Global Economy

United States – US Labor Market Exhibit Slight Resilience, Unemployment Rate slowed to 3.6% YoY.

Last week, the US Bureau of Labor and Statistics released the employment situation report for June 2023. As culled from the report, the US labor market continues to portray the impact of the US Fed hawkish policy as the unemployment rate dropped to 3.6% YoY compared to 3.7% YoY in May 2023. Meanwhile, nonfarm payroll employment increased by 209,000 (lowest since December 2020) compared to 306,000 in May 2023 depicting lower job creation.

Nonetheless, the total number of unemployed people declined by 140,000 to 5.96 million. The labor force participation rate, a key metric for resolving a sharp divide between worker demand and supply stagnated at 62.6% for the fourth consecutive month.

Source: US BLS, Zedcrest Wealth

Similarly, the employment-population ratio remained at 60.3%. Industries such as Government (+60,000), Health Care (+41,000), Social Assistance (+24,000), and Construction (+23,000) witnessed the highest employment gains. On the other hand, a broader measure of the unemployment rate, which takes into account discouraged workers and those with part-time employment for economic reasons, increased to 6.9% YoY, marking the highest level since August 2022. Average hourly earnings advanced by 0.4% MoM and 4.4% YoY in May 2023. Based on the limited resilience observed in June, we opine that inflation is likely to remain above the 2.0% benchmark set by the US Fed. This situation may potentially lead to the resumption of interest rate hikes.

Source: US BLS, Zedcrest Wealth

China – Economic Activities Slowed in June, Growth Forecast Remains Gloomy

The growth momentum of China’s services sector is showing signs of deceleration. To provide context, a PMI reading above 50 points indicates economic expansion, while a reading below 50 points indicates economic contraction. In June, the Caixin/S&P Global Services Purchasing Managers’ Index (PMI) recorded a reading of 53.9 points, a decrease from 57.1 points in May 2023. This represents the slowest pace of growth in the past five months, as weakening demand continues to hinder productivity. Furthermore, the composite Purchasing Managers’ Index (PMI) by Caixin/S&P, encompassing both manufacturing and services sectors, experienced a decrease to 52.5 points in June compared to 55.6 points in May. This decline signifies the continuation of six consecutive months of expansion. The data exacerbates concerns about deflation, particularly in light of the housing sector’s challenges, while sentiment within the manufacturing industry weakened. Considering the recent decline in economic activities in China (as seen in the PMI figures), we anticipate that oil prices will exhibit volatility. The interplay between the reduced demand from China and the effects of oil production cuts implemented by OPEC+ will shape the trajectory of events in the oil market. The outcome of this conflict between these factors will determine the direction of oil prices in the near future.

United Kingdom – Monetary Policy, Sturdy Inflation Weigh in on Economic Activities

As per the S&P Global/CIPS report, the United Kingdom’s private sector activity, as indicated by the Composite PMI, remained in expansionary territory but moderated to a three-month low of 52.8 points in June (compared to 54.0 points in May). The overall slowdown was primarily driven by weaker business and factory activities. On one hand, the Service PMI softened to its lowest level since March, registering 53.7 points (compared to 55.2 points in May), as elevated

inflationary pressures dampened consumer spending momentum, particularly due to weaker demand from clients in the real estate sector. On the other hand, the Manufacturing PMI contracted further, reaching 46.5 points (compared to 47.1 points in May), in line with the persistent weakness in new orders, output, and employment. We predict a continued deceleration in economic activities due to robust inflationary pressures, stringent monetary conditions, and deteriorating performance in the real estate sector. These factors collectively contribute to the ongoing slowdown in economic growth.

Domestic Economy – Downtrend in Foreign Reserves Persist

Based on the Stanbic IBTC Bank Nigeria’s Purchasing Managers’ Index (PMI) report for June, the PMI declined by 148 basis points (bps) to 53.2 points compared to the five-month high of 54.0 points in May 2023. Although Nigeria’s private sector continued to expand for the third consecutive month, the growth rate slowed down. Both output and new orders experienced growth, albeit at a reduced pace, as rising inflationary pressures began to impact demand. As the effects of escalating prices in fuel, food, and transportation unfold, we anticipate a slight decrease in economic activities.

Source: Stanbic IBTC Bank, Zedcrest Wealth.

The Fixed Income Market– A Bullish Close for the Debt Market

The Nigerian Treasury Bills secondary market closed the week on a positive note as average yield shed 6bps WoW to print at 6.29%. On a similar note, the secondary bond market ended the week bullishly as average yield declined by 4bps WoW to 12.95%. This is following buying interest in the APR=2037 (yield down 30bps) and JUN-2038 (yield down 23bps) instruments.

The Nigerian Equities Market – The Bulls Remain Dominant

The Nigerian bourse continued its bullish run for the sixth consecutive week, with the NGX All Share Index gaining 340 basis points (bps) week on week (WoW) to reach a closing value of 63,040.87 points. The market witnessed gains on four out of the five trading days, resulting in a year-to-date return of 23.00% for the NGX ASI. Most sectors covered in our analysis recorded positive performance, with the exception of the consumer goods sector (-0.22% WoW). Leading the gainers chart are JAPAULGOLD (+58.6% to NGN1.11), CHIPLC (+57.3% to NGN1.29) and ETERNA (+56.8% to NGN1.16). On the flipside, WAPIC (-26.5% to NGN0.61), TRIPPLEG (-26.4% to NGN2.76) and UNIVINSURE (-21.1% to NGN3.60). We anticipate that investors will maintain a positive outlook and sentiment in the upcoming week, indicating a bullish stance.