U.S. equities drop as investors gauge central banks’ monetary policy risks

U.S. stocks declined on Friday, as Investors digested more hawkish commentary out of the Fed Reserve with the prospect of potentially sticking with its aggressive monetary policy tightening as it battles high inflation. Subsequently, Dow Jones declined 0.9% to finish at 33,706.74, S&P 500 declined 1.3% to finish at 4,228.48 while Nasdaq 100 declined 2% to finish at 12,705.22. The 10-year yield Treasury advanced 11 basis points to 2.987%. Gold spot price declined 0.5% to $1,762.90 per ounce while WTI crude oil price increased $0.34 to $90.45 per barrel. On the data front, US new home sales, S&P Global PMIs is due Tuesday. Also, US durable goods, MBA mortgage applications, pending home sales is expected on Wednesday. US GDP, initial jobless claims reports will be released on Thursday. And Finally, US consumer income, PCE deflator will be out on Friday. Meanwhile, Fed Chair Powell speaks at Jackson Hole on Friday.

Bunds open slightly stronger retracing trend from Friday. The 10Y touched a high of 1.22% before dropping to 1.19%, 3bps down day-on-day. Peripherals mirrored the move on bunds with a relatively strong open;10Y BTPs yields went as high as 3.49% before retreating to 3.48%, 1 basis point firmer intraday. Stocks declined as traders analysed direction of Monetary Policy and concerns over economic recovery. Consequently, the Stoxx 600, opened lower at 432.30 compared to previous session’s closing of 437.36. Meanwhile, ECB’s July minutes is due Thursday.

We seem to have kicked off this week from where we left off last week as the space opens weaker. ANGOL (-.75) and NGERIA (-.55) were heavy on risk last week with RM selling into the street. This trend seems to have continued into the opening. More details to be confirmed on Nigeria inching towards an IMF bailout on its mounting debts, it will be interesting to see how the curve reacts to this new development going forward (into the rest of the week). We did mention the outperformance seen from KENINT (-.175) post elections result last week, with its curve steepening and driven by RM for the front end of the curve. It is likely that this trend will continue if the results contest stays within the legal system framework. As at the end of last week, the likes of BENIN (-.25) did hold up better in the Eurobonds space with RM and HF demand while the likes of IVYCST (-.375) and SENEGL (-.50) saw more sellers from both RM and HF.

Bearish sentiments in the Nigerian local Secondary Market for Bonds worsened amid a feeble system liquidity level. We saw renewed improved offers across the entire curve. Intraday, average yields were up 15 basis points across board.  Consequently, FGN 25s closed at an offer rate of 13.00%, 35bps up from previous level of 12.65% while 42s closed at an offer rate of 14.20%, 3 bps up from previous level of 14.17%. Activity in the secondary Market for bonds may remain bearish until next month when over N300bn of coupon payments is expected to hit the system. Activity in the Secondary Market for Treasury bills was toned down as Money Market liquidity remained relatively weak. Most of the activity hovered around OMO and SPEB maturities.  Consequently, discount rates on 12th of September 2022 SPEB & 20th December 2022 OMO were at 12.30% and 11.35% respectively.  Finally, the exchange rate between the naira and the US dollar closed at N428.36/$1 at NAFEX compared to previous session’s level of N427.88/$1, a depreciation of circa 0.11%.