Weekly Commentary – 12th April 2024

Foreign Exchange Reserves

The usable foreign exchange reserves stood at USD 7,291 million (3.80 months of import cover). This falls short of CBK’s statutory requirement to endeavour to maintain at least 4.0 months of import cover as well as the EAC region’s convergence criteria of 4.5 months of import cover.

Currency

The Kenyan Shilling appreciated against the Dollar, the Sterling Pound and the Euro to exchange at KES 130.35, KES 163.88 and KES 140.08 respectively. The observed appreciation against the Dollar is attributed to the increased foreign inflows.

Liquidity

Liquidity in the money markets increased, with the average inter-bank rate decreasing from 13.76% to 13.37%, as government payments more than offset tax remittances. Remittance inflows totalled $407.80 million in March 2024, a 5.68% increase from $385.90 million in February 2024 and a 14.23% rise from $357.00 million in March 2023. Open market operations remained active.

Fixed Income

T-Bills

T-Bills remained over-subscribed during the week, with the overall subscription rate increasing to 192.78%, up from 118.65% recorded in the previous week. The 91-day T-Bill received the highest subscription rate at 410.43% while the 182-day T-Bill and 364-day T-Bill had subscription rates of 105.64% and 192.86% respectively. The acceptance rate increased by 7.41% to close the week at 98.80%.

T-Bonds

In the secondary bond market, there was a higher demand for the week’s bond offers. Bond turnover increased by 65.28%, from KES 10.05 billion in the previous week to KES 16.61 billion. Total bond deals decreased by 10.61% from 509 in the previous week to 455.

Eurobonds

In the international market, yields on Kenya’s Eurobonds increased by an average of 0.31% compared to the previous week, 0.35% month-to-date and decreased by 0.67% year-to-date. The yields on the 10-year Eurobonds for Angola and Zambia also increased. Below is a summary analysis of performance for individual bonds.

Equities

NASI, NSE 20, NSE 25 and NSE 10 settled 2.41%, 1.33%, 2.27% and 2.37% lower compared to the previous week, bringing the year-to-date performance to 20.29%, 14.32%, 22.84% and 25.24% respectively. Market capitalization also lost 2.42% from the previous week to close at KES 1.73 trillion, recording a year-to-date increase of 20.28%. The performance was driven by losses recorded by large-cap stocks such as Stanbic, Co-operative, Safaricom and ABSA of 6.73%, 5.02%, 3.42% and 3.21% respectively.

The Banking sector had shares worth KES 792.5B transacted which accounted for 57.56% of the week’s traded value, the Manufacturing and Allied sector had shares worth KES 170.9M transacted which represented 12.41% and Safaricom, with shares worth KES 379M transacted, represented 27.59% of the week’s traded value.

Alternative Investments

Global and Regional Markets

The US stock market closed the week in the red zone, as investors assessed the unexpected earnings reports from major banks and escalating tensions in the Middle East. Banking giants like JPMorgan Chase, Wells Fargo and Citigroup all reported earnings that fell short of expectations, citing high-interest rates as a negative factor impacting their net interest income.

The European market was volatile during the week, as investors grappled with conflicting signals from central banks and geopolitical uncertainties. The European Central Bank (ECB) kept interest rates unchanged at its April meeting and hinted at a possible easing of monetary tightening in June if inflation continues to slow down as projected. This dovish stance stands in stark contrast to the Federal Reserve’s expected path, with evidence of persistent US inflation pushing back market bets on a rate cut until September. Additionally, the market was pressured by increased Dollar buying due to geopolitical turmoil.

Asian stock markets closed the week on a downward trajectory, fueled by deepening concerns over the Chinese economy. Consumer prices in China remained sluggish in March, indicating weak domestic demand. Furthermore, producer prices continued to fall for the past 18 months, raising deflationary fears.

Week’s Highlights