US equities drop, futures gain on China’s easing of covid quarantine measures

U.S stock indexes posted their biggest declines in more than a week on Monday as investors weighed stronger-than-expected data on durable goods against expectations for a slowing economy that could limit the magnitude of Fed Reserve rate increases. Stocks struggled to hang on to opening gains even after data showed U.S. durable goods orders rose by 0.7% in May, versus forecasts for a 0.2% rise, and pending home sales rebounded last month. Subsequently the S&P declined 0.3% to finish at 3,900.11, Nasdaq 100 declined 0.7% to finish at 11,524.55, while Dow Jones declined 0.2% to finish at 31,438.26. The 10-year yield Treasury increased by 2bs to 3.22%. Gold price was at $1,827.20 per once while WTI crude increased by 0.97% to $110.63 per barrel.

As Russia slipped into a historic default on its external sovereign debt, the group of G7 is expected to announce a price cap on Russian gas in their final communique of a three-day summit later today. The leaders are also expected to mention a mechanism to cap prices on Russian oil. At least 18 people were killed in a Russian missile strike on a mall in central Ukraine. This has been branded by German Chancellor and his fellow leaders as a war crime. Russian stocks retreated slightly this morning as rising oil prices kept mitigating the impact of international sanctions and the country’s default on its foreign debt. IMOEX was down 0.78% at 2398 with metals producers Norilsk Nikel, Polyus and Polymetal losing the most. Investment company Sistema jumped as much as 5%. Russian ruble remained the best performing currency of the year and firmed again this morning towards 53 as EURRUB dropped below 56. The currency’s strength is supported by the strict capital controls and flows related to the month-end taxes. The declared default had no substantial impact on Russian securities, as Eurobonds have priced in default a long time ago with external debt market shut for Russia anyway, a Russian analyst commented. RUSSIA 12 ¾ 06/24/2028 continued trading in mid to higher 30s, while RUSSIA 5 ¼ 06/23/2047 was higher in high 20s.

Bunds open weaker following trend from yesterday. The 10Y touched a high of 1.64% before dropping to 1.61%, 3bps down day-on-day. Peripherals mirrored the move on bunds with a relatively weak open;10Y BTPs yields went as high as 3.52% before retreating to 3.49%, 3 basis points firmer intraday. Stocks open higher as dip buyers continued to scramble for equities with sentiments strengthened by China’s easing of covid lockdown guidelines. Consequently, the Stoxx 600, opened higher at 416.46 compared to previous session’s closing of 415.09.

SSA opens yet weaker as the run of selling pressure persists. NGERIA (+0.125pts) firmer at the open as demand continues on short to belly tenors; the curve fared comparatively better in the space on Monday, shedding 0.125pts. ANGOL (-0.50pts) continues with Monday’s performance having shed 0.875pts. IVYCST opens flat following an affirmation of ratings at Ba3 by Moody’s albeit with an outlook downgrade to stable.

Activity in the Nigerian local Secondary Market for Bonds was mostly bearish amid a persistently weak system liquidity. We witnessed selloffs mainly around the short end of the curve while the mid to long end had improved offers. Intraday, average yields were up by 6 basis points across board. Consequently, FGN 26s closed at an offer rate of 10.15%, 2 basis point up from previous level of 10.13% while 49s closed at an offer rate of 13.01% 1 bp up from previous level of 13.00%. Activity in the Secondary Market for Treasury bills was mixed ahead of upcoming NTB Auction slated for 29th of June 2022. On offer will be a total of N334bn across the 3 tenors (91,182 & 364 days). Although we saw some cherry picking of a few maturities by traders, day-on-day, average discount rates were mostly unchanged across board. Consequently, discount rates on 29th of August 2022 & 28th of November 2022 SPEB were at 5.85% and 5.90% respectively. The exchange rate between the naira and the US dollar closed at N418.82/$1 at NAFEX compared to previous session’s level of N418.74/$1, a depreciation of circa 0.02%.