European stocks weaken as US inflation surprises on the upside

US Fixed income and & Equities were hit by the rise in the US inflation figures that came out yesterday. The startling inflation rate from 7.00% to a 40 year high of 7.50% versus the expected increase from 7.00% to 7.30% may trigger the US FED to hasten its hawkish stance as St. louis FED President, James Bullard calls for a rise in interest rates by a full percentage point to curb inflationary pressures. Also, Goldman Sachs expects US Fed to raise interest rates this year 7 times instead of 5 times initially predicted. Meanwhile in Europe, ECB President, Christine Lagarde thinks that raising rates too fast may slow down economic recovery in the region. S & P 500 dropped by 0.75% from previous level of 4,587 to 4,553.24. NASDAQ dropped from 14,490.37 to 14,228.68 by 1.84% while the 10-year US Treasury rates rose from 1.93% to close at 2.02% as Market reacted to the inflation rate hitting 7.50%. Gold prices dipped from a previous level of $1,826 to close at $1, 822 per ounce as WTI fell by 0.4% to close at $89.52 a barrel.

CREAL stock traded materially higher yesterday closing the day as much as 63% up at 3.85 from 2.36(MP) from the previous close. Similarly, the CREAL bonds also caught some reprieve trading up 3pts at about 20 for most of the curve. As we discussed in our
previous note the market is taking the steps of the company as positive having reshuffled the board and the investor relations person as well as commissioning legal firm “DLA Piper LLP” and restructuring adviser “FTI Consulting”. Generally, the sentiment is that the company is trying to find way to make good on the situation as opposed to capitalizing on it to avoid debt payments. Due to the contagion in the non-bank Mexican industry, UNIFIN had also been dragged down but was mostly bid yesterday. Most of the curve is trading at 65 handle side for the UNIFIN 23s at 76.

Ghana’s finance minister has insisted Ghana will not be returning to the IMF for support to deal with its challenges the country is facing now. This revelation comes after Ghana’s dispute with Moody’s downgrade of their credit rating from B3 to CAA1 on Feb. 4. The downgrade by Moody is due to the Ghanaian’s government’s increasingly difficult task of addressing liquidity and debt challenges as concerns have mounted that Ghana could be headed toward a debt crisis, as Fitch Ratings Inc. also downgraded Ghana in January from B to B- due to apprehension over its ability to issue bonds in 2022. Speaking on Thursday, the minister indicated that a return to IMF will have dire consequences and he also indicated that Ghana should have the capacity to raise domestic revenue for development. The yield on Ghanaian sovereign paper maturing in 2026 witnessed a c.40bps (12.42% to 12.83%) increase on the day of downgrade by Moody but has since dropped c.10bps and currently at 12.72% levels (11:00am) GMT +1. It now means that Ghana’s debts are, for the first time since the 2000s, considered highly speculative and substantially risky by investors and analysts. In other words, Ghana’s debts are seen as junk by investors.

Yields on the sovereign papers of Nigeria took a hit yesterday post the U.S inflation data which saw U.S inflation numbers come out higher than expected (Expected – 7.3%; Actual – 7.5%). The 2051 sovereign paper was trading at 9.24% pre-release of the inflation numbers then moved up 5bps to 9.28% before eventually closing the day at 9.30.%. The uptick in yield has been seen to continue well into the trading hours of the morning as yields have gone past closing levels from the previous day showing another c.3bps uptick.

The rouble held its strength yesterday at 74.30 although Russian and Ukrainian negotiators failed to reach an agreement at the Berlin meeting on the Minsk-2 accord whilst the meeting between Lavrov and the UK counterpart in Moscow also seemed futile. RUBUSD is trading weaker today at 75 on the general weak sentiment in EM due to yesterday’s high inflation number. As Russia’s spreads correlate more highly to rates versus the rest of the EM, we saw the Russian Eurobond curve generally trade lower with RUSSIA 30 trading down to 108 level and RUSSIA 47 falling about a point to 110 (trading mid 109 handle this morning). The key event for the Russian market will be today’s the CBR meeting, where expectations are for a 100-bps hike from the current level of 8.5%.