Stocks tumbled around the world, with U.S. equities sinking to their lowest levels since August, and bonds and gold jumped as oil’s plunge below $30 sent markets reeling. Treasuries extended gains as economic data and earnings added to concern that global growth is faltering.
The Dow Jones Industrial Average sank 391 points, European stocks fell into a bear market and the Shanghai Composite Index wiped out gains from an unprecedented state-rescue campaign as global equities added to the worst start to a year on record. Oil touched $29.28 a barrel before closing at a 12-year low. A measure of default risk for junk-rated U.S. companies surged to the highest in three years. Yields on 10-year Treasury notes dipped under 2 percent as doubts grow that the Federal Reserve will raise interest rates. Gold surged the most in six weeks.
Crude’s drop to a 12-year low is sending shock waves around the world at the same time concern is mounting that China’s policy interventions will fall short of stoking growth in the world’s second-largest economy. Figures on retail sales and manufacturing Friday showed the U.S. economy ended the year on a weak note, and the start of 2016 wasn’t any better. Energy firms are laying off workers and currency markets from commodity-producing countries are in turmoil. The slump is also denting the outlook for inflation, causing traders to curb bets on how far the Fed will raise rates this year.
“Markets have to go through several stages and right now they’re just holding their head and crying,” Krishna Memani, chief investment officer at Oppenheimer Funds Inc. in New York, said by phone. “The drama and issue overnight is more related to oil prices not finding a floor. If it was just China and everything else was OK, we’d see through that. But when China is down and oil drops everyday, the market recognizes it has substantial issues.”
Adding to the unease, Intel Corp. dropped 9 percent after predicting first-quarter sales that fell short of some estimates. The semiconductor maker’s note of caution came at the start of an earnings season that may see U.S. profits fall faster than any time since the financial crisis.
The Standard & Poor’s 500 Index plunged 2.2 percent at 4 p.m. in New York. The index fell as much as 3.3 percent before paring the slide in afternoon trading. It still capped a third weekly retreat and closed at the lowest level since Aug. 25, the day that marked the bottom of the summer selloff. U.S. equities markets are closed Monday for a federal holiday.
The gauge has lost 12 percent from its May record, leaving it well short of sliding into a bear market. It capped a third weekly decline, the longest slide since July. The Dow tumbled 2.463 points as none of its 30 members advanced, while small caps added to a bear market.
“There’s more uncertainty out of China, more uncertainty out of the Fed and then you have uncertainty about where the bottom is in oil prices. Markets abhor uncertainty,” said Quincy Krosby, a market strategist at Prudential Financial Inc., which oversees about $1.2 trillion. “The package of economic data this week certainly questions whether or not we are going to pull out of this. This is a lot deeper than what you’d see normally on a three-day weekend.”
Weakness in retail sales compounds concerns that momentum in consumer spending, which has been the backstop of U.S. growth prospects, is starting to fade. Meanwhile, a slowdown in China and other emerging markets has sent commodity prices lower and roiled stock markets around the world, exacerbating the plight of manufacturers who are being hit by an appreciating dollar.
The Stoxx Europe 600 Index retreated 2.8 percent, capping a weekly drop of 3.4 percent. Europe’s benchmark closed more than 20 percent from its record in April — meeting the common definition of a bear market.
West Texas Intermediate crude fell as much as 6.2 percent, before settling 5.7 percent lower at $29.42 a barrel. Brent fell 5.9 percent to $29.05 a barrel. The discount on global benchmark Brent reached a five-year high as Iran moved closer to restoring exports.
While WTI sank 11 percent for the week, Goldman Sachs Group Inc. says crude will turn into a new bull market before the year is out as the price rout shuts down production, putting the U.S. shale-oil boom into reverse in the second half of the year. As U.S. production slumps by 575,000 barrels a day, global oil markets will tip from surplus to deficit, the bank said in a report.
Gold capped the biggest gain in six weeks as Chinese stocks retreated into a bear market and U.S. retail sales capped the weakest year since 2009, increasing demand for a haven. Platinum fell to a seven-year low. The metal has been whipsawed this week, after rallying to a two-month high last Friday. Futures for February delivery gained 1.6 percent to settle at $1,090.70 an ounce.
The Bloomberg Commodity Index, which measures returns on 22 raw materials, dropped 1.4 percent to the lowest level in data going back to 1991.
The MSCI Emerging Markets Index fell 2 percent on Friday and 4.2 percent this week. Shares in Shanghai entered a bear market for the second time in seven months, dropping more than 20 percent from its December high and sinking below its low during the depths of a $5 trillion rout in August.
The Shanghai Composite Index sank 3.6 percent on Friday, extending losses after a report that some banks in Shanghai have halted accepting shares of smaller listed companies as collateral for loans. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong fell 2.6 percent to a four-year low.
An index of the U.S. currency against 10 of its peers rose for a third week, the longest stretch since July, amid demand for haven assets as oil dropped below $30 for the first time in more than a decade and Chinese stocks led a global rout.
Russia’s ruble sank 2 percent and South Africa’s rand fell 1 .3 percent, leading a gauge of emerging-market currencies down 0.5 percent, capping its third weekly decline. Over the five day period, the ruble slid 3.7 percent and the rand lost 2.1 percent. Brazil’s real and Mexico’s peso lost at least 0.9 percent on Friday.
Australia’s dollar slid 1.7 percent to the weakest level since April 2009. The Canadian dollar fell for an 11th straight day in its longest run of losses on record. New Zealand’s kiwi slumped 1.4 percent.
The yen appreciated against all its 16 major peers as turmoil in markets boosted demand for havens. The euro also gained, while the Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, rose for a sixth day.
Treasury 10-year note yields slipped below 2 percent to the lowest since October, casting doubt on the Fed’s ability to raise interest rates.
U.S. Treasuries gained as traders pulled back expectations for the number of Fed interest-rate increases this year. Data compiled by Bloomberg shows they expect the effective fed funds rate will rise to 0.7 percent in a year’s time, implying one increase, compared with policy maker estimates for four. The 10-year yield fell 10 basis points to 1.99 percent.
The risk premium on the Markit CDX North American High Yield Index, a gauge tied to U.S. junk-rated companies, surged to the highest level since November 2012. Junk-bond funds reported $2.1 billion of redemptions in the week through Jan. 13, according to data provider Lipper.
COVID-19: CBN Has Disbursed N83B Loans to Healthcare Sector
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, yesterday, said the central bank had disbursed over N83.9 billion to pharmaceutical and healthcare practitioners in the country since the outbreak of the COVID-19 pandemic in the country.
Also, Lagos State Governor, Mr. Babajide Sanwo-Olu, has stressed the need for a slash in the cost of governance in the country, saying a lot more resources could be dedicated towards healthcare and critical infrastructure.
They both said this yesterday, at the premiere of ‘Unmasked’, a documentary on Nigeria’s response to the pandemic held in Lagos.
Emefiele, who was represented by the CBN’s Director of Corporate Communications, Osita Nwasinobi, explained: “Building a robust healthcare infrastructure was also vital from a security perspective, as some nations had imposed restrictions on the exports of vital medical drugs as well as the use of drug patents that could aid in containing the spread of the pandemic.
“As a result, we focused our interventions in the healthcare sector on three areas. Building the capacity of our healthcare institutions supporting the domestic manufacturing of drugs by businesses, and providing grants to researchers in the medical field, in order to encourage them to develop breakthrough innovations that would address health challenges faced by Nigerians.
“In this regard, we disbursed over N83.9 billion in loans to pharmaceutical companies and healthcare practitioners, which is supporting 26 pharmaceutical and 56 medical projects across the country. We were also able to mobilise key stakeholders in the Nigerian economy through the CACOVID alliance, which led to the provision of over N25 billion in relief materials to affected households, and the set-up of 39 isolation centres across the country. These measures helped to expand and strengthen the capacity of our healthcare institutions to respond to the COVID-19 pandemic.”
According to the CBN Governor, the banking sector regulator also initiated the Healthcare Sector Research and Development Intervention Grant Scheme, which was to aid research on solutions that could address diseases such as COVID-19, and other communicable/non-communicable diseases.
He said so far, five major healthcare-related research projects were being financed under the initiative.
Speaking further on the call to increase access to health insurance, Emefiele said: “One key aspect which we would have to address is improving access to healthcare for all Nigerians. A key factor that has impeded access to healthcare for Nigerians is the prevailing cost of healthcare services.
“According to a study by World Health Organisation (WHO), only four percent of Nigerians have access to health insurance. Besides food, healthcare expenses are a significant component of average Nigeria’s personal expenditure.
“Out of pocket expenses on healthcare amount to close to 76 percent of total healthcare expenditure. At such levels of health spending, individuals particularly those in rural communities may be denied access to healthcare services.
“Expanding the insurance net to capture the pool of Nigerians not covered by existing health insurance schemes, could help to reduce the high out of pocket expenses on healthcare services by Nigerians. It will also help to increase the pool of funds that could be invested in building our healthcare infrastructure and in improving the existing welfare package of our healthcare workers.”
“The private sector has a significant role to play in this regard given the decline in government revenues as occasioned by the drop in commodity prices. Leveraging innovative solutions that can provide insurance services at relatively cheap prices could significantly help to improve access to healthcare for a large proportion of Nigerians particularly those in our rural communities.”
According to Emefiele, the CBN remains committed to working with all stakeholders in improving access to finance and credit that would support the development of viable healthcare infrastructure in our country.
On his part, Sanwo-Olu said: “What are the lessons that we have learned with the Covid-19? Looking at all the things that Covid-19 has cost us, how are we preparing ourselves?
“The truth be told the structure of our governance system needs to change particularly the cost of governance. We need to speak up and ask ourselves are we ready to change.”
“When it gets to the election it is the same set of people that will come up and people don’t come out to vote and we end up having 20 percent out of 100 percent that will elect those that will govern. So, the change has to be about all of us. That is how the real change that will help us will come,” he added.
Emefiele Says CBN Will Resist All Attempts to Continue Maize Importation
The Central Bank of Nigeria (CBN) has vowed to resist all attempts to continue the importation of maize into the country.
Godwin Emefiele, the governor, CBN, in a statement titled ‘Emefiele woos youths to embrace agriculture’, said: “the CBN would resist attempts by those who seek to continually import maize into the country.”
Emefiele, who spoke in Katsina during the unveiling of the first maize pyramid and inauguration of the 2021 maize wet season farming under the CBN-Maize Association of Nigeria Anchor Borrowers’ Programme, said maize farmers in the country had what it takes to meet the maize demand gap of over 4.5 million metric tonnes in the country.
“With over 50,000 bags of maize available on this ground, and others aggregated across the country, maize farmers are sending a resounding message that we can grow enough maize to meet the country’s demand,” Emefiele said.
He explained that the maize unveiled at the ceremony would be sold to reputable feed processors.
He added that this would in turn impact positively on current poultry feed prices, as over 60 per cent of maize produced in the country were used for producing poultry feed.
Nigeria’s Spending Structure Unsustainable, Budget Head Says
Nigeria’s current trend of spending more money on running the government than on building new infrastructure is unsustainable, the country’s top budget oversight official said.
Low revenue collection and high recurrent costs have resulted in actual capital expenditure below two trillion naira ($4.88 billion) a year for a decade, Ben Akabueze, director-general of the Budget Office, said Tuesday in a virtual presentation.
“Hence, the investments required to bridge the infrastructure gap are way beyond the means available to the government,” Akabueze said. Recurrent spending, allocated towards salaries and running costs, has accounted for more than 75% of the public budget every year since 2011, he said.
Africa’s largest economy requires at least $3 trillion of spending over the next 30 years to close its infrastructure gap, Moody’s Investors Service said in November. The country’s tax revenue as a proportion of gross domestic product is one of the lowest globally, according to the International Monetary Fund.
“Huge recurrent expenditure has constrained the provision of good roads, steady power supply, health care services, quality education and quality shelter,” Akabueze said.
Nigeria should amend its constitution to create six regions to replace the existing 36 states, which each have their own governments, Akabueze said. The country also needs to reduce the number of cabinet ministers to a maximum of 24 from more than 40 and cut federal ministries to fewer than 20 from the current 27, he said.
“No country can develop where a large part of its earnings is spent on administrative structures rather than on capital investment,” Akabueze said.
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