US equities rise, bonds yields steady on FED’s dampened rate hike

US Stocks rallied amid a ray of hope after the Fed raised interest rates as expected to control high inflation while reversing worries of massive hikes. Fed Chair Jerome Powell noted that a 75-basis points hike is not being considered actively by the committee. However, the Fed increased rates by 50 basis points and indicated similar moves at upcoming meetings. The S & P 500 gained 2.99% to close at 4,300.17, Nasdaq 100 rose by 3.19% to 12,964.86 while DOW went up 2.81% to close at 34,061.06.  The yield on 10-year UST was stable at 2.96% as markets continue to digest Powell’s remarks. Meanwhile, Brent rose 0.6% to $110.82 per barrel on an EU plan to ban Russian crude over the next 6 months while Gold rose 0.8% to $1,895.46 an ounce amid stability in Bonds yields and a less aggressive rate hike.

According to a US official, Russian forces have been slowed down by a supply line and morale problems in southern and eastern Ukraine. From today a daytime ceasefire will be in effect in Mariupol for three days to allow the evacuation of civilians. Meanwhile, UK Prime Minister Boris Johnson is scheduled to meet the Japanese counterpart Fumio Kishida to discuss support for Asian nations in diversifying away from Russian oil and gas. Following a European plan to introduce a new round of sanctions, which should include a ban on Russian crude oil, US Biden has noted that the US is open to extra anti-Russian sanctions and will consult G7 on this matter. Despite of the negative news, Russian stocks have recovered with MOEX Russia up 1.3%. Gazprom and Lukoil were among the best performers. Russian rouble has also continued a dramatic recovery jumping more than 7% on Wednesday. USDRUB traded as low as 66.30 compared to 71 level last week. Despite of an apparent disconnection from the external market, the upward trajectory of Russian currency has been supported by a spike in oil prices and a boosted Russia’s fiscal revenues. Russian sovereign bonds remained mostly unchanged with Russia 28 trading in mid 30s and Russia 47 in mid 20s. Gazprom has transferred the ownership of its controlling stake in the Sakhalin-2 project back to a Russia from Neverlands. The dividends from the project in 2021 were equal to the company’s annual revenue. GAZPRU 34 traded in mid 30s and Lukoil was up in high 40s.

Bunds open weaker following the trend from yesterday. The 10Y touched a high of 1.008% before dropping to 1.007%, less than 1bp down day-on-day. Peripherals mirrored the move on bunds with a relatively weak open; 10Y BTPs yields went as high as 2.8872% before retreating to 2.8861%, less than 1 basis point firmer intraday. Stocks opened higher as investors took solace in Feds outlook on interest rates considering that bigger rate hikes are off the table. Consequently, the Stoxx 600, opened higher at 447.21 compared to previous sessions closing of 441.37.

A firm open to the space after the Fed put a damper 75bps hikes during this year’s subsequent meetings. GHANA (+1.00) leading at the open with curve-wide bids having been mostly bid on short tenors in Wednesday’s session. KENINT (+0.50) and NGERIA (+0.75) also shaking off recent slumps, with the latter getting further tailwinds given the ascent in Brent since yesterday.

Activity in the local Secondary Market for Bonds picked up moderately amid a relatively strong Money Market liquidity which stood at about N325bn.We saw some demand trickle in on the short to mid end of the curve while the long end remained stable. Intraday, average yields were slightly down by 1bp across the curve. Consequently, FGN 26s closed at an offer rate of 10.55%, down 5pbs from previous day’s level of 10.60% while 50s closed at an offer rate 12.87%, same as previous days level. Secondary Market for Treasury bills was a little active due to improved system liquidity. Consequently, subtle fresh demand for Treasury bills was seen especially across the short to mid end of the curve. Day-on-day, average discount rates were slightly changed across the curve. Consequently, discount rate on 30th May 2022 SPEB and the new 1-year NTB were stable at 3.00% and 4.50% respectively. Interest for maturities may persist if system liquidly remains steady. The exchange rate between the naira and the US dollar closed at N416.28/$1 at NAFEX compared to previous sessions level of N416.65/$1, an appreciation of circa 0.07%.