US equities fall on inflation concerns

U.S. stocks dwindled as markets struggled with the monetary policy effects of the hotter than expected CPI report coupled with worries over rising interest rates and a slowdown in economic growth. Consequently, the S & P 500 lost 1.65%% to close at 3,935.18, Nasdaq 100 dropped by 3.18% to 11,364.24 while DOW declined 1.02% to close at 31,834.11.  Brent crude fell 2.3% to $105.01 per barrel on concerns about prolonged war in Ukraine amid slowing demand from China due to Covid lockdowns. Meanwhile, the yield on 10-year USTs dropped 10 bps to 2.82% while Gold fell 0.30% to $1,847.18 an ounce. Analysts feel that pending a consistent drop in inflation over 2 or more reports, markets may remain volatile.

US Defence Secretary Lloyd Austin said that Russian President Vladimir Putin does not want to escalate the war into a global conflict with NATO. Meanwhile, Finish leaders have backed up a plan of joining the North Atlantic Alliance. A Swedish bid is expected to follow next Monday. While German economy minister claimed in the interview with WirtschaftsWoche, that enduring a halt in supply of Russian gas was possible, Italian Prime Minister Mario Draghi said European companies will be able to pay for gas in rubles without breaching sanctions. Amid uncertainty of gas supplies to Europe, Russia’s equity benchmark slid 0.6%. It was mostly driven by energy stocks with Lukoil and Gazprom losing the most.  This morning’s drop in MOEX extended the slump for the year in Russian equities to 37%.Ten more European buyers have opened ruble accounts for payments in Gazprombank, the total number of clients preparing to pay in rubles for Russian gas has doubled. Another 14 clients have asked for paperwork. As a result of growing demand, Russian ruble continued to strengthen this Wednesday with USDRUB down to 67.20 and EURRUB falling below 70. Russian sovereign bonds were mostly flat with Russia 28 trading in high 30s and Russia 47 in mid 20s. Russia has imposed blocking sanctions on EuRoPol Gaz S.A., a Polish company, that owns the Polish section of the Yamal-Europe gas pipeline. European gas prices on ICE exchange were up more than 9% after the announcement and traded above $1,100.

Bunds open stronger following the trend from yesterday. The 10Y touched a high of 0.925% before dropping to 0.892%, 3bps down day-on-day. Peripherals mirrored the move on bunds with a relatively strong open; 10Y BTPs yields went as high as 2.76% before retreating to 2.68%, 8 basis points firmer intraday. Stocks opened lower as investors avoided risk assets on worries of stifling economic growth emanating from inflation and monetary policy tightening. Consequently, the Stoxx 600, opened lower at 419.28 compared to previous sessions closing of 427.59.

SSA opening mostly weaker even as treasuries reverse the post-CPI selling with the 10Y some 20bps lower than yesterday’s peak. GABON weakness continues having underperformed with a 1-pt slide yesterday. ANGOL’s flat open bucking the trend after agreeing to a $500 million budget package with the IMF; the disbursement was the final one in a 3-year agreement totalling $1.7 billion.

Activity in the Nigerian local Secondary Market for Bonds was calm. We saw some demand trickle in across the curve in addition to improved offers. Intraday, average yields were down by 5bps across board. Consequently, FGN 24s closed at an offer rate of 7.50%, down 15pbs from previous session’s level of 7.65% while 50s closed at an offer rate 12.80% down 7pbs from previous session’s level of 12.87%. Secondary Market for Treasury bills was tepid as market participants waited for the outcome of the NTB auction. However, demand trickled in around the short to mid end of the curve as Banks deployed excess cash balances to avoid expected CRR debits by the CBN. Day-on-day, average discount rates were down across the curve. Consequently, discount rate on 30th May 2022 SPEB closed at 2.75% from a previous level of 2.90% while 2nd February 2023 OMO bill closed at 4.60% from a previous level of 4.70%. The exchange rate between the naira and the US dollar closed at N417.52/$1 at NAFEX compared to previous sessions level of N417.27/$1, a depreciation of circa 0.06%.