macroafricaintel | [#StopTheKillings] Is Africa prepared for the next global financial crisis?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Volatility is back in global financial markets. In early February, Denver-based American hedge fund, Ibex Investors, with just $350 million assets under management, made US$17.5 million on a US$200 thousand VIX wager, an 8,600% return. How come? It bought insurance to protect it when markets go haywire; a farfetched scenario at the time. But they eventually did; on 5 February. More than expected wage growth data in early February raised expectations that the American Federal Reserve would hike interest rates at a faster pace than earlier thought. Bond yields shot up consequently. Expectedly, equity markets took a hit; as the cheap debt hitherto fueling their rally was about to start getting dear. Higher inflation expectations were confirmed almost two weeks afterwards, when American inflation data for January came out at 2.1 percent, 20 basis points above the consensus estimate of 1.9 percent. A week later, hawkish Fed minutes confirmed the fears of market participants. Prior to the release of the minutes, the Fed led markets to believe there would probably be about three rate hikes in 2018. Afterwards, some economists began to suggest there could even be as much as five rate hikes. This is probably extreme. But such varying views, fears and sharp market reactions are evidence of what has been missing from the markets since global central banks starting flooding them with easy money in the aftermath of the 2007-08 global financial crisis: volatility.

Unprepared
In tandem with the Fed, the Bank of England is similarly on a tightening cycle. And the European Central Bank has already signalled monetary contraction could come as early as 2019, even as it has already started paring down its quantitative easing (QE) programme. The Bank of Japan has also started to reduce its asset purchases. Does that mean the end of easy money, though? Not really. At 1.5 percent, American money is still relatively cheap. And even in England, where consumer inflation (3 percent in January) is already above the much sought after 2 percent target of other global central banks, the BOE rate is just 0.5 percent. Emerging markets (EMs), which have been huge beneficiaries of QE, need to start preparing for a post-QE world, however. This is because as interest rates start to rise in advanced economies, as they already have, there is going to be an increasing opportunity cost to allocating capital to EMs. Even so, still attractive EM yields would continue to make the carry-trade too tempting to ignore. But the party will not last forever, surely. At some point, there would be a sharp market correction, as yields rise in response to tighter global monetary policy. When that time comes, emerging and frontier markets, particularly African ones, not already prepared might suffer damaging shocks.

Andrew Alli, president & chief executive of Lagos-based Africa Finance Corporation (AFC) highlights why African markets might be at risk: “Many African countries have run down their reserves and/or borrowed significantly since the financial crisis and, as such, don’t have as much “fiscal space” as they did prior to the last financial crisis. Also their macro positions – deficits/inflation etc – have worsened.” Wale Okunrinboye, fixed income and currency specialist at Ecobank, the pan-African bank, corroborates his view: “Reserve levels across most countries have declined markedly across board as fiscal and current account pressures increased reserve drawdowns across most oil exporters whose economies went into recession….[so] SSA economies at the present appear lightly equipped to deal with [another] global financial crisis.” This was not always the case. In the run-up to the [2008-9] global financial crisis, helped by [the] commodity price rally, [ample] FX reserve levels…alongside relatively low debt levels and high economic growth rates, helped [African] countries deploy countercyclical measures to temper spillover shocks, Ecobank’s Okunrinboye adds. Some African countries have been taking precautions, though. For instance, Kenya sought and secured a 2-year US$1.5 billion standby credit facility from the International Monetary Fund (IMF) in March 2016. It has not had cause to use it; that is, even as the prolonged presidential elections last year could have triggered a need to do so. For such arrangements to achieve their confidence-boosting utility, however, the respective authorities would have to be very transparent: there were revelations in February that the buffer had actually not been available to Kenyan authorities since June 2017. The IMF provided clarification to news agency Reuters in February on why it stopped the authorities’ access for that long: “the programme has not been discontinued but access was lost in mid-June because a review had not been completed”, said Jan Mikkelsen, the IMF representative for Kenya. Still, market participants might not consider such arrangements to be entirely iron-clad in the future.

Still limited exposure
As commodity prices have been rising, could squandered foreign exchange reserves accrete in time before any potential crisis? Mr Okunrinboye gives a comprehensive explanation: “Though [commodity] prices have rebounded, they remain at discounts to levels seen during the commodity super-cycle”. So, wide current account deficits still persist. “Furthermore, capital pressures lurk on the horizon, as a search for yield [which] drove heightened portfolio inflows to SSA capital markets, [caused] significant asset price inflation.” Thus, hurried hot money exits in the event of another global financial crisis are likely to fuel exchange rate pressures. “[And] following an expansion in debt levels [by African economies due to QE], fiscal leg-room appears narrow relative to the last GFC; even as elevated inflation has forced many of these economies into hawkish positions with little choice but to tighten [even more in the event of sudden] currency pressures.” [So, even as] a host of SSA economies are now entering into structural reform programs with the IMF, the overall sense is that they seem lightly prepared for another event of a similar scale.” Even so, it is not entirely improbable that they could come out again largely unscathed. According to AFC’s Alli, “Africa’s general lack of exposure to global trade flows (<3%)” is one reason why.

(An edited version was published by African Business magazine in March 2018)

#Africa #Markets | 20 Jul

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Asia stocks unnerved by yuan slide, heightened trade war fears
  • MSCI Asia-Pacific index choppy, Hang Seng down over 0.5 pct
  • Spreadbetters expect European stocks to open lower
  • China state banks seen buying yuan after its fall to 1-yr low
  • Dollar sags after Trump shows displeasure towards Fed’s hikes

Oil Markets

  • Oil prices rise as concerns about oversupply ease
  • Brent up 0.3 pct at $72.80 (0034GMT)
  • US WTI crude futures up 0.7 pct at $69.97 per barrel

Precious metals

  • Gold prices slip for 6th session as dollar trades near 1-yr high
  • Spot gold down 0.3 pct at $1,218.72 an ounce (0352GMT), may test support at $1,204.45/oz
  • US gold futures down 0.5 pct at $1,218.30/oz

Grains

  • Corn set for biggest weekly gain in almost 3 months on strong demand
  • Most active CBOT corn contract up 3.1 pct for the week, the most since week ending 27 Apr
  • Most active soybeans gained 3.6 pct for the week, their biggest since 25 May
  • Most active wheat futures up 1.8 pct for the week, recouping some of last week’s deep losses

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • Mozambique president Filipe Nyusi in Rwanda for 3-day visit; arrived Kigali yesterday (19 July)
  • South Korean prime minister Lee Nak-Yeon in Kenya for 2-day visit; arrived Nairobi yesterday (19 July)
  • Key focus on China’s Xi trip across the African continent; in South Africa on 24 July for BRICS summit

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Congo’s Kabila says election on track but stays mum on own future
  • US judge sets plea change for Algerian who recruited ‘Jihad Jane’
  • Investor group opposes General Electric plans for Kenyan power plant
  • US lets Somali immigrants stay 18 more months
  • North Korea, Eritrea have world’s highest rates of modern slavery – report
  • Mystery Egypt sarcophagus found not to house Alexander the Great’s remains
  • Africa Crude – Angolan crude sells quickly due to open arbitrage
  • South Africa’s rand retreats after lending rate unchanged, stocks steady
  • South Africa cenbank holds rates; sees inflation up, growth down
  • Guinea’s mining minister says there will be Simandou deal, talks go on
  • Egypt’s EFG-Hermes to buy Nigerian broker in frontier market push
  • Nigeria Wema Bank to sell 20 bln naira debt to boost capital ratio
  • Saudi oil exports to drop by about 100,000bpd in Aug – OPEC governor
  • Senegal convicts 13 for attempt to establish jihadist cell
  • Italian PM calls for EU body to coordinate migrant arrivals
  • Ethiopian Airlines says it is in talks for stake in Eritrean Airlines
  • As Sudan currency continues descent, inflation hits 64 pct in June
  • Cameroon arrests four soldiers suspected of executing women and children
  • South African reserve bank leaves repo rate unchanged at 6.5 pct
  • Ghana introduces higher income tax band to shore up revenue
  • Amid Kabila stand-off, Congo parliament extends privileges to former presidents
  • Kenyan shilling seen on back foot, others steady; in week ahead
  • Nigeria to need up to $300 mln for new national carrier – document
  • Freed Mauritanian anti-slavery activists vow to keep fighting
  • Uganda shilling a touch firmer as banks pare positions
  • Eritrean troops withdraw from Ethiopian border – Eritrean press agency
  • Zambia to share data on austerity measures with IMF – finmin
  • Ethiopian Airlines says in talks with to purchase stake in Eritrean Airlines
  • South African pharmacy Dis-Chem bolstered by solid sales growth in March-June
  • Steinhoff says around 90 pct of creditors support debt lock-up
  • Kenyan shilling weakens, undercut by oil importer demand
  • South Sudan’s Kiir says ready to accept peace deal
  • Kenyan court temporarily suspends “Robin Hood” tax on bank transfers
  • Namibia nets $218 million loan from African Development Bank
  • Ango American reports 6 pct rise in Q2 output
  • Alphabet to deploy balloon internet in Kenya with Telkom in 2019
  • Ethiopia appoints ambassador to Eritrea – Fana TV 

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 20 Jul

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

(GMT+1)

CALENDAR
07:00 Germany PPI MoM 
09:00 Spain Balance of Trade 
13:30 Canada Core Inflation Rate YoY 
13:30 Canada Retail Sales MoM 
13:30 Canada Inflation Rate MoM 
13:30 Canada Inflation Rate YoY 
01:00 Argentina G20 Fin Ministers and CB Governors Meeting 
08:00 Turkey Consumer Confidence 
09:15 Nigeria Inflation Rate YoY 
13:30 US Chicago Fed National Activity Index 
15:00 Euro Area Consumer Confidence Flash 
15:00 US Existing Home Sales MoM 
15:00 US Existing Home Sales 
01:30 Japan Nikkei Manufacturing PMI Flash
NEWS
Thailand Import Growth Slows 
Thailand Exports Rise Less than Estimated 
Thailand June Trade Surplus Larger than Expected 
New Zealand Tourist Arrivals Decline in June 
Argentina Retail Sales Gain Steam 
US Stocks Close Lower on Trump’s Fed Comments 
European Stocks Close Lower on Trade Tensions 
Colombia Trade Deficit Widens in May 
Colombia Imports Rise 21.1% YoY in May 
Brazil Business Confidence Improves in July 
South Africa Leaves Monetary Policy Unchanged 
South African Rand Falls Ahead of Policy Decision 
Philadelphia Fed Manufacturing Index Above Forecasts 
Indian Rupee Hits All-Time Low

Source: Trading Economics, Macroafricaintel Research

#Africa #Markets | 19 Jul

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Asian shares rise on US earnings but trade worries rattle yuan
  • S&P 500 index at 5-mth peak on solid US earnings
  • Asian shares gain but lack market-lifting catalysts
  • China markets lag, yuan hits 1-yr low on tariff issues

Oil Markets

  • Oil prices extend gains, buoyed by unexpected drop in US gasoline stocks
  • Brent crude futures up 0.1 pct at $72.98 per barrel (0043GMT)
  • US WTI crude futures up 0.3 pct at $68.96 per barrel

Precious metals

  • Gold inches higher as US dollar eases
  • Spot gold up 0.1 pct at $1,227.55 an ounce (0058GMT)
  • US gold futures for August delivery little changed at $1,227.40 an ounce

Grains

  • Soybeans edge higher; wheat pauses after recent gains
  • Most active CBOT wheat futures unchanged at $4.94-1/2 per bushel (0101GMT)
  • Most active corn futures up 0.1 pct at $3.61-1/4 per bushel
  • Most active soy futures up 0.2 pct at $8.59 per bushel
  • Most active rice futures up 0.7 pct at $11.91 per hundredweight

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • Ghana mid-year budget review today
  • South Africa’s central bank to announce interest rate decision [fcst. 6.5%, prev. 6.5%]

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • North Korea, Eritrea have highest rates of modern slavery – report
  • Too good to be true? Slum graffiti warns Kenyans about trafficking risks
  • Airbus inks deal to sell passenger planes to Uganda
  • Egypt determined to find Italian student’s killers – Sisi
  • Guinea’s mining minister says there will be Simandou deal, talks go on
  • Ethiopia asks Saudi for year’s worth of fuel, with payment delayed
  • Africa Crude – Nigerian loading programmes trickle out
  • South African rand dips on dollar resurgence, stocks rise
  • Ghana’s economy seen up to 40 pct bigger after data overhaul – officials
  • Nigerian police say 8 Boko Haram suspects confess to Chibok abduction
  • Light rail line in Nigeria’s capital opens to passengers
  • South Africa gold producers offer single-digit pay hikes to unions
  • Nigeria’s Senate to investigate “anomalies” in renewal of oil leases
  • Nigeria plans re-launch of national airline in December
  • Steinhoff extends ‘early bird’ lock-up fee deadline for second time
  • Equatorial Guinea targets CHC Helicopter in compliance crackdown
  • Flags, flowers greet first Ethiopia-Eritrea flight in 20 years
  • Obama urges Africa to do more to stem brain drain
  • Migrant rescue boat aims for Spain with bodies, shunning Italy
  • Kenya to launch Nairobi financial centre later this year – finmin
  • South Africa’s retail sales up 1.9 pct y/y in May
  • Ugandan shilling weakens as demand from energy, manufacturing firms weigh
  • Egypt remittances expected to rise nearly 50 pct to $26 bln for FY 2017-18
  • South Africa’s CPI rises to 4.6 pct y/y in June
  • UN says global fight against AIDS is at “precarious point”
  • Kenya shilling strengthens on tourism and horticulture inflows
  • Ethiopia says reforms “to unleash private sector”

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 19 Jul

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

(GMT+1)

CALENDAR
07:00 Switzerland Balance of Trade 
09:30 UK Retail Sales YoY 
09:30 UK Retail Sales MoM 
09:30 UK Retail Sales ex Fuel MoM 
09:30 UK Retail Sales ex Fuel YoY 
10:00 Indonesia Interest Rate Decision 
11:00 Ireland GDP Growth Rate YoY 
11:00 Ireland GDP Growth Rate QoQ 
13:30 US Philadelphia Fed Manufacturing Index 
14:00 South Africa Interest Rate Decision 
14:00 US Fed Quarles Speech 
15:00 Brazil Business Confidence 
00:30 Japan Inflation Rate MoM 
00:30 Japan Core Inflation Rate YoY
NEWS
Dutch Jobless Rate Steady at 3.9% in June 
Australia Jobless Rate Holds at 6-Month Low of 5.4% 
Japan Imports Rise Only 2.5% YoY 
Japan June Trade Surplus Larger than Expected 
Jamaica Inflation Slows Down to 2.8% YoY 
European Shares Gain on Earnings 
US Crude Oil Inventories Rise in Latest Week 
Russia Producer Inflation at Near 7-Year High 
Russia Wages Rise More than Expected in June 
Russia Jobless Rate Holds Steady at Record Low 
US Building Permits Unexpectedly Fall in June 
US Housing Starts at 9-Month Low 
South Africa Retail Sales Rise 1.9% YoY in May 
US Mortgage Applications Drop in Latest Week: MBA

Source: Trading Economics, Macroafricaintel Research

#Africa #Markets | 18 Jul

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Japan stocks bounce as yen bows before strong dollar
  • Nikkei hits 1-mth peak as dollar climbs on yen
  • Fed’s Powell sticks with gradual rate hikes
  • Gold sinks to 1-yr lows, oil eases on inventories

Oil Markets

  • Oil prices fall after surprise rise in US inventories
  • Brent crude futures down 0.6 pct at $71.76 a barrel (0027GMT)
  • US WTI crude futures down 0.4 pct at $67.82 per barrel

Precious metals

  • Gold prices steady as dollar firms after Fed comments
  • Spot gold largely unchanged at $1,227.16 an ounce (0047GMT)
  • US gold futures for August delivery little changed at $1,227 an ounce

Grains

  • Wheat jumps more than 1 pct to hit 8-day high
  • Most active CBOT wheat futures up 1.4 pct at $5.04-3/4 per bushel (0104GMT)
  • Most active corn futures up 0.7 pct at $3.62-1/4 per bushel
  • Most active soy futures up 0.8 pct at $8.62 per bushel
  • Most active rice futures unchanged at $12.01 per hundredweight

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • Mandela Day in South Africa today; Ramaphosa to attend centenary celebrations in Eastern Cape province
  • Nigeria to unveil national airline today
  • South Africa inflation data for June expected [fcst. 4.6% yy, prev. 4.4%]
  • South Africa’s central bank MPC meeting enters day 2; decision tomorrow
  • Nigeria’s Buhari to wrap up trip to The Netherlands & The Hague

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Tunisia approves illegal enrichment law to strengthen anti-corruption fight
  • Two migrants die on boat left adrift by Libyan coast guard – charity
  • Guinea’s mining minister says there will be Simandou deal, talks go on
  • Algerian militant suspect expelled by France will be retried – sources
  • Bullet wounds and little aid for Cameroonians fleeing Anglophone conflict
  • South Africa’s Solidarity union to agree wage deal with Eskom – source
  • Obama says world should resist cynicism over rise of strongmen
  • Migrants in Libya face rising threat from ‘stronger’ gangs and traffickers
  • Africa Crude – Traders await Nigerian loading programmes
  • Universal Music Group to open Nigeria division
  • Egypt names first five state companies to float shares under privatisation scheme
  • South Africa’s rand retreats as bears await rate decision; stocks up
  • Kenya Power CEO, senior managers granted bail
  • Kenya launches investigation into rhino deaths
  • Egypt targest social media with new law
  • Nigeria’s Buhari sends $750 mln supplementary budget to lawmakers
  • Prince Harry and Meghan visit Nelson Mandela tribute in London
  • Dubai’s Emaar Properties says to double investments in Egypt
  • Tullow Oil may halt Kenyan oilfield operations due to protest
  • Angola to export 47 crude cargoes in Sept., adds new grade
  • Almost 300 Malians killed this year in militia clashes – UN
  • Egypt’s parliament passes $11 billion sovereign wealth fund
  • Kenyan shilling firms as banks seek local currency to meet regulatory rules
  • South Africa’s Amplats, PIC create venture fund to lift PGM industrial demand
  • South African consumer confidence dips, but still higher than expected – survey

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 18 Jul

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

(GMT+1)

CALENDAR
09:00 South Africa Inflation Rate YoY 
09:30 UK Inflation Rate MoM 
09:30 UK Core Inflation Rate YoY 
09:30 UK Inflation Rate YoY 
10:00 Euro Area Inflation Rate MoM 
10:00 Euro Area Core Inflation Rate YoY Final 
10:00 Euro Area Inflation Rate YoY Final 
10:00 Euro Area Construction Output YoY 
13:30 US Housing Starts MoM 
13:30 US Building Permits MoM 
13:30 US Housing Starts 
13:30 US Building Permits 
14:00 Russia Unemployment Rate 
15:00 US Fed Chair Powell Testimony
NEWS
Malaysia June Inflation Rate at Near 3-1/2 Year Low of 0.8% 
Thailand Car Sales Jump 25.9% in June 
Australia Leading Economic Index Flat in June 
Panama Economic Activity Growth Falls to Near 9-Year Low 
US Stocks Close Higher on Tuesday 
US Treasury International Capital Flows Beat Expectations 
Argentina Inflation Rate at Over 2-Year High 
European Shares Gain on Powell Testimony, Earnings 
Angola Cuts Interest Rate to 16.5% 
Colombia Consumer Morale Highest Since 2015 
Fed Chair Sets Positive Tone for the Economy 
US NAHB Housing Market Index Steady in July 
Senegal Industrial Output Falls the Most in 10 Months 
Cape Verde Inflation Rate Rises to 9-Month High in June

Source: Trading Economics, Macroafricaintel Research