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Economic Outlook 5/1/2016

The year has started on a rocky start for most global markets mainly fueled by the volatility surrounding the world’s second- largest economy. The dip in the Yuan in first week of the year saw the circuit breaker activated twice, a mechanism that was created to halt trading should the market dip over 5%. This raised concerns that china might be allowing the Yuan to continue falling with the aim of helping its struggling exporters. The activation of the circuit breaker had a negative effect as the mechanism sparked sharp falls in the countries volatile markets, which led to the suspension of the circuit breaker on the 8th of January. What followed was a verbal campaign, backed by what dealers said was aggressive buying, to convince skeptical investors that they were in control of events. Analysts said offshore buying by state-owned banks, under the direction of the People's Bank of China (PBOC), dried up Yuan liquidity to such an extent that overnight Yuan borrowing rates in Hong Kong (HIBOR) hit a record 66.8 percent, and the spread between onshore and offshore Yuan exchange rates briefly evaporated. The direct financial impact of lower share prices in China is moderate. There is not enough foreign investment in the Chinese market for it to be a major problem. The London consultancy Capital Economics has said foreigners own just 2% of shares. The issue is about whether the financial turbulence shines a light on wider issues about the economic slowdown in China: is the economy heading for what's called a "hard landing", too sharp a slowdown? China is now such a big force in the global economy that it would inevitably affect the rest of the world. It is the second largest economy and the second largest importer of both goods and commercial services. U.S. exposure to China in terms of gross domestic product is minimal - only about 0.7 percent of overall GDP, according to Citigroup strategists - but the knock-on effect for other emerging economies cannot be ignored. Furthermore, Citigroup notes that companies with more than 20 percent of revenues from China, including Apple (AAPL.O), DuPont (DD.N), Texas Instruments (TXN.O) and 30 others, have performed worse than the overall market since the middle of 2015


U. S

The raising of the Interest rate by 0.5% in December 2015 for the first time in nearly a decade signaled faith by the Federal Reserve in the growth of the US economy. They based their argument on the strong employment report and hoped that inflation would rise to the expected 2%. Their hope to raise the interest rates gradually through 2016 and 2017 seems to be dwindling. The worst ever start to a year for financial markets have left traders and economist rethinking the global monetary policy outlook with some predicting the Federal Reserve will quickly reverse lasts month’s rate rise. Some 5.7 Trillion have been wiped off the value of the world stock in the first nine days of the year according to Bank of America merril Lynch.


Europe

European stocks fell to a one year low entering a bear market on concern about global growth and deepening losses in oil prices. The Stoxx Europe 600 index dropped 2.8 % to 329.84 at the close, taking its decline since April record to more than 20% In Company news: Global Miner BHP Billiton (a leading diversified resource company) said on Friday that it will write down the value of its sale assets by $7.2 Billion on a bleak outlook for oil and gas prices. This will force it to cuts its dividend for the first time in over 25 years. “Renault, the French carmaker said fraud investigation had inspected three of its sites to look into its vehicles emission technology. News that wiped Billions off its markets value in an echo of the scandal engulfing German Rival Volkswagen” Reuters


Emerging Markets

Brazil

Brazil economy struggled in 2015 after Rousseff and the Central Bank raised taxes, Cut investment’s and raised interest rates to keep both inflation and public deficits under control. Customer and business confidence however plunged as prices continued to rise far beyond the official target and agencies stripped the country of its investment grade rating A Massive Corruption Scandal at state- controlled oil producer Petroleo Brasileiro has weighed on the economy too. The severe economic down turn has already cost more than 1million jobs. Its unemployment rate rose to 9.0% in three months through October from 8.6%


Kenya

The World Bank has projected a growth rate of 5.7 %, Tanzania’s 7.2%, Rwanda 7.6% and Ethiopia 10.2% Although Kenya's projection is well below her neighbors, it’s still well above average growth rates in Africa and other emerging economies. "Despite pressure on the shilling, Kenya is expected to grow at a steady pace, supported by large scale infrastructure projects," the report said South Africa has one of the weakest levels of growths at 1.4% up by just 0.1%. Retail Chain Uchumi has filed for bankruptcy in Uganda after multiple creditors secured ordered seeking to attach its properties. It however called suppliers of its ill-fated Uganda to make claims within the next two weeks as it wound up operations in the Market. Kenya plans to roll out of mobile phone based T-bond by end of March after the planned roll out in October was derailed by the volatile interest rate. Treasury cabinet secretary Henry Rotich told business daily that the return of stability in interest rate can now allow the re-launch of the M-Akiba bond to be sold at minimum denomination of 3000 through the mobile platform. The government had planned to sell the 5billion five year bond in October. The bond will be the first in the world to be sold on the mobile money platform and likely to attract small retail investors into the relatively The interest of the bond will be paid semiannually through the mobile phone


NSE

For the first time in six years foreign investors recorded a net outflow at the NSE. According to Standard Investment Bank report, it shows a net out flow of 670 million from the market in 2015 a huge revisal from the 3.53 Billion inflow in 2014.The bulk of the outflow came in the first half year when there was uncertainty regarding the implementation of the capital gain tax Nigeria has seen net outflows of $ 275.6 Billion from its stock exchange through the first nine months of 2015.


Nigeria

The IMF has cut Nigeria’s GDP growth forecast for 2016 to 4.0% as the country continues to contend with the challenge of declining income from drop in crude oil prices. Nigeria’s Central Bank will no longer hold dollar auctions on a daily basis in a bid to conserve its dwindling foreign reserves. With the dipping of oil prices, the citizens are opting to hold their money in the Dollar currency to prevent further loss in value. South Africa The worst drought in over 100 Years has devastated crops and could tip the economy into recession, adding to a loss of investor faith in President Zuma. This has pushed food prices up as well as stroking social and racial tension ahead of the local elections. Online Racial abuse spiked last month and police had to deploy razor wire this week to separate crowds of whites and black protesting outside the court appearance of four white farmers accused of beating two black men to death Agriculture contributes only 2.2% percent of the economic output, but a major slow contraction could turn slow growth into a recession. This could push up the jobless rate from around 25% and widen the gap between the rich and poor, factors already contributing to political tension. The Rand also hit by the slump in global commodity prices, slid 25% in 2015 and last week briefly plunged 10% to a record low of 17.995 to the Dollar.


Commodities


Oil

Oil prices crashed 6% on Friday to close below the $30 a barrel for the first time in 12 years. The International Atomic Energy Agency is expected on Saturday to issue its report on Iran’s compliance with an agreement to curb its nuclear program, potentially triggering the lifting of Western sanctions. This translates to new oil in the market, possibly triggering a further drop in oil prices Copper Prices tumbled to its lowest since May 2009 on Friday, pressured by a slide in oil prices plus further losses in shares and the offshore currency in China. The weakening of the Yuan knocked confidence about the demand for metals in the world’s top consumer of raw material


Gold

Gold rose on Friday following a high demand as investors are looking for safe havens following the volatility in the equity markets The world’s largest gold-backed exchange trade fund, New York-listed SPDR Gold Shares reported a 2.4 ton rise in its holdings on Wednesday, bringing the total inflow for the year to 11.7 tons 





















 
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