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Breakfast Report - 18 March 2024

Headline inflation rose by +180bps to 31.70% y/y in February (January: 29.90% y/y).  We attribute the surge to sustained security challenges in food producing states. Food inflation surged to a new 19-year high of 37.92% y/y (Jan’24: 35.41% y/y) on the back of sustained pressures on the prices of both farm (+68.27% y/y) and processed (+32.85% y/y) produce. Annual core inflation, which measures the change in non-food prices, rose by 123bps to 24.67% y/y in February (Jan’24: 23.44% y/y). This is amid elevated but slowing pace of fuel price increases and exchange rate volatility. In March 2024, we see reduced exchange rate volatility and lower energy price increases as tailwinds for inflation. However, insecurity could continually pose a headwind to inflation from the supply side, while Ramadan activities could serve as a demand shock to food prices.

Equity: Despite the tilt towards the fixed income space last week, as volumes in the equity market dropped, the banking sector had an impressive week, returning 12.84% WTD, while the ASI gained 3.71%. This can be attributed to investors taking positions ahead of earnings and anticipated corporate disclosure. While rates are expected to remain slightly elevated, we still expect long-term investors to continue to take advantage of some of the decent entry levels in the equity market this week. 

Fixed Income: We expect the market to open on a quiet note due to the bond PMA scheduled for today. Following the PMA, we expect market sentiments to be in line with auction results. For the bond auction, moderations are expected in rates, just as was seen in the NTB PMA held last week.