Monthly Market Commentary – July 2024

MONTH’S HIGHLIGHTS

• Inflation decreased to 4.32% in July from 4.64% in June. This was primarily attributed to lower food, electricity and fuel prices. The food and non-alcoholic beverages index declined 0.5%, driven by decreased food prices. Despite an increase in gas prices, the housing, water, electricity, gas and other fuels index decreased by 0.4%, mainly due to lower electricity and kerosene prices. Additionally, the transport index dropped by 0.1%, driven by a decrease in petrol and diesel prices.
• Moody’s and Fitch Ratings downgraded Kenya’s creditworthiness from B3 to Caa1 and B to B- respectively. This downgrade was attributed to the government’s decision to withdraw the Finance Bill 2024, which aimed to increase taxes to address the country’s burgeoning debt. The rating agencies expressed concerns about Kenya’s weakened fiscal position, limited access to international funding and increased reliance on domestic borrowing as key factors influencing the downgrade.
• Kenya finalized an agreement with the UAE that grants preferential market access for Kenyan goods, further solidifying its trade momentum following a similar deal with the European Union. This comes after a remarkable first quarter of 2024, where Kenyan exports to Asia increased by 76.4% year-on-year. This growth was fueled by a surge in shipments of tea, goat meat and jet fuel to both Saudi Arabia and the UAE.
• The Japanese International Cooperation Agency (JICA) allocated a Kshs 1.85 billion grant to Kenya Power to expand electricity access nationwide. This funding will facilitate Phase V of the Last Mile Connectivity Project, benefiting over 9,000 households in Nakuru, Kilifi, Nyandarua and Kwale counties. Building on the momentum of Phase IV, which began two months ago with the signing of 26 contracts with partners including the European Investment Bank and the French Development Agency, the project aims to connect a total of 280,000 new customers to the grid by November 2025.
• The Federal Reserve held interest rates steady at 5.25%–5.50% for the eighth consecutive meeting in July, maintaining its hawkish stance. While acknowledging progress in curbing inflation, the central bank remains cautious, emphasizing the need for continued rate stability until price pressures are consistently under control. The Fed signaled a potential for future rate cuts but stressed that the timing and extent of such moves will depend on incoming economic data, particularly inflation trends.
• The Caixin China General Manufacturing PMI declined to 49.8 in July from 51.8 in June, indicating a contraction in factory activity for the first time since October 2023. This downturn was primarily driven by a sharp decrease in new orders as demand weakened both domestically and internationally. Purchasing activity also contracted, leading to inventory adjustments. While employment remained relatively stable, output growth slowed.
• Euro Area GDP growth remained steady in the second quarter of 2024, expanding by 0.30%. While this marks a continuation of the region’s economic recovery, it falls slightly below the long-term average of 0.37% since 1995. The Euro Area experienced significant volatility during the pandemic, reaching a peak of 11.70% growth in the third quarter of 2020 and a trough of -11.10% in the second quarter of the same year.