US equities decline, bonds rise over worsening US-China tension

US stocks ended slightly lower on Monday after the Institute for Supply Management reported that its closely followed manufacturing gauge dipped to 52.8% in July from a reading of 53% in previous month. Subsequently, Dow Jones declined 0.1% to finish at 32,798.40, S&P 500 declined 0.3% to finish at 4,118.63 while Nasdaq 100 declined 0.2% to finish at 12,368.98. The 10-year yield on UST’s fell 4 basis points to 2.605% as demand for haven assets resurfaced due to fresh geopolitical strain emanating from Asia. Gold price increased $2.80 to $1,784.60 per ounce while WTI crude oil futures declined $4.73 to $93.89 per barrel. On the data front, US initial jobless claims, trade and US employment report for July reports are due Thursday and Friday respectively. Meanwhile, Chicago Fed President Charles Evans & St. Louis Fed President James Bullard are due to speak at separate events on Tuesday.

A second ship carrying grain is expected to depart this Tuesday from the Ukrainian port of Odessa. Ukraine laid out plans to cautiously ramp up grain exports within the first two weeks to be treated as a trial period, with no more than three cargo vessels a day in each direction though a safe-passage corridor.  At the same time US Secretary Blinken accused Russia of “reckless, dangerous nuclear rattling” and called on Russia to live up to its nuclear arms control commitments. On Monday Blinken pledged further support for Ukraine defences, including ammunition. Meanwhile, Russia’s Foreign Ministry banned another set of 39 British politicians, businesspeople, and journalists from entering the country, adding the names of Labour party leader Keir Starmer and former prime minister David Cameron. Russia’s equity market continued falling this Tuesday, as the price of oil dropped, and investors continued assessing Europe’s efforts to reduce its dependence on Russian gas. Both IMOEX and RTSE were down around 1% this morning and traded at 2,157 and 1,130 respectively. Russian ruble started August trading with a decline against the US Dollar following a 16.5% decline in July. Both USDRUB and EURRUB are presently trading flat at 60.23 and 61.37 respectively. The 10-year benchmark ruble bond yields were 1 bps lower at 8.23%. In economic news, Russia’s central bank estimated GDP contracted to 4.3% in Q2, a slightly deeper decline than seen earlier by the Economy Ministry. The economic contraction is now expected to continue until mid-2023.

Bunds open stronger retracing trend from yesterday. The 10Y touched a high of 0.75% before dropping to 0.69%, 6bps down day-on-day. Peripherals mirrored the move on bunds with a relatively strong open;10Y BTPs yields went as high as 2.78% before retreating to 2.73%, 5 basis points firmer intraday. Stocks declined amid worsening tension between the US and China over Taiwan coupled with concerns about a global economic recession. Consequently, the Stoxx 600, opened lower at 434.64 compared to previous session’s closing of 437.46. Meanwhile, Bank of England rate decision comes up on Thursday.

SSA opens comparatively muted as Brent drops sub-100. Oilers consequently subdued at the open with ANGOL flat having rallied 2.50pts on Monday; GHANA up 0.25pts however as it plays catch up having underperformed the past couple of sessions.

Activity in the Nigerian local Secondary Market for Bonds was slow amid a persisting feeble system liquidity. We saw improved offers across the curve. Intraday, average yields were higher by 4bps across board.  Consequently, FGN 27s closed at an offer rate of 11.70%,10 basis points up from previous level of 11.60% while 42s closed flat at an offer rate of 13.70%. Activity in the Secondary Market for Treasury bills was dull with few trades done as weakness in money market liquidity continued. We saw slight interest on the 21st of Feb 2023 OMO bills but few firm quotes. Consequently, discount rates on 3rd of October 2022 SPEB & 21st of February 2023 OMO were at 12.20% and 8.50% respectively.  Finally, the exchange rate between the naira and the US dollar closed at N426.20/$1 at NAFEX compared to previous session’s level of N427.17/$1, an appreciation of circa 0.23%.