Weekly Commentary – 29th October 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 9,175 million (5.61 months of import cover). This meets CBK’s statutory requirement to endeavor to maintain at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.

Inflation

Overall year-on-year inflation declined to 6.45% in October compared to 6.91% in September. This was attributed to a decline in the Transport index due to a drop in the price of diesel and petrol during the month.

Currency

The Kenyan Shilling depreciated against the Dollar, but appreciated against the Euro and the Sterling Pound. The weakening of the shilling is attributable to increased dollar demand from energy and merchandise importers.

	Week Before	Week After
Dollar	111.06	111.21
Euro	129.32	129.08
Sterling Pound	153.32	152.96

Liquidity

Money markets remained relatively liquid, supported by government payments which partly offset tax remittances.

Open market operations remained active.

	Week Before	Week After
Interbank rate	4.63%	4.92%
Interbank volume (billion)	11.63	10.16
Commercial banks’ excess reserves (billion)	13.30	15.80

Fixed Income

T-Bills

The T-Bills subscription rate remained under-subscribed. There was preference on the 182-day paper, attributable to better risk-adjusted return.

T-Bill	Yield (% Rate)		Subscription Rate
	Week Before	Week After	Week Before	Week After
Overall			74.23%	66.02%
91 day	7.02%	7.04%	163.01%	65.97%
182 day	7.42%	7.49%	65.33%	74.16%
364 day	8.36%	8.49%	47.63%	57.90%

T-Bonds

The bonds market had high demand for the week’s bond offers. Bonds turnover increased to Kshs 22.96 billion from Kshs 15 billion recorded in the previous week.

In the international market, yields on Kenya’s Eurobonds recorded a mixed performance. The 10 -year bond issued in 2018 decreasing by 0.1% points to 5.7%, from 5.8% recorded the previous week.

The yields on the 10-year bond issued in 2014, the 30-year issued in 2018, 7-year issued in 2019 and 12-year bonds issued in 2019 and 2021 remained relatively unchanged at 3.7%, 7.9%, 5.5%, 6.8% and 6.6%, respectively.

Equities

NASI and NSE 25 decreased by 0.32% and 0.36% respectively, while NSE 20 increased by 0.03%. Market capitalization also decreased by 0.17% to 2.78 trillion. The performance was driven by losses recorded by large-cap stocks. Top losses were recorded in Co-operative Bank of Kenya, East African Breweries Limited and KCB Group which declined by 1.96%, 1.92% and 0.57% respectively.

The Banking sector had shares worth Kshs 594M transacted which accounted for 30.48% of the week’s traded value, Manufacturing & Allied sector represented 14.71%, and Safaricom with shares worth Kshs 950M transacted, contributed 48.73%.

Top Losers	W-o-W
East African Cables	-11.11%
Eaagads	-9.09%
Sasini	-5.00%
Nation Media Group	-4.83%
Fahari I-REIT	-3.72%

Alternative Investments

	Week Before	Week After	% Change
Derivatives Turnover (million)	2.51	2.16	-13.96%
Derivatives Contracts	40	55	37.50%
I-REIT Turnover	0.02	0.41	1945%
I-REIT Deals	15	57	280%

Global and Regional Markets

Global Markets	W-o-W
S&P 500	1.33%
Dow Jones Industrial Average (DJI)	0.15%
FTSE 100 (FTSE)	0.46%
STOXX Europe 600	0.77%
Shanghai Composite (SSEC)	-0.98%
MSCI Emerging Markets	-2.20%
MSCI World Index	0.75%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	-0.53%
JSE All Share	0.47%
NSE All Share (NGSE)	0.66%
DSEI (Tanzania)	-1.31%
ALSIUG (Uganda)	-1.50%

European stocks closed the week higher, boosted by a swathe of positive earnings. However, the weaker than expected quarterly earnings from Amazon and Apple raised fears about the impact of global supply chain issues coming into the holiday season and focus is now on the October inflation data as well as the OPEC meeting scheduled for next week.

U.S. stocks ended the week higher as investors weigh whether momentum from the stock market’s record-breaking rally will continue in the last two months of 2021. Investors are also bracing for the looming unwind of a $120 billion-per-month Federal Reserve government bond buying program that has helped stocks more than double from their March 2020 lows. Many are also keeping a wary eye on ructions in the bond market, as well as worries over looming inflation and a debate over tax legislation in Washington.

Asia Pacific stocks closed the week down as investors continued to digest the latest, disappointing U.S. GDP earnings, as well as bond-market gyrations over continued inflation also contributed to the end-of-week and month downward trend.

On the global commodities markets, Crude Oil WTI closed the week low by 0.23% and the ICE Brent Crude decreased by 1.34%. Gold futures prices also declined by 0.69% to settle at $1,783.90.

Week’s Highlights

• The value of cash circulating outside the banking system decreased by 3% in August to Sh235.6 billion as Kenyans opted to save more money. This is the biggest month-on-month decline since the demonetisation exercise in 2019. Despite the drop in cash circulation, the average value of money in people’s pockets in the first eight months of this year has improved by 13.3% to Kshs 229.8 billion, mainly on a recovering economy.

• The Kenya Mortgage Refinance Corporation (KMRC) seeks to raise Kshs 10 billion from investors at the Capital Markets Authority through medium-term bond issuance to finance low-cost housing. The proceeds from the bond issue will go to banks and saccos for onward lending to homeowners at an annual interest of 5%. The bond will be issued once KMRC gets approval from the Capital Markets Authority.

• The Capital Markets Authority, Kenya Pension Funds Investment Consortium (KEPFIC) and Nairobi Securities Exchange (NSE) have signed a Memorandum of Understanding to support financing and development of infrastructure projects through capital markets. The Retirement Benefits Authority recently introduced infrastructure as a distinct investment category under the pension fund investment regulations. This MoU will leverage economies of scale, help in financing big-ticket infrastructural projects and provide an avenue for enhancing liquidity of KEPFIC investments through capital markets.

• The Nairobi Securities Exchange (NSE) will kick off day’s trading as from next month, following approval from the Capital Markets Authority. Day’s trading involves purchasing and selling a security within a single day or trading session or multiple times over the course of the day. This move will improve turnover, liquidity and trading activity at the bourse.

• EABL’s medium term bond sale was oversubscribed by 275% signaling improved investor confidence in the local bond market. The bond was issued at an interest rate of 12.25% payable semi-annually, for a period of five years. The bond will be listed for trading on the NSE as from November first.

• Cement consumption in Kenya rose to a ten-year high of 726,823 tonnes in July, boosted by construction of mega infrastructure projects such as the Expressway, Lamu Port and affordable housing projects. Real estate sector recovery also drove up the consumption.

• Nigeria has launched its Central Bank Digital Currency (CBDC), after involving stakeholders in the Banking, Fintech and Merchant sectors in designing it. The currency, which is among the first in the world, will advance the boundaries of the payment system thus making transactions easier and seamless. The authorities will ensure the digital cash is available to all and they have put measures in place to deal with any issues that might arise from the pilot implementation of the eNaira.

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