US equities rise, bonds yields advance ahead of FED’s interest rate hike

U.S stocks finished higher, and Bonds yield rose as investors prepared for the anticipated aggressive interest rate hikes by the Federal Reserve. Although US stock prices closed positive yesterday with S & P 500 up 2.47% to close at 4,287.50, DOW at 33,926.39, up 1.85% and NASDAQ 100 up by 3.06% to close at 12,871.53, futures which show likely opening levels for equities are currently negative with the S&P Futures down 0.46% at 4,264.00, DOW Futures 0.05% at 33,811.00 while NASDAQ Futures are at 13,352.00, down 0.76%.  Dismal performance by U.S. equity futures was caused by post-earnings declines in Inc. and Apple Inc stocks. The yield on 10-year USTs rose to 2.84% amid Feds plan to tame inflationary pressures while Gold was at $1,911.90 an ounce. However, investors think that 10-year yields are likely going to be lower than where they are now because at some point, the Fed may become less hawkish if the economy starts to slowdown drastically. Meanwhile, oil hovered with WTI trading circa $105 a barrel as traders assessed the likelihood of an EU ban on Russian crude in retaliation for the invasion of Ukraine.

European gas buyers have been looking for the ways to meet Moscow’s demand for rouble payments without breaking the sanctions. Moscow has cut off supplies to Bulgaria and Poland and warned other European countries that it would stop supplying gas if they don’t pay in rubles. As of now, Austria has been told by European Commission that its payments fully comply with the law and Austria expects Russian gas flows to continue. Hungary is currently sending euros to Gazprombank JSC, which are subsequently converted into rubles in line with the Moscow mechanism. In the meantime, President Joe Biden has asked Congress to provide $33 billion for the military, economic and humanitarian aid to Ukraine, as well as the power to seize and sell assets of wealthy Russians. US Administration expects a bloody and prolonged battle, as Russian forces focus efforts on Ukraine’s eastern regions. While Russian missiles struck Ukraine’s capital, Kyiv on Thursday evening and Odesa has also been hit, the battle for Donbas remains Russia’s strategic focus. In the meantime, Russian stocks have extended weekly gains with MOEX Russia rising 1.2% on Friday, adding to 8%’ gain for this week. High commodity prices and a widely expected interest rate cut by the Russian Central Bank have supported the market. The Bank of Russia is predicted to reduce the key rate today for the second time in April cutting rates by 2% down to 15%. Russian Sovereign bonds remained mostly flat with Russia 28 trading in high 20s, while Russia 47 kept holding above 20 level. In corporate news, Gazprom landed a high profit of $29 bln for 2021. The company bonds had a muted reaction with GAZPRU 8 ⅝ 04/28/2034 remaining range bout in high 26s. Russian Rouble has performed well this week and gained 8.15% against USD to April 29. It is currently trading at around 71 level.

Bunds open with little or no change day-on-day. The 10Y touched a high of 0.904% before dropping to 0.903%. Peripherals open relatively flat as well; 10Y BTPs yields went as high as 2.63% before retreating slightly to 2.62%, 1 basis point firmer. Stocks rose on China’s promise to increase stimulus package coupled with strong earnings reports. Consequently, the Stoxx 600, opened higher at 451.66 compared to previous sessions closing of 447.07.

The space looks to have shaken off the recent slump opening with a tilt towards firmness to cap a depressed week. After opening to measured losses on Thursday, selling became pronounced with US selling before a surprise contraction in US Q1 GDP added to the heaviness. ZAMBIN’s restructuring appears to be progressing with South Africa offering to co-chair the creditors committee with China.

Activity in the local Secondary Market for Bonds was mixed amid weak Money market liquidity. Traders’ cherry-picked securities around the mid end of the curve while the long end exhibited some bearish undertones. Intraday, yields were mostly sideways across the curve. Consequently, FGN 28s closed at an offer rate of 11.25%, down 10pbs from previous day’s level of 11.35% while 49s closed at an offer rate 12.85%, up 3bps from previous days level of 12.82%. Secondary Market for Treasury bills was relatively calm, with some bearish undertones around the long end of the curve.  Day-on-day, average discount rates were mostly unchanged across the curve. Consequently, discount rate on 8th August 2022 SPEB and the new 1-year NTB were stable at 3.15% and 4.74% respectively. Bearish sentiments may persist in the short run pending cash injections into the system. The exchange rate between the naira and the US dollar closed at N417.42/$1 at NAFEX compared to previous sessions level of N416.72/$1, a depreciation of circa 0.17%.