Finance news write -ups for regulus

The US Dollar (USD) stays on the back foot early today following yesterday’s volatile action. After having reached its strongest level in three weeks near 102.50 yesterday, the DYX reversed its direction and closed below 102.00, snapping a three-day winning streak. Heavy losses seen in the regional banking stocks amid resurfacing fears over a deepening financial crisis following the collapse of the First Republic Bank triggered a flight to safety. In turn, the benchmark 10-year US Treasury bond yield fell more than 4% and caused the USD to lose its strength. The Fed is widely expected to raise its policy rate by 25 basis points (bps) to the range of 5-5.25% after the May policy meeting. Investors will pay close attention to the US central bank's language in the policy statement and will try to figure out whether there will be a pause in the tightening cycle from June. ADP private sector employment report for April and the ISM's Services PMI survey will be featured in the US economic docket ahead of the US Federal Reserve's (Fed) highly-anticipated policy announcement later in the American session. Market participants will also pay close attention to the performance of regional banking stocks in the US after Tuesday's selloff. Fueled by the sharp decline seen in the US Treasury bond yields, Gold price surged higher on Tuesday and reached its strongest level since mid-April near $2,020. XAU/USD stays in a consolidation phase slightly below that level on Wednesday.

Today's main event is the FOMC meeting and according to Economists at Commerzbank in analyzing how the US Dollar and the EUR/USD pair could react to the Fed policy announcement, the market expects the Fed to hike rates by 25 bps resulting in a key rate corridor of 5.0%-5.25%. This step has been fully priced in by the market and will therefore not cause much of a reaction in the Dollar. Also, they added that, “following today’s step, the market sees no chance of a further rate hike. A moderately hawkish statement that refers to continued high inflation levels and does not exclude further tightening would make rate cuts this year seem less likely, meaning the market would have to adjust its expectations. This is likely to support the Dollar against the Euro, as it would tarnish the market’s conviction that the ECB is acting in a much more decisive manner than the Fed. As we consider it to be unlikely that the Fed will signal a rate pause at this stage, the risks in EUR/USD as a result of today’s Fed meeting are therefore rather pointing to the downside.”

On the other hand, according to Economists at ING, Positioning may stand against a further EUR/USD advance. They stated that “Our base case assumes that a 25 bps Fed hike and remarks that further hikes ‘may yet be required’ will not be enough to feed the EUR/USD bull story. This comes at a time when long Euro positioning amongst the asset management community is relatively high and on balance, we see EUR/USD correcting back to the 1.10 area on the FOMC event risk – but probably not much lower given the ECB meeting the next day. That again could prove mildly bearish for EUR/USD given we favour just a 25 bps hike.” After having lost more than 50 pips on Monday, EUR/USD reversed its direction late Tuesday and registered modestly daily gains. The pair trades in a relatively tight range above 1.1000 early Wednesday.

Ghana

The government borrowed ¢8.25 billion on the treasury market in the month of April 2023, 18.20% above its gross target. The funds were used to refinance maturities worth ¢6.3 billion. The 91-day and 182-day yields ticked higher at 19.95% (+56 basis points month-on-month) and 22.71% (+85 basis points month-on-month) respectively while the 364-day settled at 27.26% (+160 basis points month-on-month). Analysts perceive yields might settle lower at the end of May 2023 due to the improving economic outlook though there is scope for a further rise this week.

Meanwhile, government secured ¢2.06 billion from the sale of the short-term securities, about 30.4% oversubscription over the targeted amount of ¢1.585 billion Again, majority of the bids came from the 91-day T-bills as investors are mindful of the risk of the high interest payment. ¢1.530 billion were tendered by the investors in which all the bids were accepted. Also, ¢538.13 million of the 182-day bills were tendered, but ¢537.02 million were accepted.

On the bond market, trading activity on the local secondary bond market was down by 64.83% from the prior week. According to the trading results, the aggregate volume traded was estimated at ¢116.61 million and the decline in activity was partly due to a shorter trading week. On the new bonds, the front of the yield curve drove market activity, attracting 78.91% of the total volume traded. Analysts perceive a gradual rebound in market activity, as the Ghana Fixed Income Market (GFIM) worked with Bloomberg to resolve the valuation challenge, last week.

On the currency front, Cedi is trading in a tight range against the Dollar and pair is looking for a direction currently. Financing assurances from the official creditors committee should pave the path for IMF’s approval of USD 3 billion loan and should result in appreciation of the local unit. However, any further delay can bring additional pressure as the market is keenly eyeing resolution from IMF.

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