Macro Analysis /

Mozambique’s $20bn LNG project unlikely to be online before 2027

  • Forex: Derivatives market signals Egyptian pound drop ahead of IMF review

  • Fixed Income: Investors pull funds from emerging market ETFs for a fifth straight week

  • Macroeconomic: The big reset sees markets pricing in a US terminal rate at 5%, almost 100bps lower than one week ago

Alexa Archibald
Alexa Archibald

Commodities Analyst

Takudzwa Sherekete
Kieran Siney
ETM Analytics
14 March 2023
Published byETM Analytics


Oil prices remain under pressure this morning, with the Brent front-month contract testing a break below the $80 per barrel handle as it extends yesterday’s losses of more than 2.40%. The collapse of SVB continues to ripple through the markets, with oil unable to escape the spillover effects. This has seen fundamentals take a bit of a back seat at the moment, meaning that today’s release of OPEC’s monthly market report and tomorrow’s IEA snapshot may have little impact on the market. However, one release that may move the markets is the US CPI figure, which could keep crude under pressure should we see some strong numbers when the market is pricing out rate hikes, given the financial market stability concerns.


Kenya: A document on the World Bank's website showed that Kenya and the lender had increased the amount under discussion for a potential budget support loan this fiscal year by a third to $1bn. That compares with an earlier figure of $750mn. The loan still requires the approval of the bank's board. It is expected to make a decision before the end of Kenya's current financial year on June 30. The lending instrument is a Development Policy Operations loan, which is tied to a pre-agreed policy area.

Kenya: The Tea Board of Kenya reported that Kenya's earnings from tea exports in 2022 increased despite a drop in volumes, as its currency weakened against the US dollar and the prices of the commodity improved. Kenya recorded an increase in shipments of 1.5% to KES 138bn ($1.07bn) last year. The average price of the leaves at Kenya's auction jumped 18.6% to $2.49 per kilogram in 2022. Additionally, the weakening of the Kenyan shilling by over 9% against the US dollar in the period helped the country's key export generate more foreign currency. The earnings rose even as volumes of the shipments declined 19% to 450.3mn kilograms, the first drop since 2017.

Mozambique: TotalEnergies has indicated that it will not export LNG from Mozambique before 2027 at the earliest as it considers whether to restart a project halted two years ago by an Islamic State-linked insurgency. Stephane Le Galles, the project manager, said, "from the time we restart to production, we need another four years to build the facility. That means exports of liquefied natural gas would only begin in 2027 at best." TotalEnergies halted the project in April 2021 after IS-linked rebels raided a nearby town, killing dozens of people. The resumption of the $20bn project is seen as crucial to Mozambique's economic future and has gained greater global significance after Russia's invasion of Ukraine forced European nations to seek alternative supplies of fuel.

Mozambique: The World Bank Vice-President for Eastern and Southern Africa said that the lender will support the development of Mozambique's giant natural gas resources if it's the cheapest way to boost energy access. The lender in 2019 stopped financing oil and gas extraction projects, aside from "exceptional circumstances" where projects in the poorest countries help connect more people to energy. According to the Vice-President, "our view is that we can support it if there are no other options that are least cost, and this is in the context of a clearly articulated transition plan." Over a decade ago, Mozambique discovered some of the biggest natural gas reserves on the continent. Projects to exploit them have been held up by a $2bn debt- fuelled state corruption scandal and an Islamic State-linked insurgency. International funding has also been targeted by environmental groups that oppose the development of fossil fuels.

Angola: Local reports citing the central bank indicate that Angola's foreign direct investments increased to $6.87bn in 2022 from $6.53bn in 2021, supported by higher capital flow into the oil industry. The oil industry accounted for around 97% of the FDIs in 2022. Meanwhile, non-oil FDIs dropped to $197.6mn from $248.5mn over the period.

Nigeria: Data from the Nigerian Bureau of Statistics showed that Nigeria collected NGN 21trn ($45.6bn) from the sale of crude oil last year. The amount was up 46.41% from the previous year. A breakdown of the data showed that Nigeria sold NGN 5.6trn worth of crude oil in Q1, 2022, and NGN 5.9trn in Q2. Sales fell to NGN 4.6trn in Q3 and NGN 4.91trn in Q4 amid rising oil theft. The Netherlands was the top buyer, followed by Indonesia. While the sale of crude oil rose in 2022, low production and theft prevented Nigeria from fully capitalizing on the higher-than-expected oil prices last year.

Forex: Derivatives market signals Egyptian pound drop ahead of IMF review

Ahead of the first review of the International Monetary Fund’s program this month, the currency derivative market is signalling a deeper slide in the Egyptian pound even after three devaluations over the past 12 months have wiped out almost half of the currency’s value. The country’s real effective exchange rate is now also around 24% cheaper than its 10-year average. Bloomberg data shows that the 1- and 12-month non-deliverable forward contracts recorded their 10th week of losses in the five days through Friday, the longest such streak in data going back to 2007. In another measure of expectations for a devaluation, Commercial International Bank’s depository receipts on the London Stock Exchange are trading at a 14% discount to their shares in Cairo.

Egypt is again struggling to clear out billions of dollars of imports that have remained blocked at its ports. That has created an unfulfilled demand for hard currency which is pressuring the Egyptian pound. Against a backdrop of worsening foreign exchange scarcity and doubts over progress in pursuing asset sales, the government has said that it will begin the process of offering two military-affiliated companies this week and is planning to put forward another four large firms.

Ultimately the market is of the view that despite the inflation risk, a weaker pound would help ease pressure on Egypt’s balance of payments and make the funding gap more manageable. Moreover, it would further show a commitment towards a more flexible exchange rate, which was a key factor in securing the IMF deal.

Fixed Income: Investors pull funds from emerging market ETFs for a fifth straight week 

The rout in emerging market assets persisted last week, with investors withdrawing funds from US-listed ETFs that buy emerging market stocks and bonds for a fifth straight week. Weekly data published by Bloomberg on Monday showed that investors pulled $273.3mn from US-listed EM ETFs in the week ending 10 March. While this was less than the losses of $712.9mn recorded in the previous week, the impact of the SVB crisis on EM assets wouldn’t be fully reflected in the data as the rout continued on Monday.

A breakdown of last week’s data shows that the net outflows were concentrated in ETFs that hold primarily stocks. Bloomberg reported that US-listed stock ETFs fell by $448.6mn last week. Interestingly, despite the risk-off conditions, US-listed bond funds recorded a net inflow of $176.3mn last week as bonds gained on the back of the reset in US interest rate expectations. South Korea had the biggest outflow, while Taiwan had the most significant inflow.

While there was a net outflow from EM ETFs last week, US-listed ETFs that invest in African assets rose last week. The biggest inflow was into South African ($16.7mn) ETFs, followed by Egypt ($5.0mn), Nigeria ($3.8mn) and Kenya ($1.7mn). While it is encouraging that African ETF recorded net inflows last week, primarily driven by the reset lower in US interest expectations, global risk appetite continued to deteriorate on Monday amid concerns that more stress is to follow after the failure of Signature Bank and SVB. Investors are facing a dichotomy of falling US interest rate expectations and contagion risks associated with the US banking crisis, which is weighing heavily on global risk sentiment.

Macroeconomic: The big reset sees markets pricing in a US terminal rate at 5%, almost 100bps lower than 1 week ago

It was another day of chaos for financial markets on Monday as traders scaled back on bets for additional rate hikes amid the turmoil that has erupted in the US banking sector. At one point on Monday, the 2yr US Treasury had shed almost 60bps to briefly trade below the 4.00% mark, the lowest level in 5 months and marked the sharp three-day decline in more than three decades. Adding to the tailwinds for US Treasuries were the risk-off conditions, which saw investors dump equities and rotate into haven assets. Equity counters were a sea of red while cryptocurrencies soared, with Bitcoin gaining 15bps on the day. African currencies were mixed, with the BWP and ZAR leading the gains while the MWK and MUR leading the losses.

The big talking point for investors was the move in the US Fed Fund Futures market, which is used to gauge market-implied interest rate expectations. Futures contracts referencing the upcoming FOMC meetings showed that traders now see a US terminal rate of around 5.00%, which is almost 100bps below the levels seen early last week when Fed Chair Powell delivered his hawkish testimony to the Senate.

The significant repricing in rate-hike expectations underpins the notion that the financial stability risks will take preference over above-target inflation at next week’s meeting. These expectations are formed on the back of the Fed’s bold response to the SVB crisis when it announced a new bank lending facility on Sunday. The market has viewed this move as putting the Fed bank in the business of emergency lending.

While much of the focus is centred on the banking crisis, we have some important economic data out of the US today, which could prompt another repricing in Fed Fund Futures. Inflation data prints out of the US have been pivot points for markets, and the February report is unlikely to be any different. There is significant two-way risk heading into the US CPI release. A downside surprise will bolster bets for a hold at next week’s meeting, while a strong print will underpin bets for a 25bps hike. Given the turmoil surrounding the banking sector, an outsized 50bps is unlikely next week.