Written by: Lukman Otunuga, FXTM Research Analyst
In an
encouraging development, Nigeria’s inflation eased to 11.31% in February, down
from the 11.37% recording in January, despite increased government spending.
While it
remains too early to suggest the possibility of a rate cut anytime soon,
consistent signs of cooling inflation this year should encourage the CBN to act
by the final quarter of 2019. The initial argument against a CBN rate cut was
the fact that the Federal Reserve was on an aggressive hiking path. A potential
rate cut by the Central Bank of Nigeria was seen to be widening the interest
rate differentials between the Naira and Dollar. However, with the Fed seen
leaving rates unchanged for an extended period of time and even possibly
cutting rates by year-end, the CBN may be offered a window of opportunity to
stimulate economic growth further by cutting rates.
Will the Fed provide a
further boost to equities?
U.S. stocks
posted their best weekly performance last week, sending the S&P 500 above
the critical resistance level of 2,815. Equity bulls may see the break of the
technical resistance as an indicator of further expected gains, especially
given the CBOE’s Volatility Index “VIX” has fallen to its lowest level since
October 2018. Two factors have driven equity investors' optimism: hopes of a
resolution in the ongoing U.S.-China trade discussions and central banks’
pledge to keep supporting waning economies.
Bonds
markets however, seem to disagree. If the outlook is as rosy as equity
investors suggest, yields on the longer run of the Treasury Curve should have
been climbing. Instead, U.S. 10-year yields have fallen below 2.6% for the first
time since early January, suggesting that growth and inflation expectations
will remain weak for the foreseeable future.
Another
concern for the 3-month bull market is liquidity. The recent rally has not been
supported by strong inflows, indicating that fewer investors are participating
in this bull market. It remains to be seen whether equity or bond markets are
right; however, it doesn’t seem this is the most loved bull market.
Will the Fed’s patience
reflect in the dot plot?
The Federal
Reserve’s monetary policy meeting is likely to be the most significant risk
event for the week.
While it is
not expected to see changes in interest rates, investors are hoping for an
announcement to end the central bank’s balance sheet reduction. Such a move
could prolong the recovery in equity markets.
According to
Fed Fund Futures, markets do not just expect a zero chance of rising interest
rates on Wednesday, but are indicating a 26% chance of a rate cut by year-end.
It will be interesting to see if the Fed agrees with current market views. If
the dots on the dot plot are going to be dragged lower, this could attract new
selling opportunities for the USD, but Powell’s tone and his assessment of the
U.S. economy will also drive the currency.
Deal or no Deal?
The Bank of
England is also meeting this week, but this session is likely to be a
non-event, with the central bank not expected to make any changes to policy. In
fact, it’s the E.U. summit on March 21 – 22 that traders will need to keep an
eye on. Will E.U. leaders agree on extending the Brexit deadline, or will they
provide some further compromise before the March 29 deadline? If no agreement
is reached at this summit, the U.K. will be left with one option. A no-deal
Brexit!
Have you heard this? Many Nigerian exporters have been defrauded of huge amount of money in the process of exporting commodities to foreign countries. Do you know why? They were not trained on export operations, management, documentations and the best methods of payment in export trade. This is terrible!!! Nigerians cannot continue to lose money to foreigners in the course of export business. Exporters, why don’t you get a practical manual that teaches the stages of export trade from processing and packaging of commodities to receipt of payment by the foreign buyers. It teaches export operations, export management, export documentations and methods of payment in export trade? It is a contemporary step-by-step guide to export trade. It tells all the contemporary dynamics in export trade. To get it, click on the link below:
http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
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