Foreign Exchange Reserves
The usable foreign exchange reserves stood at USD 7,375 million (4.06 months of import cover). This meets CBK’s statutory requirement to endeavor to maintain at least 4.0-months of import cover but still falls short of EAC region’s convergence criteria of 4.5-months of import cover.
Currency
The Kenyan Shilling depreciated against the Dollar, the Sterling Pound and the Euro to exchange at KES 140.40, KES 179.08 and KES 154.17 respectively. The observed depreciation against the Dollar is attributed to a high demand for the currency, which has caused a market shortage.
| Currency | YTD Change | W-o-W Change |
|---|---|---|
| Dollar | 13.76% | 0.38% |
| Sterling Pound | 20.41% | 1.07% |
| Euro | 17.10% | 1.50% |
Liquidity
Liquidity in the money markets tightened, with the average interbank rate increasing from 9.57% to 9.97%, as tax remittances more than offset government payments. Open market operations remained active.
| Liquidity | Week (previous) | Week (ending) |
|---|---|---|
| Interbank rate | 9.57% | 9.97% |
| Interbank volume (billion) | 8.72 | 25.42 |
| Commercial banks’ excess reserves (billion) | 65.90 | 92.00 |
Fixed Income
T-Bills
T-Bills remained under-subscribed during the week, with the overall subscription rate recorded as 63.91%, down from 94.18% performance recorded in the previous week. The 91-day T-Bill received the highest subscription rate at 275.34% while the 182-day T-Bill and 364-day T-Bill had a subscription rate of 19.89% and 23.35% respectively. The acceptance rate increased by 113.06% to close the week at 99.70%.
T-Bonds
In the secondary bond market, there was a higher demand for the week’s bond offers. Bond turnover increased by 319.44% from KES 4.06 billion in the previous week to KES 17.01 billion. Total bond deals increased by 189.19% from 296 in the previous week to 856.
In the primary bond market, CBK reopened the 3-year Treasury Bond; FXD1/2022/03, through a tap sale which sought to raise KES 15 billion. The issue was over-subscribed receiving bids worth KES 18.56 billion, representing a performance of 123.73%. Of these, KES 18.55 billion worth of bids were accepted at an average yield of 14.23%.
Eurobonds
In the international market, yields on Kenya’s Eurobonds decreased by an average 0.06% compared to the previous week, 1.24% month to date and increased 0.27% year to date. The yields on the 10-Year Eurobonds for Angola and Ghana increased. Below is a summary analysis of performance for individual bonds.
| Bond | YTD Change | M-o-M Change | W-o-W Change |
|---|---|---|---|
| 2014 10-Year Issue | -0.26% | -2.87% | -0.47% |
| 2018 10-Year Issue | 0.58% | -0.89% | 0.09% |
| 2018 30-Year Issue | 0.16% | -0.50% | 0.06% |
| 2019 7-Year Issue | 0.42% | -1.63% | 0.02% |
| 2019 12-Year Issue | 0.28% | -0.82% | -0.05% |
| 2021 13-Year Issue | 0.43% | -0.76% | 0.00% |
Equities
NASI, NSE 25 and NSE 20 settled 6.87%, 1.13% and 3.12% higher compared to the previous week bringing the year to date performance to -15.78%, -5.55% and -13.43% respectively. Market capitalization gained 6.89% from the previous week to close at KES 1.67 trillion recording a year to date decline of 15.83%. The performance was driven by the gain recorded by large-cap stocks such as Safaricom of 17.45%.
The Banking sector had shares worth KES 450.3M transacted which accounted for 45.22% of the week’s traded value, Manufacturing & Allied sector had shares worth KES 130.3M transacted which represented 13.09% and Safaricom, with shares worth KES 325.9M transacted represented 32.73% of the week’s traded value.
Top Gainers and Losers in the Equities Markets
| Top Gainers | YTD Change | W-o-W |
|---|---|---|
| Express | -13.61% | 17.65% |
| Safaricom | -27.023% | 17.45% |
| Umeme | 135.29% | 10.34% |
| Kapchorua Tea | 32.18% | 8.51% |
| Eaagads | 23.81% | 8.33% |
| Losers | YTD Change | W-o-W |
|---|---|---|
| Trans-Century | -27.27% | -19.10% |
| E.A Cables | -4.71% | -11.96% |
| Unga | -46.88% | -10.53% |
| Olympia | 13.18% | -9.46% |
| Kenya-Re | -3.21% | -8.59% |
Alternative Investments
| Week (previous) | Week (ending) | % Change | |
|---|---|---|---|
| Derivatives Turnover (million) | 6.97 | 1.20 | -82.84% |
| Derivatives Contracts | 9 | 19 | 111.11% |
| I-REIT Turnover (million) | 0.47 | 0.14 | -71.10% |
| I-REIT deals | 54 | 31 | -42.59% |
Global and Regional Markets
| Global Markets | YTD Change | W-o-W |
|---|---|---|
| S&P 500 | 13.71% | -1.39% |
| Dow Jones Industrial Average (DJI) | 1.79% | -1.67% |
| FTSE 100 (FTSE) | -1.22% | -2.37% |
| STOXX Europe 600 | 4.37% | -2.93% |
| Shanghai Composite (SSEC) | 2.61% | -2.30% |
| MSCI Emerging Markets Index | 3.05% | -3.70% |
| MSCI World Index | 11.59% | -2.03% |
| Continental Markets | YTD Change | W-o-W |
|---|---|---|
| FTSE ASEA Pan African Index | -6.25% | -1.97% |
| JSE All Share | 1.13% | -5.35% |
| NSE All Share (NGSE) | 14.75% | 0.35% |
| DSEI (Tanzania) | -4.28% | -1.41% |
| ALSIUG (Uganda) | -17.13% | -2.49% |
US indices edged lower this week, due to investors’ growing concerns about potential interest rate hikes. These concerns were fueled by Federal Reserve Chair Jerome Powell’s testimony before Congress, where he indicated the possibility of future rate increases in the coming months, despite the Fed’s recent interest rate pause decision. As a result, investors remained cautious as they closely monitor the market’s potential implications of higher interest rates.
European stock markets ended the week lower, as investors reacted negatively to significant interest rate hikes by major central banks, including the Bank of England (BOE), Norges Bank and Swiss National Bank. Concerns about rising inflationary pressures also influenced market sentiment. Furthermore, concerns about the repercussions of extended tightening cycles on the global economic recovery accentuated, particularly in light of growing fears of a UK recession following the BOE’s unexpected 50 basis point rate hike.
Asia Pacific indices closed the week red, as investor concerns about China’s sluggish economic growth outweighed the positive impact of a central bank interest rate cut. Investor sentiment was further affected by caution ahead of Federal Reserve Chair Jerome Powell’s testimony, which exerted downward pressure on the markets.
On the global commodities markets, Crude Oil WTI and ICE Brent Crude closed the week 3.65% and 3.60% lower at $69.16 and $73.85 respectively. Gold futures prices settled 2.11% lower at $1929.60.
Week’s Highlights
- The government approved the conversion of the country’s debt ceiling from KES 10 trillion to a debt anchor based on a percentage of gross domestic product (GDP). With the support of the International Monetary Fund (IMF), this decision removed the final obstacle to Kenya’s alignment with global best practices. The Public Debt and Privatisation Committee authorized a debt anchor threshold of 55% of GDP in present value terms. Furthermore, the committee allowed a buffer of up to 5% to accommodate the existing debt threshold to GDP, which currently stands at 60%.
- The National Treasury gazetted the actual revenues and expenditures for the 11-month period of the 2022/23 financial year, ending 31st May 2023. Total revenue collected during the month amounted KES 1.81 trillion, accounting for 84.58% of the original estimate of KES 2.14 trillion for the financial year. This figure falls short of the prorated amount of KES 1.96 trillion expected for the first 11 months of the 2022/23 financial year. Total expenditure amounted KES 2.60 trillion, translating to 73.45% of the original estimates. The deficit was plugged by a total KES 791.97 billion in financing.
- The draft National Retirement Policy, proposed by the Retirement Benefits Authority (RBA) includes a review of the current Post-Retirement Medical Benefits Policy. The existing policy presents challenges as retirees often lose their employer-provided medical insurance and obtaining new coverage becomes challenging and expensive due to age-related health risks. Additionally, the existing retirement schemes lack the necessary structures to support the aging population. To address these issues, the government, in collaboration with the RBA and other stakeholders, plans to consider transiting from voluntary to mandatory contributions from members and sponsors of post-retirement medical funds, as well as improve the regulatory framework and educate members on the importance of saving for post-retirement medical coverage.
- South Africa’s annual inflation rate declined to a 13-month low of 6.3% in May 2023, down from 6.8% in April and below market expectations of 6.5%. This brings it closer to the upper limit of the South African Reserve Bank’s target range of 3%-6%. The slowdown was primarily driven by lower inflation rates in categories such as food and non-alcoholic beverages, transportation particularly fuels, household contents & services, alcoholic beverages & tobacco and recreation & culture. Additionally, the annual core inflation decreased to 5.2% in May, aligning with market estimates. On a monthly basis, consumer prices rose by 0.2%, the lowest in four months, falling short of market projections.
- The Bank of England surprised the market by raising its policy interest rate by 50 basis points to 5.0% in June, marking the 13th consecutive rate hike. This decision, aimed at combating persistent inflation, exceeded expectations of a smaller rate increase. Borrowing costs now stand at their highest level since the 2008 financial crisis. Policymakers remain committed to additional rate hikes if inflationary pressures persist. Recent data showed British inflation holding steady at 8.7% in the year to May, surpassing predictions of a modest decline to 8.4% and remaining well above the target of 2%. Core inflation also reached a 31-year high at 7.1%, marking its highest level since March 1992. The Bank of England’s series of rate hikes, initiated over a year and a half ago, represents the fastest policy tightening in over three decades.
- The S&P Global/CIPS UK Composite PMI declined to 52.8 in June 2023 from 54.0 in the previous month, falling short of market expectations but indicating the 5th consecutive month of private-sector growth. The divergence between the services and manufacturing sectors persisted, with service providers showing slower growth while factories experienced an accelerated decline. Despite this, new work continued to increase, though at varying rates across industries. Financial services aided the recovery in the services sector, while manufacturers struggled with low demand and customer destocking. For the third month in a row, job creation has been positive. Reduced demand and improved supply chains eased average cost burdens, particularly for manufacturers. Overall, firms retained their optimism about the future.
- The HCOB Eurozone Composite PMI declined to 50.3 in June 2023 down from 52.8 in the previous month, reaching its lowest level since January and falling below market expectations of 52.5. This indicates a significant deceleration in private sector expansion, primarily driven by slower growth in the services sector and a deepening downturn in manufacturing. New orders experienced a decline for the first time in five months, employment growth slowed and backlog of work decreased notably. Input costs rose at the slowest pace since December 2020, while average selling prices saw the weakest increase since March 2021. Moreover, business optimism regarding the future dropped to its lowest level this year, reflecting concerns about demand growth and the potential impact of higher interest rates.
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