US equities drop as investors await outcome of FOMC meeting

US stocks declined yesterday following a host of soft data and as earnings season kicks into high gear. Today the Fed Reserve will begin its two-day monetary policy meeting which is largely expected to increase rate by 75 basis points. Subsequently, Dow Jones declined 0.7% to finish at 31,761.54, S&P 500 declined 1.2% to finish at 3,921.05 while Nasdaq 100 declined 1.9% to finish at 11,562.57. The 10-year yield Treasury declined 3 basis point to 2.786%. Gold fell $1.60 to $1,717.50 per ounce while WTI crude oil fell 1.8% to $94.98 per barrel.

Gazprom PJSC would reduce its natural gas supplies to European Union to about 20% of normal capacity today. Although maintenance reasons were quoted for the move, Russia is likely to keep vital gas flows at minimal levels if the standoff over Ukraine continues. This will increase pressure on the European Union over its tough stand on Russia’s invasion. In the meantime, Ukrainian forces hit a key Russian-held bridge overnight in the occupied city of Kherson during its counter-offensive, while US senators urged to sanction China’s purchases of oil and other energy supplies from Russia to cut off funding for Russia’s military operation. Russian stock market rose for a fourth consecutive day as surging prices of European natural gas mitigated the impact of international sanctions against Russia. IMOEX was up 0.48% at 2,203 with energy giants Gazprom and Novatek leading the gains along with Sberbank, food retailer Magnit and a gold producer Polyus.  Internet company Yandex fell, as did online marketplace Ozon. Ruble has also weakened for a fourth straight day despite the ongoing tax period, which normally causes exporters to sell foreign currency. USDRUB and EURRUB are mostly flat this morning with USDRUB trading around 60.70 and EURUB 61.60. 10-year benchmark ruble bond yields were up 0.2% at 8.16%. Russian Central Bank reported that foreign holdings in OFZ Russian local bonds stood mostly unchanged at 2.77 trillion rubles. In corporate news, the second largest aluminium producer, Rusal, which was sanctioned by the West, announced a plan to place bonds for 2 billion yuan with maturity of 5 years and coupon guidance of not higher than 5%.

Bunds open weaker retracing trend from yesterday. The 10Y touched a high of 0.97% before dropping to 0.96%, 1bp down day-on-day. Peripherals mirrored the move on bunds with a relatively weak open;10Y BTPs yields went as high as 3.29% before retreating to 3.26%, 3 basis points firmer intraday. Stocks advanced as investors analysed corporate earnings reports whilst preparing for FOMC meeting which will throw more light on Feds monetary policy direction. Consequently, the Stoxx 600, opened higher at 428.03 compared to previous session’s closing of 426.13.

SSA opens mostly flat following a late sell-off that saw at least a 1pt-drop on Tuesday. NGERIA flat at the open following a 2.25pt slide as the space’s underperformer on Tuesday. ZAMBIN (+0.50pts) continues from Tuesday’s 1-pt gain (the only gains on Tuesday) amid continued positive remarks from the Chinese about debt restructuring; the President, Hakainde Hichilema, also said that an announcement regarding the solution to the country’s debt woes would be announced as soon as next week.

Activity in the Nigerian local Secondary Market for Bonds was tepid amid a fragile system liquidity. We saw mixed performance across the curve with improved offers on the short to mid end while the long end remained stable.  Intraday, average yields were lower by 1bp across board.  Consequently, FGN 26s closed at an offer rate of 11.35%,2 basis points up from previous level of 11.33% while 50s closed at an offer rate of 13.40%, same as previous days level. Activity in the Secondary Market for Treasury bills was slow as weakness in money market liquidity persisted. Consequently, discount rates on 6th of June 2022 SPEB & 8th of November 2022 OMO were at 11.65% and 8.98% respectively. Market is expected to remain slow pending cash injections via OMO maturities, Bonds coupon payments and FAAC hit the system. Finally, the exchange rate between the naira and the US dollar closed at N424.38/$1 at NAFEX compared to previous session’s level of N423.67/$1, a depreciation of circa 0.17%.