Macro Analysis /

Risk-off conditions prevail as cracks emerge in US banking sector

  • Ghanaian cedi outperforming broader African FX basket in March

  • Egyptian Eurobond yields surge as inflation quickens

  • Oil prices tumble as growth fears intensify and supply pressures ease

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

Kieran Siney
Kieran Siney

Head of African Markets

ETM Analytics
10 March 2023
Published byETM Analytics

Talking points:


There have been significant moves across bond markets overnight as panic surrounding the banking sector weighs on risk sentiment, prompting a rotation back into haven assets. The cracks emerging in the US banking sector have bolstered speculation that rate-hike bets had gone too far too fast. The risk-off conditions and the reset in interest rate bets have resulted in a significant drop in US Treasury yields. It must also be added that UST yields are at multi-decade highs, adding to the appeal of USTs to investors amidst renewed uncertainty. Treasury yields have continued to slide this morning, with the 2yr yield, for instance, down by almost 30bps since Wednesday’s close to trade at the lowest level in around 2-weeks. The sharp pullback in UST yields comes on the back of weak employment data out yesterday, which showed that the number of Americans filing for unemployment benefits unexpectedly swelled to the highest this year. Australian and New Zealand bond yields have followed UST yields lower this morning.


Kenya: Kenya's plan to nationalize oil imports faces legal challenges after four petitioners filed a case at the high court to stop the government's plan, saying it violates the constitution. The filing this week comes after the Energy Ministry advanced a government-to-government arrangement to take over fuel imports from private companies. That would effectively lock out non-public suppliers and "fails the principal test of equity and equality," according to the petition filed. If enacted, the policy shift envisages terms allowing the government to make payments after at least six months instead of within a week currently. The government designed the plan to help ease pressure on Kenya's foreign-exchange reserves, which have fallen to an equivalent of less than four months of import cover. A judge is expected to address the matter on Friday.

Egypt: The Central Bank of Egypt has reportedly sent investment banks a request for proposals to pitch for an advisory role in the sale of the United Bank of Egypt, which the central bank owns. According to a Reuters report citing sources familiar with the matter, several West-ern banks have received the request. The search for advisors comes after talks with Saudi Arabia's sovereign wealth fund to acquire United Bank failed after a disagreement over its valuation. Egypt is seeking to raise foreign exchange after experiencing heavy foreign investment outflows. United Bank is one of three banks the government placed on a list last month for potential sale, along with Arab African International Bank and Banque du Caire.

Tanzania: Consumer price inflation in Tanzania edged lower in February, coming in at 4.8% y/y from 4.9% y/y in January. The inflation report showed that food and non-alcoholic beverages inflation decelerated to 9.6% from 9.9% recorded in January. The annual inflation rate for all items without food and non-alcoholic beverages for February also slowed to 2.8% from 3.8%. While inflation eased in February, the monetary policy committee is set to remain steadfast in its resolve to continue implementing a less accommodative monetary policy stance, as communicated recently.

Republic of Congo: Ratings agency Fitch is set to provide a credit rating status on the Republic of Congo after market close today. At the last review in September, Fitch upgraded the DRC's long-term foreign-and-local currency issuer default rating to 'CCC+' from 'CCC.' According to the agency, the upgrade reflected easing financing needs, IMF deal boosting financing, wider external surpluses, significant structural weaknesses, declining public debt, high contingent liabilities, and stronger growth ahead.

South Africa: South Africa's external position worsened in Q4 2022 as the country's current account came in at -R174bn compared to a revised figure of R3bn in the previous quarter. As a percentage of GDP, the current account shortfall worsened to -2.6% from -0.3% in Q3. The widening of South Africa's current account is due to the sharp weakening in the trade account on the back of falling commodity prices, particularly coal. Deterioration in the country's current account is historical data but will have contributed to the recent rand weakness as it detracts from South Africa's trade fundamentals. This comes at a time when the local unit trades above the 18.50 mark due to external shocks and regional issues such as greylisting and low growth. Although a weaker rand bodes ill for inflationary pressures and economic growth, it offers positive gains for exporters.

Uganda: Energy and Minerals Minister Ruth Nakabirwa on Thursday said that Uganda expects to start generating at least 1000 megawatts (MW) from nuclear power by 2031 as it moves to diversify its sources of electricity and accelerate its energy transition, a key part of its climate change response. According to the minister, the first nuclear project, Buyende Nuclear Power Plant, would be located at Buyende, about 150km north of the capital city. The minister added that "preparation to evaluate the Buyende Nuclear Power Plant site is ongoing to pave the way for the first nuclear power project expected to generate 2,000 MW, with the first 1000 MW to be connected to the national grid by 2031." Integrating nuclear energy into the electricity generation mix aims to ensure energy security and provide security for industrialization.

Forex: Ghanaian cedi outperforming broader African FX basket in March

After recording losses totalling around 25% in January and February against the USD, the cedi has started the month of March on a solid footing, erasing some of those previous losses. When looking at the performance of African currencies against the USD tracked by Bloomberg, the cedi is currently ranked first, having recorded gains of almost 6% month-to-date. Those gains are roughly nine times more than that of the Guinean franc, which is ranked second.       


Fixed Income: Egyptian Eurobond yields surge as inflation quickens       

Egyptian Eurobonds received a bloody nose on Thursday as the market repriced for higher interest rates following the release of the February inflation report. For context, headline inflation accelerated from 25.8% y/y in January to 31.9% y/y in February, levels not seen since the 2017 crisis. Arguably of even more concern for policy markers was the jump in core inflation, which rose from 31.24% y/y in January to 40.26% y/y in February. The robust core figure confirms that price pressures are broad-based.

Macroeconomic: Oil prices tumble as growth fears intensify and supply pressures ease

Given that oil plays a significant role in African countries, it is worth looking at the latest developments in the oil market. Oil markets look set to record a sizable weekly loss. Oil prices fell for a third successive session on Thursday and are trading lower this morning, with the front-month Brent contract losing more than 5% since the start of the week. The impetus behind the recent pullback in oil is a combination of renewed demand concerns following the hawkish comments from Fed Chair Powell and easing supply concerns after reports showed that the oil market has fully absorbed the shock caused by Russia’s invasion of Ukraine.