Global Economy
United States – Unemployment Soars to 3.8% YoY amid Weakening Labor Market
During the week, the US Bureau of Labor Statistics released the employment situation report for August 2023. The report revealed a weakened US labor market, attributed to the adverse effects of aggressive monetary tightening and economic deceleration. The unemployment rate rose to 3.8% (YoY), compared to 3.5% YoY in July 2023. Nonfarm payroll employment rose by 187,000, significantly below the average monthly gain of 271,000 over the past year. Key labor market indicators, job openings, and the quits rate, are exhibiting signs of decline. In particular, the July JOLTS data dropped to 8.8 million, falling short of expectations and marking the lowest figure since March 2021.
Source: BLS, Zedcrest Wealth
Average hourly earnings for all employees on private nonfarm payrolls rose by 0.2% MoM and 4.3% YoY to USD33.82.
We believe that the decrease in job openings and the decline in job quitting rates indicate a decrease in overall labor market confidence. Workers are less likely to leave their current jobs unless they are confident in finding new employment. As we look forward, we anticipate that the US Federal Reserve may take into account the recent uptick in the unemployment rate when deliberating at the upcoming FOMC meeting.
Source: BLS, Zedcrest Wealth.
China – PMI Edges Up, but Overall Outlook Remains Cautious
China’s Caixin General Manufacturing PMI for August 2023 surged to 51.0, surpassing July’s 49.2 and market expectations of 49.3. This marks the strongest factory activity expansion since February and the fifth consecutive monthly increase this year. Efforts by Beijing to bolster the post-pandemic recovery have played a role. Output, new orders, and employment saw positive shifts, while purchasing activity grew, albeit modestly due to rising raw material costs. However, challenges persist in the real estate sector, weakening demand, and domestic spending, tempering our optimism for China’s economic growth.
Domestic Economy – Foreign Portfolio Participation Market
During the week, the Nigerian Exchange Limited released the Foreign Portfolio Investment report for July 2023. As culled from the report, total transactions on the bourse advanced 72.83% MoM and 594.78% YoY to 702.98bn (about $ 537.87 million) in July 2023. For context, Total Foreign Transactions shed 11.37% from NGN45.74bn in June 2023 to NGN40.54bn in July 2023. However, on a year-on-year basis, it soared 36.59% from NGN29.68bn in July 2022 to NGN40.54bn in July 2023. Also, Domestic Transactions soared 83.50% MoM and 826.49% YoY to NGN662.44bn.
Source: NGX, Zedcrest Wealth
The notable increase in total transactions can be attributed to the growing confidence of domestic investors in the local market, thanks to the effective implementation of premarket policies under the current administration. Additionally, the unified FX system and the removal of fuel subsidies have stimulated heightened interest from foreign investors in the local exchange.
In the coming period, we anticipate a continued uptick in investor engagement in the local market, driven by their pursuit of fundamentally strong stocks. Despite the recent rise in fixed-income yields, we believe that this won’t deter the bullish sentiment on the local exchange, as investors seek out high dividend yields and potential price appreciation opportunities. However, foreign participation may see only marginal growth, given the prevailing caution among foreign investors due to recent political developments, such as the coup in sub-Saharan Africa, which has led to a degree of investor apprehension regarding the sub-Saharan region.
The Nigerian Equities Market – The Nigerian Equities Market Maintains Its Positive Streak
The Nigerian Equities Market closed the week on a bullish note for the second consecutive week as the NGX All Share Index added 300bps WoW to settle at 67,527.19. The market gained four (4) out of the five (5) trading days in the week as the year-to-date returns printed at 31.76%. Sectoral performance was bullish across all sectors as all sectors witnessed bullish sentiments; the Banking (+5.11% WoW), Industrial (+1.98% WoW), Consumer Goods (+3.75% WoW), Oil and Gas (+5.36% WoW) and Insurance (+0.80% WoW) closed positive. Leading the top gainers OMATEK (+53.33% to NGN0.46), NAHCO (+41.80% to NGN25.95), and ABCTRANS (+39.71% to NGN0.95). On the flip side, CWG (-19.80% to NGN4.01), JOHNHOLT (-14.38% to NGN1.31), and PRESTIGE (-12.50% to NGN0.42). The release of earnings results this week has reinforced bullish momentum in the equities market. We anticipate continued positivity in the upcoming week as more favorable earnings reports are unveiled.
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 63bps WoW to settle at 7.56%. On a similar note, the secondary bond market ended the week bullish as the average yield shed 4bps WoW to settle at 14.06%. This is on the back of notable buying interest in the MAR-2024 (-100bps) and JUL-2034 (-34bps) instruments. For the most part, the Naira Fixed income market closed the week on a positive note as the average yield declined by 33bps to print at 10.81%.
