Last week, the European Central Bank (ECB) cut interest rate by 25bps to 3.50 percent from 3.75 percent in June, marking the second rate cut for the year. The ECB considered the decline in the inflation rate, which fell to 2.20 percent YoY in August. Thus, bringing the inflation rate closer to the bank’s 2.00 percent target rate.
Additionally, the slower economic growth evinced by lower GDP growth in Q2:2024 (+0.60percent YoY) influenced the ECB decision. Looking ahead, we expect the ECB to further monitor movement in macro-economic indicators in making decisions at its next meeting.
Meanwhile, the Bank of Ghana reported a decline in the country’s inflation rate to 20.40 percent in August, down from 20.90 percent recorded in July. This marks the fifth consecutive decline in inflation. We attribute this to a slowdown in food prices (like milk, oil and fats, fruits and nuts), as food inflation eased to 19.10 percent YoY in August vs 21.50 percent YoY in July.
Contrarily, non-food inflation increased slightly to 21.50 percent, up from 20.50 percent in July. Also, imported inflation rose from 15.60 percent to 16.10 percent in July 2024. On a MoM basis, the inflation rate declined by 0.70 percent vs. 2.40 percent (marking the first monthly decline this year). We expect inflation to continue its downward trend in the near term, hinged on the government’s continuous effort to ease food prices. Also, we expect that the Bank of Ghana will maintain its accommodative stance as inflation remains significantly above its target band of 6.00 percent to 10.00 percent.
In the domestic scene, data from the National Bureau of Statistics (NBS) reported a trade surplus of N6.95 trillion in Q2:2024 (compared to N5.20 trillion in Q1:2024), representing the highest gains since 2014FY (N8.93 trillion). During the period, total exports grew by 1.31percent QoQ to N19.42 trillion (vs. N19.17 trillion in Q1:2024).
This was primarily attributed to the Naira depreciation, which increased the value of exported items. Also, total imports fell by 10.71percent to N12.47 trillion (vs. N13.97 trillion in Q1:2024) due to lower demand, and driven by the elevated exchange rate environment. Going forward, we expect a sustained trade surplus in the near term as the higher exchange rate environment continues to dampen import figures. However, fluctuations in crude oil prices may impact the value of exports.
Furthermore, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) reported an increase in crude oil production to 1.35mbpd in August (vs. 1.31mbpd in July). This uptick was driven by higher output across some terminals – Bonny (4.89mbpd vs 4.58mbpd), Brass (0.72mbpd vs 0.66mbpd), Forcados (8.13mbpd vs 6.81mbpd). Meanwhile, terminals like Qua Iboe (3.07mbpd vs 3.34mbpd) and Escravos (4.21mbpd vs 4.39mbpd) recorded declines. We anticipate improved oil production in the near term hinged on positive reforms within the oil and gas sector and the government’s ongoing effort to tackle oil theft and pipeline vandalism.
Also last week, the local bourse closed on a positive note, as the NGXASI gained 1.06 percent WoW to settle at 97,456.62pts, thus bringing the year-to-date (Ytd) performance to 30.34 percent . This positive performance was driven by buying interest on large-cap tickers – ACCESSCORP (+2.39 percent) and MTNN (+7.37 percent).
Across sectors, performance was largely bullish, as NGXCNSMRGDS (1.47 percent WoW), NGXINS (1.59 percent WoW), NGXINDUSTR (0.17 percent WoW), NGXBNK (5.12 percent WoW), and NGXOILGAS (2.00percent WoW) closed in the green zone.
At the T-bills PMA held during the week, the CBN offered a total of N161.88 billion, lowered by 30.62 percent (vs. N233.31 billion at the last auction). Similarly, the total subscription declined by 50.14 percent to N563.17bn (compared to N1.13trn at the previous auction). Total allotment stood at N161.88 billion (vs. N233.31 billion).
As a result, the stop rate across trio instruments declined by 37bps, 50bps, and 35bps to 16.63 percent, 17.00 percent, and 18.59 percent (vs. 17.00 percent, 17.50 percent, and 18.94 percent) for the 91-day, 182-day and 364-day instruments, respectively. At the fixed-income secondary market, average T-bills declined to 20.76 percent (vs 22.47 percent recorded in the previous week), while average bond yield increased to 16.80 percent (vs 16.60 percent in the previous week).
In the Eurobonds market, a bearish sentiment prevailed last week, as the average yield increased to 9.95 percent (vs. 9.91 percent in the previous week). This was driven by sell bias across the curve. Notably, the shorter-dated instruments – SEP-28 and MAR-29, witnessed the highest price declines ($88.85 and $95.59 vs. $89.24 and $95.96, respectively).
