CAPITALDIGEST, MARKET REVIEW, 26/9/2022

U.S. DOLLAR SOARS TO TWO-DECADE HIGH AS FED FLAGS LARGER HIKES Some shareholders have threatened to drag the Nigerian Stock Exchange Limited to court over a notice issued to hold its annual general meeting, to raise additional N35bn through hybrid offering of equity and debt among other issues. A letter titled, ‘Re: Notice of 61” Annual General Meeting of NGX Exchange Group Plc’ by solicitors to Mr Olayinka Olajuwon and Bamidele lbironke, who represented the shareholders,described the notice as “fraudulent, ill-advised” and abuse of office by the directors of the board. The shareholders claimed that the resolution was in contrary to Section 142 (2) of the Companies and Allied Matters Act 2020, insisting that the law guiding the Exchange Limited does not give its Board of Directors any right to a lot share. STERLING DENTED BY MODEST BOE RATE HIKE Sterling surrendered gains against the dollar and the euro on Thursday after the Bank of England raised its key interest rate to 2.25% and vowed to “respond forcefully, as necessary” to inflation, despite the economy entering recession. The BoE raised its benchmark rate by 50 basis points (bps) as it takes aim at consumer inflation that is running near 40-year highs. Some market watchers had priced in the possibility of a 75 basis point increase. The pound eased back from earlier highs after the BoE’s decision, trading up 0.3% on the day against the dollar at$1.1300, having traded with a 0.85% gain right before the announcement. Against the euro, sterling reversed earlier gains and fell 0.1% to 87.29 pence, after briefly rising to a one-week high of 86.95 pence before the decision. London’s blue-chip FTSE 100 share price index spiked briefly higher before reversing course and trading down 0.3% while the domestically-focused index of midcap stocks got a small boost but was still trading down 1.2%. DOLLAR TOWERING, STOCKS COWERING AS FED FLAGS MORE HIKES The dollar surged to a fresh two-decade high and Asian stocks hit a two-year low on Thursday after the Federal Reserve sharply hiked U.S. interest rates and projected raising them further and faster than investors had expected in order to tame inflation. The median of Fed officials’ outlook, which has U.S. rates at 4.4% by year’s end and staying high in 2023, seemed to spook even hawkishly positioned rates and currency markets and quickly extinguished relief that Wednesday’s hike had not been larger. The dollar index =USD , a measure of the greenback against a basket of majors, extended Wednesday gains to make a new 20-year high at 111.72 during the Asia session. The euro EUR=EBS sank to a 20-year low of $0.9807 as Russia mobilised reservist troops for war in Ukraine. The yen JPY=EBS briefly hit a 24-year trough when Japanese policymakers unanimously stuck with ultra-easy settings, as expected. Gold XAU= fell 1%. Sterling, the Aussie, kiwi, loonie, Sing dollar and yuan all made milestone lows. S&P 500 futures ESc1 fell 0.6% and European futures STXEc1 dropped 2%. ” EURO, STERLING PLUNGE ON SOFT BUSINESS ACTIVITY DATA, UK BUDGET WOES The euro and sterling plummeted to fresh 20-year and 37-year lows against a surging U.S. dollar on Friday after surveys showed the downturn in business activity across the euro zone and Britain accelerated this month and the economies were likely entering a recession. Also weighing on sterling, Britain’s new finance minister Kwasi Kwarteng announced tax cuts and household and corporate support measures and the UK debt office laid out plans for 72 billion pounds ($79.74 billion) of additional issuance for this financial year to fund the stimulus. read more Sterling posted its biggest weekly decline against the U.S. dollar in two years after it touched a fresh 37-year low of $1.0840. The pound was the day’s biggest loser against the dollar, down 3.4% at $1.0874, and also had its largest daily percentage loss in two years. British bond yields also surged on Wednesday as prices sank. Benchmark UK 10-year yields soared to 3.829%, a level not seen since April 2011. STERLING SLIDES AHEAD OF EXPECTED BRITISH TAX CUT DETAILS Sterling fell to a fresh 37-year low against the dollar on Friday ahead of expected details from Britain’s new finance minister of close to 200 billion pounds ($225 billion) of tax cuts and energy subsidies. The pound GBP=D3 fell around 0.6% to as low as $1.1170, its lowest level since 1985. It was steady against the euro at 87.40 pence per euro. EURGBP=D3 The very strong dollar has weighed on all major currencies in recent months, although the pound has been very hard hit as Britain grapples with a sluggish economy and sky high inflation. Chancellor Kwasi Kwarteng hopes his policies will boost growth and break a “cycle of stagnation”, though some fear the scale of the spending could put sterling under further pressure. He is due to make a statement to parliament at 0830 GMT. Derek Halpenny, head of research at MUFG, said in a note he sees risks the pound could fall further over policies that could possibly: “lack credibility and raise concerns over external financing pressures given the budget and current account deficit combined looks to be heading to around 15% of GDP.” Of the international banks and research consultancies polled by Reuters last week, 55% said there was a high risk confidence in British assets would deteriorate sharply in the coming three months.