US equities wobble, bonds yield rise as inflation becomes center of attention

US stocks finished lower yesterday. However, futures are northbound amid concerns about the extent to which the Federal reserve will tighten monetary policy to combat inflation. Consequently, US stock prices closed negative yesterday with S & P 500 down 0.63% to close at 4,132.15, DOW at 32,990.12, down 0.67% and NASDAQ 100 down by 0.41% to 12,081.39 while futures which show likely opening levels for equities are currently positive with the S&P Futures up 0.39% (4,147.50), DOW Futures 0.64% (33,182.00) and NASDAQ Futures at 12,671.75, up 0.22%. The yield on 10-year UST’s rose 4pbs to 2.88% as traders gauged Feds interest-rate hike campaign, at the same time, Gold was at $1,834.60 an ounce. Brent crude dropped to $117.24 from $122.84 per barrel as investors analysed the future of OPEC+.Ministers from the group are set for a virtual meeting later today with focus on discussing its supply policy for the month of July. On the data front, US May employment report is due Friday.

The sixth package of EU sanctions against Russia, which comprises an embargo on tanker deliveries of Russian oil to EU member-states postponed for six months, will get a final approval this week. Russian market had a muted reaction to this news. USDRUB strengthened to 61.40 level from 61.85, while IMOEX rose 1% to 2377 points. Russian Sovereigns were stable with RUSSIA 28 at 30 mid and RUSSIA 47 at lower 25.U.S. President Joe Biden said that the US government will not pressure Ukraine to make any territorial concessions to Russia but would continue to work on anti-Russian sanctions with its allies and continue supplying modern weapons to Ukraine. Meanwhile Gazprom will suspend oil supplies to the leading Danish energy company Orsted and Shell Energy Europe Limited due to non-payment for gas supplied in April and the refusal to pay in rubles through Gazprombank. GAZPRU 34 rose to 36 on the back of this news.

Bunds open weaker retracing the trend from yesterday. The 10Y touched a high of 1.15% before dropping to 1.14%, 1bp down day-on-day. Peripherals mirrored the move on bunds with a relatively weak open; 10Y BTPs yields went as high as 3.096% before retreating to 3.075%, 2 basis points firmer intraday. Stocks open lower on concerns that high inflation might pressure the ECB to raise rates aggressively, increasing the chances of an economic downturn. Consequently, the Stoxx 600, opened lower at 441.68 compared to previous session’s closing of 443.35.

SSA opens yet weaker as rates open at yesterday’s peaks, while Brent dropped about 6% overnight. The space traded weaker on Tuesday with GHANA underperforming down 1.875pts and the long end particularly heavy. Reports had filtered through earlier in the session about Ghana’s keenness to proceed with $1bn of a previously reported $2bn syndicated loan before the mid-year budget review in July; the curve opens 0.25pts down cash. Elsewhere, TLWLN up at least 4pts at the open as Tullow merges with Capricorn Energy.

Activity in the Nigerian local Secondary Market for Bonds was mostly bullish amid a relatively improved system liquidity. We saw demand come into the market mainly across the short to mid end of the curve while the long end saw improved offers. Intraday, average yields were down 4bps across the curve. Consequently, FGN 26s closed at an offer rate of 10.45%, down 15pbs from previous session’s level of 10.60% while 50s closed at an offer rate of 13.05% up 5bps from previous session’s closing of 13.00%. Activity in the Secondary Market for Treasury bills was relatively calm even though Money Market liquidity got a boost of circa N62.00bn from OMO repayment.  Demand for securities waned across most of the curve. Day-on-day, average discount rates were mostly unchanged. Consequently, discount rate on 27th April 2023 NTB and 25th of May 2022 NTB were at 5.80% and 5.50% respectively. The exchange rate between the naira and the US dollar closed at N419.38/$1 at NAFEX compared to previous session’s level of N418.30/$1, a depreciation of circa 0.26%.