cautious T Marketowards the FX
Based on the data obtained from FMDQ, the total inflows into the Investors & Exporters Window (IEW) experienced a significant decline of 65.7% Month on Month (MoM), amounting to USD608.00mn in July. This is in stark contrast to the inflow of USD1.77bn recorded in June 2023 and represents the lowest level since April 2021 when it was at USD564.20mn.
A closer analysis of the breakdown provided reveals that this decline in inflows was widespread across both local and foreign investors. Local investors accounted for 92.3% of the total transaction value, but their inflows decreased by 60.6% MoM to USD561.00mn in July, compared to USD1.42bn in June.
Similarly, inflows from foreign sources were also disappointing, experiencing a sharp deceleration of 86.5% MoM to USD47.00mn in July. In June, foreign inflows were at USD347.30mn. The cautious approach of foreign investors to return in large numbers persists despite the FX market liberalization, likely due to uncleared FX backlogs that are still lingering in the market.
The Nigerian Equities Market – The Nigerian Equities Market Sustain Bullish Performance.
The Nigerian Equities Market closed the week on a bullish note as the NGX All Share Index added 22bps WoW to 65,198.08pts despite the market gaining two (2) out of the five (5) trading days in the week. As a result, the year-to-date returns printed at 27.21% (vs 26.94% last week). Sectoral performance was mixed as the Banking (-2.13%) and Oil and Gas (-0.68%) sectors closed in the red while Industrial Goods (+0.23%), Consumer Goods (+2.27%), and Insurance (+5.88%) sectors closed positive. Leading the top gainers SUNUASSUR (+55.0% to NGN0.93), CHELLARAM (+45.5% to NGN3.39) and ABBEYBDS (+32.7% to NGN1.46). On the flip side, JOHNHOLT (-33.2% to NGN1.47), OMATEK (-30.61% to NGN0.34), and SOVRENINS (-28.6% to NGN0.50). We expect further earnings results to boost the bourse’s performance in the coming weeks.
The Nigerian Fixed Income Market – Mixed Sentiments Trail the Bond Market
The Nigerian Treasury Bills market ended the week on a positive note as the average yield declined by 15bps to WoW to settle at 6.96%. However, the secondary bond market witnessed a bearish momentum as the average yield edged up 18bps WoW to settle at 13.31%. This is on the back of selloffs across the curve.
