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More Market Volatility Ahead as Virus Spreads

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By Hussein Sayed, Chief Market Strategist at FXTM

“Coronavirus deaths topped 500,000 worldwide”, is the first headline to grab investors’ attention this morning. The mission is unaccomplished and the virus is still winning the fight in several countries, particularly in the US, Brazil and India.

Hopes of a robust economic recovery following the pandemic are now shattered. The risks of re-imposing lockdowns are high, and monetary policy stimulus which explains most of the recovery in asset prices from the March lows will become less effective going forward if it doesn’t translate into a rebound in economic activity and better prospects for corporate earnings. Risk asset valuations remain elevated and the next few weeks ahead will tell us whether they will continue to hold or get bumped.

At this stage, there is a lack of visibility as even technical indicators share a similar view. The S&P 500 closed Friday 11 points below its 200-day moving average and is just hovering around the psychological 3,000 level. If the index trades for two to three days below these two benchmarks, that will attract more sellers and could drive the index 5 – 10% lower from current levels. However, holding above may have the opposite impact but that will lead to a further divergence from fundamentals, which in theory should not hold for long unless the Administration provides new fiscal stimulus plans.

The divergence is not just among asset prices and fundamentals, but also within assets themselves. US 10-year and 30-year treasury yields are sitting at one-month lows of 1.37% and 0.64% respectively, indicating there’s still huge demand for the safety of US government bonds. If yields on long term maturities continue to head lower that should mean the big players are reducing their risk exposure heading into the third quarter.

While the trajectory of the Covid-19 infections and deaths remains the most effective barometer for risk, investors need to keep an eye on several other factors this week.

The US job’s report will be released on Thursday instead of Friday due to the Independence Day holiday. Markets anticipate the headline figure will add three million jobs in June following 2.5 million added in May. Given the volatility in the employment data, we may see another surprise although a positive one is needed to prove that economic activity is gathering pace. Investors will also be focusing on Fed Chairman Jerome Powell when he testifies before the House Financial Service Committee tomorrow for any hints on new monetary policy measures, while also needing to closely scrutinize the FOMC minutes on Wednesday.

Longer-term, market participants need to keep an eye on US election polls. So far Joe Biden is leading by a significant margin and that doesn’t seem to be priced in yet. Biden made it clear that he will roll back Trump’s corporate tax reforms, and that requires substantial revisions for earnings expectations in 2021. If he continues to lead in the polls, expect a further pull back in stocks.


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E-Financial

Lagos State Appoints MoneyMaster as Payment Partner for “Ounje Eko” Programme

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“Ounje Eko”, the food price discount initiative of the Lagos State Government, has appointed leading payment service bank, MoneyMaster Payment Service Bank Limited (MMPSB), as its collaborator in the bid to ensure ease of payments at the market.

MoneyMaster is one of the Central Bank of Nigeria-licensed Payment Service Banks (PSBs) to promote financial inclusion across Nigeria.

Under the partnership, MMPSB will apply its cutting-edge payment solution to engender easy payment and reconciliation in order to make   the experiences of Lagosians who will be getting their food supplies from the markets pleasurable. Its payment solution is also all-encompassing and ensures real time value to payment destinations.

The mobile bank was appointed as the collection and payment partner for “Ounje Eko” Food Markets programme which is a government initiative serving the five divisions of Lagos State. Consequent on this, MoneyMaster Payment Service Bank will collect payments in 57 LCDAs in the state.

The partnership gives credence to the quality of payment solutions that MoneyMaster is reputed for in its services to its growing business clientele in private and public sectors.

 


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E-Financial

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

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Central Bank of Nigeria (CBN), is investigating irregular foreign exchange transactions and forward contracts valued at approximately $2.4 billion.

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

The  inquiry follows an extensive audit by Deloitte, which scrutinized $7 billion in dollar debts accumulated under the bank’s previous leadership.

In the aftermath of the 294th Monetary Policy Committee meeting in Abuja, Yemi Cardoso, governor of CBN,  disclosed to journalists that the investigation, supported by the Economic and Financial Crimes Commission, among other security bodies, aims to clarify the legitimacy of these FX allocations identified as problematic by the audit.

“It was determined that a number of these transactions did not qualify…they were outright illegal. The law enforcement agencies are now looking into those transactions that as far as we are concerned, are not valid to be paid,” Cardoso detailed, emphasizing the unlawful nature of these forex deals.

The crux of the investigation lies in the audit findings that a significant portion of the scrutinized transactions lacked proper documentation and, in many instances, were deemed outright illegal.

However, the unfolding investigation has raised concerns within the organized private sector, with some entities contemplating legal action against commercial banks for unresolved forex bids.

Despite these tensions, Governor Cardoso reassures that the foreign exchange market remains open and transparent, inviting stakeholders to address their forex needs through the official channels.

Furthermore, Cardoso clarified the distribution of fertilizers to farmers as a one-off measure and not indicative of a shift back to direct interventions by the CBN, underscoring a commitment to strategic, regulatory governance rather than direct market involvement.

 

 

 

 

 

 

 

 


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E-Financial

CBN Urges Banks to Expedite Action on Recapitalisation

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Central Bank of Nigeria (CBN) has directed deposit money banks in the country to expedite action to increase their capital base from the current ₦25bn.

CBN Urges Banks to Expedite Action on Recapitalisation

Olayemi Cardoso, governor of CBN

Olayemi Cardoso, governor of CBN, stated this during the apex bank’s 294th meeting of the Monetary Policy Committee (MPC) on Tuesday in Abuja, when the MPC hiked the interest rate by 22.75% to 24.75%.

The apex bank chief said the MPC examined developments in the banking sector and expressed satisfaction that the industry remained stable. The committee, however, said to guard against risk, commercial banks in the country should accelerate their recapitalisation efforts.

Cardoso said, “The MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines.

“The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”

 

 

 

 


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