Weekly Commentary – 26th May 2023

Top Gainers and Losers in the Equities Markets

• The International Monetary Fund (IMF) recently reached an agreement with the Kenyan government on economic policies and reforms that would provide the country with critical financial assistance. The current Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements, as well as a new arrangement under the Resilience and Sustainability Facility (RSF), were all reviewed. Kenya received a USD 544.3 million increase in access under the ECF and EFF, which was extended by 10 months to April 2025 to allow the government to accomplish the IMF program objectives. The new 20-month RSF will operate concurrently with the ECF/EFF and will provide up to USD 544.3 million in funding for long-term structural climate resilience and adaptation. The third accord, which is still subject to IMF board approval in July, will see Kenya immediately receive USD 410 million, bringing the total IMF financial support disbursed under the ECF and EFF arrangements to USD 2,017 million. The IMF’s entire commitment under these arrangements stands at USD 3.52 billion.

• The Central Bank of Kenya has reported an ease on the country’s Eurobond yields despite the downgrade from Moody’s Investors Services to a B3 rating from the previous B2 rating. The declining trend in yields means that if the government rebounds to the international financial markets, it can potentially access external financing at more favorable terms. Kenya’s Eurobond in the foreign market fell by 0.83%, indicating a long-term improvement in investor sentiment. The International Monetary Fund (IMF) recently reaffirmed the country’s financial and monetary status, relieving investor concerns and causing the yield to fall.

• The Central Bank of Kenya (CBK) released the 2022 Bank Supervision Annual Report. According to the report, despite challenging business and operating conditions, the banking industry has proven to be resilient, posting a good 2022 performance with an overall sectoral profit before tax of KES 240.40 billion, a 22% increase, attributed to higher increase in total income compared to total expenses. Furthermore, due to increases in loans and advances, the banking sector’s asset base increased by 10% to approximately KES 6.6 trillion in 2022.

• South Africa’s annual inflation rate fell to 6.8% in April, down from 7.1% in March 2023, surpassing expectations of 7.0% but still above the SARB’s target range of 3%–6%. The observed improvement in inflation was due to a slower rise in transportation, restaurant and hotel prices as well as household content and service prices. Core inflation, excluding food, non-alcoholic beverages, fuel and energy rose to 5.3% in April, up from 5.2% in March, in line with market expectations. Consumer prices rose by 0.4% in April, down from 1.0% in March and barely shy of the 0.5% increase predicted. The South African Reserve Bank (SARB) raised interest rates by 0.5% to 8.25%, exceeding market expectations of 0.25%. Borrowing costs have risen to their highest level since May 2009. The main reasons for the upward adjustment were the Rand’s depreciation and inflationary pressures.

• The People’s Bank of China held its medium-term policy rate at 2.75%, prompting key lending rates to be held steady for the ninth month running and meeting analysts’ expectations. The one-year Loan Prime Rate (LPR), which is the medium-term lending facility used for corporate and household loans, was kept at 3.65%, while the five-year rate, a reference for mortgages, was unchanged at 4.30%. In April, factory output, retail sales and fixed asset investment all grew at a slower pace, falling below economists’ estimates.

• The US economy grew more than expected in the first quarter of 2023. Gross Domestic Product (GDP) increased at an annual rate of 1.3% in Q1 2023, slightly higher than the 1.1% recorded in the advance estimate and exceeding experts’ projections of 1.1%. Despite high inflation, the increase in real GDP represented growth in consumer spending, exports, federal government spending and non-residential fixed investment. Private inventory investment and residential fixed investment, on the other hand, fell. As exports outpaced imports, net external demand contributed positively to GDP. Despite an upward revision, the GDP in Q1 2023 remained the lowest since Q2 2022.

• In the United Kingdom (UK), the Consumer Price Index (CPI) fell to 8.7% in April 2023, down from 10.1% in March 2023, falling short of the Bank of England’s aim of 2% but above market estimates of 8.2%. The reported decrease is due to a substantial reduction in electricity and gas costs, which increased by 24.3% compared to 85.6% in March. Housing and utility inflation fell to 12.3% in April from 26.1% in March. Food and alcoholic beverage inflation was 19.0%, up from 19.1% in the previous month, while transportation prices increased 1.5% up from 0.8%. Core inflation, excluding food and energy increased to 6.8% the highest rate since March 1992 and higher than analysts’ expectations of 6.2%. UK policymakers will more than likely continue to hike interest rates to curb inflationary pressures.

• The S&P Global/CIPS UK composite PMI dropped to 53.9 in May 2023, down from 54.9 in April and falling short of market expectations of 54.6. Private sector output increased significantly, while manufacturing sector output fell for the third consecutive month due to weak orders and client destocking. Corporate clients’ budget constraints, increased economic uncertainty and higher borrowing prices were identified as impediments to growth. The HCOB Flash Euro-area composite PMI slipped to 53.3 in May 2023, down from 54.1 in April, falling short of expectations of 53.7. Despite uneven economic development, private sector activity increased for the fifth month in a row. The services sector increased from 55.9 to 56.2, while industrial production decreased from 45.8 to 44.6. As demand growth nearly stalled, output growth outpaced new orders to the highest level since February 2009. Optimism in the UK and Eurozone fell to its lowest level since February 2023 as concerns about decreasing client demand and rising interest rates grew.