06 July 2018 ( Lagos ) : The World Bank updated its forecast for the global economy in the June edition of its semiannual Global Economic Prospects, maintaining global growth projections for 2018 and 2019 at 3.1% and 3.0% respectively. In more contemporary news, June provided a contrast in global cooperation as trade tensions worsened between the U.S. and its key trading partners while OPEC and its major allies (led by Russia) agreed to increase its joint production target by 1 mb/d (c.1% of global supply) in order to prevent future supply gaps.
The decision was well received by the oil market, partly because the effective output rise would likely be much less given the production challenges faced by a host of countries (Venezuela, Iran, Nigeria, Angola). As such, oil price expectations remain strong for the rest of the year, and analysts expect Brent crude to average $67/bbl in 2018.
The U.S. Federal reserve (Fed) hiked its base interest rate in June in line with market expectation, but also intimated two more hikes in 2018 – contrary to initial guidance of one more hike post-June. This decision was bolstered by a further rise in the Fed’s preferred inflation gauge to 2.3% y/y in May (above its 2% target rate) and unemployment rate remaining marooned at its lowest point since 2000.
The more hawkish Fed outlook and a stronger dollar deepened the aversion to emerging market securities and compounded a Q2’18 sell-off in emerging market assets. African economies were worst-hit as African assets underperformed in comparison to their emerging market peers in Q2, with local currency bonds feeling the tightest pinch.
What to look out for in July…
The United States Federal Reserve Bank chairman Jerome Powell gives his semiannual monetary policy committee speech before the Senate Banking Committee on 17th of July. This would be an opportunity for the Fed chair to provide more clarity on medium-term Fed policy and would be a key date for emerging markets that have been hit by the Fed scare.
Reporting for EasyKobo on Friday, 6 July 2018 in Lagos, Nigeria
Source: Vetiva Capital Management Limited