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Technical Recession Equals Buy Stocks

US GDP had a nasty surprise for everybody overnight, unexpectedly falling by 0.90%, when market expectations were for a modest 0.50% gain.



capital market - Investors King

By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

US GDP had a nasty surprise for everybody overnight, unexpectedly falling by 0.90%, when market expectations were for a modest 0.50% gain. That marked two consecutive negative quarters of US growth, meaning that for many economists, the US is now in a technical recession. Off course, if you put a group of economists in a room today and ask them what two plus two is, none of them will agree with each other. And so, it is with the definition of a recession.

I am not an economist, but I did note something very interesting last night. Two economics research houses that we subscribe to here at OANDA, full of very brainy people, had two different opinions on the US economy for the rest of this year, post that GDP number. One said other indicators such as unemployment would catch up with the GDP, confirming a real and not academic recession. The other said that this is the worst it should get, and the US economy will improve in Q4. So basically, nobody has a clue what is going to happen.

I am not an economist, and a regression is something the wife says to me, amongst other words like potato, as I head out to rugby practice on Tuesdays. Here at “Voice of Reason Research,” I am struggling to join the gloom and doom mob while US employment and job opening metrics remain robust. We may get more clarity on the direction of travel of that piece of the puzzle at next Friday’s US Non-Farm Payrolls.

Still, the weak US GDP data did produce an entirely predictable reaction by markets in the current climate. US bond yields headed lower, and the US Dollar retreated. Notable was the continued culling of the USD/JPY long trade, the pair fell by 1.73% to 134.25 overnight, and the thinning of the herd looks like it still has plenty in it. Asian currencies finally started rising versus the greenback as well. For the FOMO gnomes of Wall Street, the calculation was easy. Lower US GDP equals recession equals fewer Fed hikes, a lower terminal rate, equals buy stocks. That arcane logic will be tested at some stage in the future, but not just yet.

US equity index futures are on fire in Asia today as well, rising impressively after Apple announced robust earnings and Amazon knocked it out of the park, both after the closing bell. US equity markets find themselves in a situation where a US recession is a buy signal for stocks, and decent technology earnings are a buy signal for stocks. Don’t feel bad if none of that makes sense; just respect the momentum.

Bucking the trend, South Korean Industrial Production rose by 1.90% MoM in June, and Japan’s Industrial Production jumped by 8.90% MoM in June. The year-on-year data still looks soggy, but the shorter-term data suggests it’s not all doom and gloom out there in Asia and that demand for semiconductors and high-end manufactured products remains strong. The problem remains on the consumer side, with Retail Sales in June for South Korea and Japan disappointing, falling 0.90% MoM, and rising 1.50% YoY, respectively. Both were quite bad misses and appear to reflect the impact of rising costs of living.

Australia’s PPI came in slightly lower at 1.40% QOQ Q2, potentially easing some RBA hiking nerves in the lucky country. And even New Zealand’s Consumer Confidence rose slightly in July to 81.90. Strange days indeed.

China’s Politburo reiterated its 5.50% GDP target for 2022 while reiterating its covid zero policy at the same time. But China’s Commerce stated that the domestic consumption recovery is not yet solid and more measures to boost it would be necessary. They also said that foreign trade faced high risks, difficulties, and uncertainties, according to Reuters. How that all coincides with a 5.50% GDP growth this year, I know not, and neither do China markets either, it seems. Chinese equity markets are sharply lower today.

For the rest of the day, German and Eurozone GDP Growth Flash for Q2 and Eurozone Inflation will take centre stage. The GDP data has downside risks for obvious reasons, but Inflation has upside risks, and a print above 8.60% will have the words stagflation and Europe used in a lot of sentences. The Euro has been unable to exploit a weaker US Dollar and rally meaningfully. Lower GDP and higher inflation numbers could see the Euro, and European equities, end the week on a sour note.

US Personal Income and Expenditure MOM for June round out the week, expected to rise by 0.50% and 0.90%, respectively. If the US consumer is still alive and well and the data is strong, the FOMO gnomes of Wall Street may temporarily pause for breath. Conversely, weak data probably sees another wave of buy everything as Wall Street prices in the now data-dependant Fed hiking less aggressively.

Happy Friday, everybody. I will be away for next week from Monday to Thursday next week, as Mrs Halley and I travel from Jakarta to Bali, where we will be reunited with both of our girls for the first time in over three years for a family holiday. ​

Another mixed day for Asian equities.

The soft US GDP data saw Wall Street pricing in a more dovish future Fed, lifting Wall Street higher overnight. The S&P 500 rose by 1.21%, the Nasdaq gained 1.08%, and the Dow Jones added 1.01% in a robust session. Aftermarket earnings releases from Apple were slightly higher than forecast, while Amazon released well above forecast earnings. That has sparked a sharp rise in Nasdaq and S&P 500 futures in Asia, while the value-centric Dow has lagged. S&P 500 futures are 0.65% higher, Nasdaq futures have leapt 1.45% higher, and Dow futures are unchanged.

The US stock market performance has once again had uneven follow-throughs in Asia. The Nikkei 225 is now down 0.20% after the overnight Yen rally continued unabated in Asia today, impacting exporters. However, South Korea’s Kospi has managed a 0.50% gain, with Taipei also adding 0.35%.

On Mainland China markets, things look rather grimmer after economic warnings today from the China Commerce Ministry. The Shanghai Composite has fallen by 0.72%, with the CSI 300 losing 1.10%. Hong Kong’s Hang Seng has slumped by 2.25%.

China and Japan’s performance seem to be tempering sentiment elsewhere in Asia as well. Singapore is 0.50% lower, Kuala Lumpur is 0.30% higher, and Jakarta is 0.45% higher. Bangkok is closed, but Manila has fallen by 1.08%. Australian markets are more closely tracking US markets today. The All Ordinaries have rallied by 0.90%, while the ASX 200 has gained 0.80%.

The mixed performance by Asia, and especially the China comments, mean European markets are unlikely to repeat yesterday’s positive session in early trading. Much will depend on the Germany/Eurozone GDP data and the Eurozone inflation data. Softer GDPs and high inflation prints will likely see European equity markets head south, especially with weekend risk beckoning.

USD/JPY slump dominates Asian trade.

The US Dollar selloff continued overnight after weak US GDP data saw it enter a technical recession. However, the US Dollars losses were unevenly distributed. With US yields moving lower post-data, USD/JPY plummeted by over 200 points as long US positions were routed, but EUR/USD remained unchanged, only able to reverse its pre-US data selloff.

That left the dollar index just 0.24% lower at 106.24 overnight, losing another 0.24% to 105.95 in Asia. Notably, the dollar index has now taken out the rising wedge support is at 106.45, which becomes initial resistance. The daily close under 106.45 overnight is a significant technical development, signalling deeper losses towards 1.0500 and 1.0350 and potentially extending to the initial 102.50 longer-term breakouts. Resistance is at 107.45 and 108.00.

EUR/USD slumped to near 1.0100 intraday pre US GDP but reversed all those losses after finishing the day unchanged at 1.0195. EUR/USD remains rangebound, with a weaker dollar offset by geopolitical and recession fears in Europe itself. EUR/USD is steady at 1.0210 in Asia. The multi-day resistance around 1.0275 remains formidable. Only a sustained break above 1.0360 now suggests a longer-term low is in place. Meanwhile, EUR/USD has traced out a series of daily lows around 1.0100. The 1.0100 to 1.0300 range is unlikely to fail into the weekend.

GBP/USD has booked only modest gains overnight and today, holding steady at 1.2185 but well clear of its technical breakout at 1.2100. Sterling looks likely to test 1.2200 imminently, signalling a further rally towards longer-term resistance at 1.2400. Support is now at 1.2100, and then 1.1960, followed by 1.1900 and 1.1800.

Softer US GDP data sent, US yields lower overnight, sparking a capitulation sell-off in USD/JPY as heavy long positioning was aggressively culled. USD/JPY collapsed by 1.73% to 134.25, and the selloff has continued in Asia. USD/JPY has slumped another 0.70% to 133.30, and my initial boundary for this occurrence, at 132.50, could be seen by the end of today. The selling in USD/JPY is further capping gains in EUR, GBP, AUD, and NZD as cross/yen positions are liquidated. Support lies at 132.50, 132,20 and then 131.50, but I am not ruling out a deeper decline as panic sets in. Resistance is at 135.50 and 137.50 but short of a reversal higher by US yields; risks remain skewed to the downside.

AUD/USD and NZD/USD are only slightly higher over the past 24 hours at 0.7005 and 0.6310, as AUD/JPY and NZD/JPY selling limits gains. But the technical picture for both remains constructive as both currencies staged upside breakouts higher a fortnight ago. They remain well above their breakout lines at 0.6790 and 0.6145.

Asian currencies finally started strengthening versus the US Dollar overnight after weak US data pushed US yields lower as recession fears heightened. The Korean Won led gains, falling to 1295.00 overnight, but THB, SGD, and INR also booked decent gains. Some profit taking this morning has seen USD/KRW and USD/THB climb 0.30% higher. It does look like some regional central banks are taking advantage of a weak US Dollar today to push their currencies higher. As Dennis Gartman says, always throw your rocks in the wettest paper bag.

USD/IDR plunged below 15,000.00 to 14,955.00 overnight and has mysteriously tumbled another 0.70% to 14,850.00 today. USD/PHP has plunged by 1.05% to 55.22 this morning. I am assuming that both BI and BSP are selling US Dollars, and I wouldn’t be surprised to see the RBI doing the same this afternoon. Timing, after all, is everything. With China, European, and US recession risks multiplying, the jury is still out as to whether we have seen the worst of the Asian FX sell-off.

Oil is surprisingly steady.

Oil prices edged higher overnight as the volatility in currency, bond and equity markets passed it by; most of the oil-related data had already been released for the week. So, although the intraday ranges were as wide as ever, ultimately, oil booked only small gains. It has given those back in Asia today as regional traders react negatively to the China Commerce Ministry’s comments. Oil looks set to range trade into the US data, and with the OPEC+ meeting next week, it may consolidate its recent gains over the next few sessions.

Brent crude rose 0.40% overnight to $107.60 overnight, falling by 0.75% to $106.80 in Asia. Resistance at $108.00 survived overnight, but a close above would be a significant bullish technical development, targeting the 100-day moving average (DMA) at $110.15. That is followed by $115.00 a barrel. Support is at $106.00, $104.00 and then 101.50 a barrel.

WTI traded in another giant four-dollar range overnight, finishing 0.90% lower at $97.25 a barrel as recession fears gripped US markets. It has fallen another 0.70% in Asia to $96.60 a barrel. WTI has resistance at $100.00, it’s overnight high. Support is at $96.00, the overnight low, followed by the 200-day moving average (DMA) at $95.00. WTI continues to look like the weaker of the two contracts on a technical analysis basis.

Gold rises on weak US Dollar, medium-term low in place.

Another fall in US yields on weak US GDP data was enough to inspire a decent rally in gold overnight, aided by a generally weaker US Dollar. Gold surged 1.25% higher to $1756.00 an ounce, adding another 0.40% to $1763.00 in Asia.

The chart has been suggesting, albeit unconvincingly, that gold has been trying to trace out a medium-term low since testing and bouncing off longer-term support at $1780.00 an ounce on the 21st of July. The price action since hasn’t been convincing, with the larger technical picture suggesting gold remained in danger. However, having taken our formidable resistance at $1745.00 an ounce overnight, the technical picture has convincing swung higher.

Gold should now trade back towards $1800.00 over the coming weeks if US yields remain soft. The breakout at $1745.00 now becomes support, followed by $1700.00 and $1680.00. Failure of $1675.00 would signal that the mother of all whipsaws has occurred. Resistance is now at $1780/85.00 an ounce, followed by $1800.00 an ounce.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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A Challenging Bond Auction for the DMO – Coronation Merchant Bank

The DMO held its monthly auction of FGN bonds yesterday. It offered N225bn but raised N200.9bn (USD466.5m) through re-openings of the 2025, 2032 and 2042 FGN bonds.



Bonds- Investors King

The DMO held its monthly auction of FGN bonds yesterday. It offered N225bn but raised N200.9bn (USD466.5m) through re-openings of the 2025, 2032 and 2042 FGN bonds.

The participation level was higher when compared to the auction held in July. However, total subscriptions remained lower when compared with the average of the first six months of 2022. The DMO secured a total bid of N247.1bn (USD574.6m) at the bond auction held yesterday.

The bids for the 3, 10 and 20-year benchmarks were allotted at the marginal rates of 12.5% (previously; 11.0%), 13.5% (previously; 13.0%) and 14.0% (previously; 13.7%) respectively.

The relatively low demand at the auction mirrors tight system liquidity. We note that market liquidity stood at a deficit of -N3.6bn on Friday (12 August ‘22). Overnight and repo rates closed within a range of 12 – 15%. The tightness in system liquidity can be partly attributed to CBN’s continuous use of the discretionary cash reserve ratio (CRR) debits.

We suspect that the negative real interest rates given the elevated inflation figure has contributed to investors’ apathy towards FGN bond yields. The latest inflation report released by the NBS shows July’s headline inflation increased by 104bps (when compared with the previous month) to 19.64% y/y. This is the highest reading since 2005.

Meanwhile, average yield in the secondary market for FGN bonds is 12.7% (as at 16 August ’22). The CBN’s in-house estimates suggest that inflation is likely to remain considerably high, partly due to the build-up of increased spending related to the 2023 general elections.

The monetary policy committee (MPC) believes that further tightening would help moderate worsening inflationary trend and narrow the real interest rate gap. The MPC/CBN raised the policy rate by 100bps from 13% to 14% in July ‘22. However, given the upward trend in inflation, expectations of another rate hike is not far-fetched.

The DMO had set out to raise a maximum of N1.9trn by end -Q3 ’22. However, year-todate, it has raised N2.1trn. exceeding its target by 12% or N220bn. Given that the debt management office is expected to offer instruments worth N221 – 240bn through reopenings of the 13.53% FGN MAR 2025, 12.50% FGN APR 2032 and 13.00% FGN JAN 2042 bonds in September, the DMO is likely to exceed its borrowing target for FGN bonds by end -Q3 ’22.

Allowing for the smaller amounts which the FGN raises from the sale of other debt instruments such as NTBs and savings bonds, DMO is on track pro rata to meet or exceed the domestic borrowing target for the year set at N3.53trn.

The FGN was unable to meet its revenue target for Jan – Apr 2022, it underperformed by 51%. FGN’s retained revenue stood at N1.63trn, compared to the prorate target of N3.32trn. Debt service (N1.94trn) accounted for 119% of the FGN’s revenue in April ‘22.

In the near term, we expect increased borrowing (via FGN bonds) to result in an uptick in yields across the curve. We see mid-curve FGN bond yields around 12.0 – 13.5% and yields at the longer-end of the curve between 13.25% – 14.25% over the next one month.

However, the level of system liquidity (impacted by items such as auctions, CRR debits/refunds, bond/NTB maturities, coupon payments and FAAC allocation) would also influence movement in yields.

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Nigerian Exchange Limited

Stock Market Extends Decline as Inflation Rises to 17-Year High in Nigeria

The Nigerian Exchange Limited (NGX) shed 0.07% on Monday after the NBS report showed inflation rose to a 17-year



Nigerian Stock Exchange - Investors King

The Nigerian Exchange Limited (NGX) shed 0.07% on Monday after the National Bureau of Statistics (NBS) report showed inflation rose to a 17-year in Africa’s largest economy in the month of July.

Nigeria’s inflation expanded by 19.64% in July, the highest since September 2005. The persistent increase in prices despite efforts by the central bank to rein in prices and deepen economic productivity forced many investors to start closing their open positions.

The market capitalisation of listed equities declined by another N19 billion to N26.769 trillion following a N571 billion decline recorded last week.

Similarly, NGX All-Share Index lost another 0.07% to close at 49,629.43 index points, this was in addition to 1,058.26 index points or 2.09% depreciation suffered last week.

Investors transacted 210,835,728 shares worth N2.188 billion in 4,122 transactions during the trading hours of Monday, representing a 71.90% decline from 750,285,275 shares that exchanged hands on Friday. E-Transact and financial services stocks were the most traded stocks on Monday as shown below.

A critical look into each sector showed the banking sector gained 15 basis points (bps) on a 4.65% appreciation in the values of Unity Bank, 2.12% gain in Zenith Bank and 0.33% improvement in Fidelity Bank. Jaiz Bank, UBA and Sterling Bank closed in the red.

The industrial index appreciated by 17bps. While consumer goods and oil and gas declined 33bps and 3bps, respectively.

The Exchange year to date declined further to 16.18%. See the details of top gainers and losers below.

Top Gainers

Symbols Last Close Current Change %Change
NEIMETH N 1.40 N 1.53 0.13 9.29 %
UNITYBNK N 0.43 N 0.45 0.02 4.65 %
FCMB N 3.35 N 3.49 0.14 4.18 %
ZENITHBANK N 21.25 N 21.70 0.45 2.12 %
TRANSCORP N 1.07 N 1.08 0.01 0.93 %

Top Losers 

Symbols Last Close Current Change %Change
PRESCO N 158.40 N 142.60 -15.80 -9.97 %
MULTIVERSE N 2.44 N 2.25 -0.19 -7.79 %
IKEJAHOTEL N 1.27 N 1.20 -0.07 -5.51 %
DANGSUGAR N 16.70 N 16.00 -0.70 -4.19 %
JAIZBANK N 0.91 N 0.88 -0.03 -3.30 %

Top Trade

Symbols Volume Value
ETRANZACT 52551673.00 119835326.82
FBNH 23082685.00 249782076.95
UBA 21896502.00 153480014.60
GTCO 15517148.00 315918097.65
TRANSCORP 12741555.00 13710597.18

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Stock Market

Stock Investors Lose N571 Billion Last Week

Investors traded 1.511 billion shares worth N13.547 billion in 20,074 deals last week



Nigerian Exchange Limited - Investors King

Investors in the Nigerian stock market lost N571 billion last week as investors continue to close their positions amid growing economic uncertainty and high borrowing cost.

Investors traded 1.511 billion shares worth N13.547 billion in 20,074 deals last week, against a total of 705.636 million shares valued at N12.850 billion that exchanged hands in 22,124 deals in the previous week.

Analysing activity across key sectors, the Financial Services Industry led the activity chart with 680.202 million shares valued at N4.672 billion traded in 9,230 deals. Therefore, contributing 45.02% and 34.48% to the total equity turnover volume and value, respectively.

The Services Industry followed with 499.178 million shares worth N3.407 billion in 866 deals. In third place was
the ICT Industry, with a turnover of 113.804 million shares worth N2.246 billion in 2,083 deals.

Capital Hotel Plc, FBN Holdings Plc and Jaiz Bank Plc were the three most traded equities. Together, the three accounted for 763.836 million shares worth N5.130 billion that were traded in 1,025 deals and contributed 50.55% and 37.87% to the total equity turnover volume and value, respectively.

The NGX All-Share Index depreciated by 1,058.26 index points or 2.09% to 49,664.07 index points from 50,722.33 index points it closed in the previous week.

Market capitalization depreciated by 2.09% or N571 billion to N26.787 trillion last week, down from N27.358 trillion it settled in the previous week.

Similarly, all other indices finished lower with the exception of  The NGX Insurance, NGX Consumer Goods and NGX Growth Indices which appreciated by 6.00%, 3.00% and 1.56% while, The NGX ASeM index closed flat.

Thirty-three equities appreciated in price during the week, lower than forty-one equities in the previous week. Twenty- six equities depreciated in price higher than Twenty-two in the previous week, while ninety-seven equities remained unchanged higher than ninety-three equities recorded in the previous week.

The Exchange year-to-date return declined to 16.26%. See the details of top gainers and losers below.

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