Weekly Commentary – 9th June 2023

Top Gainers and Losers in the Equities Markets

• Kenya has shortlisted four banks, namely Citigroup, JP Morgan, Standard Bank and Standard Chartered Bank, as potential lead arrangers for its planned return to the global financial markets in the 2023/2024 fiscal year. This move is aimed at alleviating pressure in settling its forthcoming $2.0 billion Eurobond maturity. The selection process commenced in April, initiated by the Treasury’s request for expressions of interest from international lead managers to oversee the issuance of a sovereign bond. Economic challenges, including unfavorable global financial conditions and rising yields, led the government to postpone its initial plan of issuing another Eurobond in the current financial year.

• The Stanbic Kenya PMI reached a four-month high of 49.4 in May 2023, indicating a slight improvement but still reflecting the fourth consecutive month of contraction. Despite a softer decline in output and new orders, sales were adversely affected by the cost of living crisis and limited purchasing power. However, firms managed to slightly increase inventories as a precautionary measure against potential price hikes and supply shortages. Stockpiling efforts were supported by improved supplier delivery times for the second consecutive month. Additionally, hiring activity picked up in May, resulting in the fastest growth in employment numbers since November 2021.

• Old Mutual, Zimele and CIC have secured regulatory approval from the Retirement Benefits Authority (RBA) to handle Tier II contributions from employers who opt out of the National Social Security Fund (NSSF). These contributions will be managed through Old Mutual Pensions, Zimele Personal Pension Plan & Zimele Guaranteed Personal Pension Plan and CIC Umbrella & CIC Jipange Retirement Benefit Schemes.

• The Organisation for Economic Co-operation and Development’s (OECD) June Economic Outlook indicates a modest improvement in the global economy, although the recovery is expected to be weak. The 2023 GDP growth forecast has been slightly revised upward to 2.7%, while the outlook for 2024 remains unchanged at 2.9%. The report highlights ongoing risks, including the war in Ukraine and inflation concerns. Factors that aided energy demand reduction this year, like a mild European winter, may not be repeated next year. The US economy is projected to grow at 1.6% in 2023, slowing to 1% in 2024 due to tight monetary and financial conditions. In the Eurozone, declining inflation is expected to boost real incomes and contribute to an increase in GDP growth. China is anticipated to experience strong GDP growth following the lifting of the zero-COVID policy.

• The Food and Agriculture Organization (FAO) Food Price Index reached a 2-year low of 124.3 in May 2023, with notable declines in vegetable oil and cereal prices. Vegetable oil prices fell for the 6th consecutive month, driven by decreases in palm, soy, rapeseed and sunflower oils. The decline in cereal prices was attributed to declined wheat prices. On the other hand, meat prices rose for the 4th consecutive month, driven by increased demand for poultry and bovine meat. Sugar prices extended their upward trend, amidst concerns over the impact of the El Niño phenomenon on future crops and lower-than-expected global availabilities.

• The S&P Global US Composite PMI remained stable at 54.3 in May 2023, indicating the fastest expansion in business activity in over a year. The service sector was the main driver of growth, compensating for weaker manufacturing production. Despite a significant decline in overseas goods trade, total new business continued to rise, employment showed solid growth and backlogs of work decreased. Additionally, there was a relief in inflationary pressures.

• The Eurozone Composite PMI was revised downward to 52.8 in May 2023, signalling a growth slowdown with the weakest expansion in three months. Manufacturing production declined sharply, while services activity continued to grow at a slower rate. Total new business almost stagnated, with export sales falling for the 15th consecutive month. Job creation remained solid but weaker than in April. Cost pressures eased and business sentiment weakened to a five-month low.

• In the UK, the Bank of England raised the bank rate to 4.5% in May 2023, marking the twelfth consecutive increase as part of the fight against double-digit inflation. Borrowing costs reached their highest level since 2008. The central bank expects inflation to decrease to 5.1% in Q4 2023 and aims to achieve the 2% target by late 2024. The economy is projected to stall in Q1 and Q2 but is anticipated to grow by 0.25% in 2023, showing improvement compared to the previous contraction. Government budget measures are expected to contribute 0.5% to GDP. Policymakers will closely monitor signs of persistent inflationary pressures, including labor market conditions, wage growth and services price inflation. Further monetary policy tightening may be necessary if evidence of sustained pressures emerges.