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Breakfast Report - 30 January 2023

• The Monetary Policy Committee (MPC) has taken action at the start of the year by raising the benchmark rate by 100 basis points to 17.50%. The decision was made in response to heightened global and domestic inflation risks. The MPC aims to improve the negative real rate of return through this tightening measure. Holding the rate steady was not a viable option as it could have worsened inflation, and loosening was not considered due to concerns it would indicate a lack of confidence in the current policy stance on inflation control. Our analysis suggests that the MPC's next move may be influenced by the direction of inflation. With upward pressures on inflation prevalent, the MPC may opt to raise rates by an additional 50-100bps in its next meeting.
• Equity: Market volatility is expected to persist, as investors react to recent rate hike decisions and earnings results. Despite this, market sentiment appears to have improved, indicating a potential positive close to the week.
• Fixed Income: This week, another bullish session is projected at the start, as investors respond to recent auction results. Meanwhile, system liquidity is expected to be a key driving factor in market activity.

 

• Commodities: Last week's commodity prices on AFEX Commodities Exchange displayed a mixed performance. Maize, Paddy rice, Sorghum, Sesame and Cashew experienced increases of 1.74%, 3.53%, 8.62%, 15.00% and 5.48% respectively, while Soybean and Cocoa recorded decreases of -0.26% and -1.56%. YTD, Maize, Soybean, Paddy rice, Cocoa, and Sesame generated returns of 14.46%, 10.46%, 7.79%, 1.62% and 38.55% respectively, while Sorghum and Cashew recorded negative returns of -4.91% and -3.86% respectively. The AFEX Commodities Index (ACI) increased 1.79% w/w, closing at 495.08 points compared to 486.37 points. Conversely, the AFEX Exchange Index (AEI) declined by -0.78% w/w, closing at 245.6 points compared to 247.59 points. The ACI has generated a YTD return of 6.89%, while the AEI has returned 2.75%.