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February At a Glance


CURRENY

USD

99.76Ksh

GBP

139.31Ksh

EUR

108.54Ksh

 Kenyan  inflation dropped to 6.84% for the month of February from 7.78% in the month of January. This was fueled by the drop in petrol, food and cooking gas. This helped pull the cost of living down, not to mention, reduce pressure on the CBK to change the rates as the preferred inflation rate is between 2.5% to 7.5% .

The Kenyan shilling has gained against most foreign currencies. This has been brought on by the reduction of the import bill due to the price of petroleum falling in the global market, a trend that is likely to drive down the demand for dollars locally.

 “The sharp slide in fuel prices meant hard currency dollar demand has eroded by about 1.5b US$ in 2015 in favor of the shilling,” said Mr Khan Satchu. (Economist the chief executive officer of Rich Management Ltd,)

The CBK has also played a role in stabilizing the Shilling by implementing monetary interventions (raising of interest rates when needed). Given that Kenya is a net importer, a week currency hurts the economy more, as it makes its imports more expensive.

Other than the value of the currency, its stability is important in order to protect the confidence of the investor

GLOBAL  MARKET OUTLOOK

EUROPE

The refugee crisis in Europe has exposed cracks in the European Union that seam not to be going away.  Reuters have equated the European Union to the falling towel of Babel. Its main members are having different national conversations, its no wonder EU cant find common solution to its urgent problem.

Germanys main focus is all about how to cope with an influx of million migrants,whether to limit the numbers and in some quarters, how to stop them coming.

Britain on the other hand is concentrated on the national sovereignty and a possible Brexit in the build up to a June referendum that might end the country’s schizophrenic membership of the EU.

France is still living under a state of emergency and in shock after last November’s attack by Islamist that killed 130 people in paris

Look east to Poland and people are arguing over the new government's moves to curb the media and the constitutional court, over who may have been a Communist informer 40 years ago, and over the perceived Russian threat to eastern Europe today.

Around central Europe the discussion is about how to resist German pressure to take in a share of refugees.

Turn south and the Italians and Portuguese are engrossed in domestically focused debates about how to revive economic growth despite the EU's budgetary corset while cleaning up legacy bank problems. Spain meanwhile is preoccupied by Catalan separatism, political paralysis and the risk of a breakup of the country.

EU countries have largely ignored the quotas of refugees they agreed last year to take in, and now a most of the European countries are coming up with their own individual measures. Hungary is now planning a referendum on whether it should have to accept any.

Austria, a key transit country, unilaterally imposed daily caps on migrant entries and asylum applications in mid-February.

In a sign of the waning authority of Brussels and Berlin, Austria brought together 10 central European and Balkan states last week - meeting without Germany, the EU authorities or Greece, the main arrival point for migrants - to coordinate national measures to choke off the northward flow of migrants.

Barring an improbable halt to arrivals from Turkey in the coming weeks, the most likely next step is that Europe's 26-nation Schengen zone of passport-free travel will be officially suspended for two years to pre-empt a disorderly collapse.

 

 

US

Following the G20 summit held on Saturday 27th ( a group of 20 finance ministers and Central bankers) investors are turning to data to look for direction on how the markets will perform . This is becouse the G20 were not able to come up with conclusive measures on how to propel the Economy.

They however made it clear that a lot more needs to be done other than Monetary easing and ultra low intesrest rate to boost the  economy. They flagged a series of risks to world growth ,volatile capital flow,a sharp fall in commodity prices and the potential shock “shock” of a british exit from EU

This week we look forward to reports on activity in the manufacturing and service sector from Markit, a data firm and the Institute for supply Management. Although manufacturing is expected to remain soft, the data will be eyed for signs the sectoris close to bottoming.

The service sector contracted for the first time in February since October 2013. Investors are looking for a positive reading .

Payrolls on the other hand would be an indicator, if the Feds are going to raise the rates sooner or later. This will have a direct impact on the stock markets.

Market volatility could also be heightened by politics.

China

China is moving from a manufacturing economy to a service centered economy. This has brought on shock waves across the economy as it has forced countries to start looking for alternatives export markets.

The Chinese market is still strugling to stabilise its economy. Tuesdays Goverments data shows that activity in China’s manufacturing sector shrank for the seventh straight month in February comming in below markets expectations. The Purchasing Manager’s Index fell to 49.0 down from 49.4 the previous month.

The Chinese Central Bank is continuing with its monetary easing policy. It has reduced the reserve ratio, the amount of money a commercial banks needs to have deposited with the CB , with the aim of increasing liquidity in the market.

During the G20 meeting  Chinese policymakers reiterated pledges not to devalue the yuan CNY=CFXS again, and Premier Li Keqiang told the G20 opening session on Friday there was no basis for continued depreciation of the yuan.

It was also agreed that Chinese authorities need to present a mid-term structural reform plan with concrete schedule and a packge of measures to stabilize the yuan based on recognisation that communication  between the Chinese Authorities and the markets has couosed market volatility and capital outflow.

Should the Chinese government adhere to their promises , this move is bound to improve investor confidence and by extention have positive ripple effect on the economy by large.

 

Emerging markets

Economists, including at the International Monetary Fund and the World Bank, have had to slash their forecasts for emerging markets over the last several years.

This is because the forecast were based on strong commodity prices and assumed higher productivity. But oil, metals and other commodity prices have plummeted. Crude oil prices have lost roughly 65% of their value over the last 18 months from a high of $110 a barrel to $30 a barrel.

Debt is another factor that is crippling most of the developing economies. During the era of cheap dept. A lot of emerging markets took up cheap debt to revamp their industries. This huge take up was based on much higher growth projections. Economist predict a coming bout of corporate defaults that may hit the financial sector, burden state balance sheets and crimp lending vital to spur growth.

That being said, emerging markets by and large are more prepared to handle market shocks than they were pre –crisis era. For example the Kenyan Central Bank raised the commercial banks reserve ratio (the amount of money that every commercial bank must deposit with the Central Bank) from 4.75 %   to 5.25 %.  They have also increased foreign reserves with the intention of stabilizing the dollar.

Commodities

OIL

Global oil prices appear to have bottomed out and are expected to rise through this year, a senior analyst at the International Energy Agency said on Tuesday.

This is following an agreement by the Opec Countries and Russia to keep supply of crude oil at January levels. Following the meeting, the Benchmark Brent crude Future LCOc1 were up 44 cents at $ 37.01 a barrel

"Prices are expected to grow throughout 2016 and into 2017, reflecting expectations that the market is going back into balance in 2017," said Neil Atkinson, the new head of IEA's oil industry and market division

The global oil market was expected to begin rebalancing in 2017 as U.S. output is set to decline under pressure from low oil prices, the International Energy Agency said on Feb. 22 in its medium-term market outlook.

If the U.S. producers were to "remain longer in the game", the market's rebalancing could be pushed back by one year to 2018, Atkinson said.

The price rally, however, will be capped in the medium term by a potential increase in the U.S. shale oil production once a rise in oil prices makes it profitable again.

GOLD

Gold has had a good run in the month of February, as investors dummed their equities in search of havens. We however see the price dipping following a rise in the crude oil price, as well as strong data showing investor confidence in the market.


 
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