Global markets experienced a downward trend as disappointing China services data added to concerns over the nation’s fragile economic recovery.
Australia’s dollar continued its losses after the central bank decided to keep interest rates unchanged.
The MSCI Asia Pacific Index is on track for its first decline in seven days, with Hong Kong shares leading the way with a dip of more than 1%.
According to an industry survey, China’s services sector saw the slowest growth this year in August, further reinforcing the notion that the economic recovery is losing steam.
Hebe Chen, an analyst at IG Markets Ltd. in Melbourne, stated, “It’s the typical post-party reality check that’s cooling down China’s rally today, as the services PMI notably missed expectations, suggesting further economic downturn ahead.”
During Asian trading, futures for European and US stocks also fell while South Korean stocks joined the decline as August inflation accelerated faster than economists had predicted, driven by rising energy costs.
This development supports the argument for the central bank to remain open to further policy tightening.
Australian equities remained relatively stable, while the Australian dollar continued its earlier decline following the central bank’s decision to keep rates on hold for the third consecutive month.
Although officials indicated that further tightening might be necessary, they also acknowledged that inflation had peaked, and Australia’s bonds recovered some of their earlier losses.
In contrast, the US dollar gained strength against most of its Group-of-10 peers, while Treasuries slipped as cash trading resumed following a US holiday on Monday. The offshore yuan weakened in response to the PMI data.
Later in the day, traders will shift their focus to August PMI data from the euro area amid concerns about stagflation in the region. European Central Bank President Christine Lagarde refrained from signaling whether policymakers would raise or maintain interest rates in her speech on Monday.
In other market developments, oil prices remained near their highest levels since November due to supply cuts from OPEC+. Gold, on the other hand, experienced a decline.
In a more positive development, Country Garden Holdings Co. informed creditors that it had paid coupons of two dollar bonds within the grace periods. The developer is also proposing to extend principal payments for eight yuan bonds, as reported by holders briefed by company advisers.
Meanwhile, Goldman Sachs Group Inc. reduced its estimate of the probability of a US recession.
Chief economist Jan Hatzius noted, “Continued positive inflation and labor market news has led us to cut our estimated 12-month US recession probability further to 15%, down 5pp from our prior estimate.”
Bearish Sentiment Persists: Investors Lose N112 Billion on NGX
Drastic Decline in FGN Bond Listings Raises Concerns Over Government Borrowing
Data from the Nigerian Exchange Limited (NGX) has shown that the value of listed Federal Government of Nigeria (FGN) Bonds on the exchange experienced a decline of 99.9% in the eight months ending on August 31, 2023.
Plummeting from N1.6 trillion recorded during the corresponding period in 2022 to a mere N148.2 billion.
The stark contrast in FGN Bond listings between the two years has raised eyebrows and prompted experts to delve into the implications of this significant shift.
Analysis of NGX data revealed that the bonds listed this year primarily consisted of the FGN Savings Bond and Sukuk, whereas the previous year featured a combination of both Federal Government Bonds and Savings Bonds.
Among the listings, the FGN Sukuk stood out with the highest recorded value of N130 billion for the period under review.
Analysts have identified several factors contributing to the stark decline in FGN Bond listings.
David Adonri, an analyst and Vice Executive Chairman at HighCap Securities Limited, commented on this development, and said, “The reduction of FGN Bond listing could be an indication that the government borrowed less in the domestic market, and its implication is that it could affect liquidity in the secondary market.”
He continued, “The decline could also be that the FGN Bonds were not listed on the Exchange during the period under review as only the Savings Bonds were captured as well as Sukuk.”
Adonri highlighted concerns about the country’s debt profile, both domestically and internationally, saying, “Both externally and internally, the immediate past government had taken more debt. This is increasing the risk of sovereign default and economic nightmares.” He also noted the adverse effects on the real sector, explaining that “the borrowing has now reached the alarming point of crowding out the productive real sector.”
Tajudeen Olayinka, an Investment Banker and Stockbroker, echoed similar sentiments, saying, “If there was an increase in debt listings in the market, it brings about increased liquidity and trading activities in the market, but the drop in the eight-month period could be largely as a result of higher yields in other competing instruments.”
Olayinka also speculated that “the drop in the FGN Bond listing could also be that there was less borrowing by the government in the primary market so not much to offer for listing in the secondary market.”
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