US equities stumble, bonds yields rise on inflation concerns

US Stocks slipped, and bonds yields rose as inflationary pressures, rising cost of borrowing coupled with China’s Covid lockdowns weakened market sentiment. Consequently, the S & P 500 lost 3.56% to close at 4,146.87, Nasdaq 100 declined by 4.99% to 12,317.69 while DOW dropped 3.12% to close at 32,997.97. At the same time, the yield on 10-year USTs climbed 3pbs to 3.06% as investors assessed the possibility of additional rates increases amid fears of a recession. Meanwhile, Brent crude rose 0.7% to $111.68 a barrel on supply worries emanating from EU’s plan to ban Russian oil while Gold fell 0.1% to $1,874.45 an ounce.

The European Union has revised its Russia Oil sanctions ban to give Hungary and Slovakia an extra year to comply. The Chezh Republic should also be granted an exemption until June 2024. Meanwhile heavy fighting continued at the besieged Azovstal Iron and Steel Works in Mariupol, where Russia is intensifying its attack. There have been rumours in Russia of a possible general mobilization ahead of the national Victory Day celebrated on the 9th of May. Russian assets have remained under pressure with Russia’s equity benchmark extending its week drop, as EU moved closer to banning Russian oil imports. MOEX lost 1.1% this morning extending the weekly decline to 2.8% and is currently trading around 2383. Gazprom, Lukoil and Sberbank were the worst performers. Russian rouble has also slowed its rally with just up 0.3% today at 66.1350 against the Dollar after jumping most since 2014 on Wednesday. Russian Sovereign and Corporate bonds were mostly flat with Russia 28 and Russia 47 trading in mid 30s and mid 20s respectively. As noted by a US strategist, US still may force Russia into bond default in the coming weeks despite the green light given by the authorities on two last-minute payments. In the meantime, UK has added a major Russian steel producer, EVRAZ, to the list of sanctioned companies. Evraz 25 had a muted reaction and traded in upper 50s.

Bunds open weaker following the trend from yesterday. The 10Y touched a high of 1.066% before dropping to 1.064%, 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 2.97% before retreating to 2.96%, 1 basis point firmer intraday. Stocks opened lower as worries over a gloomy economic outlook, climbing commodity prices and rising Bond yields made sentiments wobbly. Consequently, the Stoxx 600, opened lower at 434.16 compared to previous sessions closing of 438.26.

SSA opens to weakness with yesterday’s rally having stuttered into the close following a spike in core rates; 10Y USTs topped 3% later in the session, ultimately closing 3.044%. KENINT shed earlier gains to close 0.375pts down following news that Treasury will proceed with the planned $1 billion Eurobond issue; the country had earlier reported an 11-year GDP growth of 7.5% in 2021.

Activity in the Nigerian local Secondary Market for Bonds was moderate amid a buoyant Money Market liquidity which stood at over N500bn.We saw demand on the short to mid end of the curve while the long end remained quiet. Intraday, average yields were down by 4bp across the curve. Consequently, FGN 26s closed at an offer rate of 10.45%, down 10pbs from previous day’s level of 10.55% while 50s closed at an offer rate 12.87%, same as previous days level. Secondary Market for Treasury bills was vibrant due to further boost to system liquidity. OMO Auction conducted earlier in the day to mop up liquidity from the system did not deter market participants from buying securities that fall within the short to mid end of the curve. Banks deployed excess liquidity in their cash balances to avert CRR Debits expected in the next 24 hours. Day-on-day, average discount rates were slightly changed across the curve. Consequently, discount rate on 8th Aug 2022 SPEB closed at 3.20% from a previous level of 3.30% while the new 1-year NTB was stable at 4.50%. A total of N50bn was offered and same size sold for tenors and stop rates ranging from 110 to 362 days and 7.0% to 10.10% respectively at the OMO auction. The exchange rate between the naira and the US dollar closed at N417.28/$1 at NAFEX compared to previous sessions level of N416.28/$1, a depreciation of circa 0.36%.