Index to Bring Transparency to African Bond Market

Economic

Bond

Summary:

An effort by government agencies and large global banks to reduce borrowing costs for African countries has received a boost from a new index that helps investors assess relevant bond prices, executives and officials involved said.

Index to Bring Transparency to African Bond Market_1

The iBoxx LSF USD African Sovereigns Index, launched in late-June, tracks performance of African sovereign Eurobonds that a broader program called the Liquidity Sustainability Facility accepts as collateral. The LSF’s aim is to enhance the short-term financing market in Africa, which is badly underdeveloped, by offering more transparency with daily pricing.

African sovereign debt offers yields as much as 2.6 times higher than similarly rated countries on other continents, according to data compiled by Bloomberg. By developing a deeper repo market, the LSF estimates that African countries could save $11 billion over five years.

“This new index will help investors benchmark the true risks and rewards from investing in a diversified portfolio of African hard-currency sovereign debt,” said British Robinson, coordinator at Prosper Africa, a US presidential initiative aimed at encouraging trade and investment in Africa.

Gergely Urmossy, an emerging-market strategist at Societe Generale, said initiatives like the LSF can help reduce risk premia if they create new liquidity. But to attract more investors, African sovereigns need to improve their fundamental creditworthiness.

“The asset class or any idiosyncratic story’s attractiveness will depend on whether the potential investor base will find opportunities with attractive risk/reward profiles,” Urmossy said. “I do not think that they are game-changers without the right macro setting or policies.”

Established at the UN Climate Change Conference in 2021 and run by Vera Songwe, the former executive secretary of the United Nations Economic Commission for Africa, the LSF has become a linchpin for improving a sovereign-debt market that has had trouble luring a wide range of investors. African leaders have long complained that perception issues make it more difficult and expensive for their countries to borrow than peers with similar debt ratings elsewhere.

LSF’s prominent backers and advisers — from the White House to the World Bank and large institutions such as Citigroup Inc. — have helped the initiative funnel more liquidity through Africa’s financial pipes in what are called triparty repo transactions. Structured as short-term loans, a bondholder sells the instrument to a counterparty with an agreement to repurchase it soon after at a slightly higher price. A third party stands in the middle to hold collateral and ensure payments go through properly.

Higher Credit Costs

Those overnight loans are crucial to the functioning of capital markets in developed economies, but they have been very limited in Africa, which, in turn, forces sovereign borrowers to pay higher credit costs. It is too early to draw conclusions about the success of the iBoxx index, which launched on June 28, but it has created enthusiasm among those who want to improve conditions.

“Africa, particularly in the hard-currency bond market, didn’t have any real way to directly support a repo market,” said David Escoffier, chief executive officer of the LSF Secretariat. “The aim is to enlarge the universe of potential investors.”

The LSF receives funding from multilateral development banks including the African Export-Import Bank, and counts large institutions as partners. Citigroup advises the LSF and participated in its inaugural $100 million transaction in 2022. The LSF works with the triparty platform of Bank of New York Mellon.

S&P Dow Jones Indices manages and owns the newly launched iBoxx index. The gauge is now tracking bonds from 14 countries out of 19 issuers that are eligible for inclusion. Among them are Benin, Ivory Coast, Nigeria, South Africa and Morocco. Those involved expect the index to spur exchange-traded funds based on the its price — and to ultimately lower funding costs for African nations. When enough issuances have taken place the LSF plans to set up a similar index for African green, social and sustainable bonds.

Debt sales in Africa this year demonstrate a growing appetite for riskier bonds amid prospects of interest-rate cuts in the US.

Kenya, rated five levels below investment grade by S&P Global Ratings, received orders for more than three times its $1.5 billion issuance in February, before its recent budget debacle. Similarly, Benin’s dollar bonds were oversubscribed by more than six times and Senegal was able to raise $250 million more than expected in a June Eurobond offering. However, this increased interest hasn’t yet lowered the cost of borrowing.

For Escoffier, who spent 25 years in London and New York as CEO of Newedge Group SA and deputy head of global markets for Societe Generale SA, the goal “is to make more African countries eligible and able to access the market.”

Source：Bloomberg

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Economic

Indian Prime Minister Narendra Modi’s newly formed government presented an annual budget to Parliament that raises spending to generate more jobs and spur economic growth, while aiming to appease coalition partners it needs to stay in power.

In her budget speech Tuesday, Finance Minister Nirmala Sitharaman said the government is focused on driving domestic growth through jobs, training and small businesses.

India's inflation rate is stable and moving toward the government's 4% target, she said, while the economy grew at a sizzling 8.2% rate in the last fiscal year.

“India’s economic growth continues to be the shining exception and will remain so in the years ahead,” Sitharaman said.

More than a decade after he first took office as prime minister, Modi is under pressure to generate more jobs to help sustain growth.

The proposed budget includes a $24 billion package for job creation over the next five years and raises spending on loans for small and medium-size businesses. It allocates $18 billion to support agriculture and farm technology, such as climate-resilient seed varieties.

It also would raise spending, to $133 billion, on construction of thirty million homes for the poor, schools, airports, highways and other infrastructure. The budget would cut taxes on big corporations and allocate more funds to two states, Andhra Pradesh and Bihar, that are governed by the Modi government’s biggest coalition partners.

The government plans to build new airports, medical colleges and sports and tourism facilities in eastern India's Bihar state, which is ruled by the Janata Dal (United) party.

Sitharaman also announced special financial support for southern India's Andhra Pradesh state, ruled by the Telugu Desam party.

Modi’s governing Bharatiya Janata Party is relying on those two regional parties to keep its coalition government in power after it failed to win a majority on its own in recent national elections.

Modi said the budget will lead India toward “better growth and a bright future.”

“Today’s budget will act as a catalyst in making India the world’s third largest economy,” he said in a speech, reiterating his pledge to make India one of the top three economies during his third term in office.

India’s economy — the fifth largest in the world — is projected to grow at an annual rate of between 6.5% to 7% in the fiscal year ending in March 2025. But experts say the benefits of its rapid growth are shared unequally, as wealth of already affluent Indians has risen steadily without reaching the the majority of Indians who toil in the country’s large informal sector, where the quality of jobs is poor and precarious.

Billions of dollars worth of subsidies to manufacturing have not led to creation of enough jobs. To mitigate rising unemployment, the government said it will provide 12-month paid internship opportunities to 10 million young people in India's top 500 companies for a five-year period. Sitharaman said the training cost will be borne by the companies.

According to the Center for Monitoring the Indian Economy, youth unemployment was at 9.2% in early July, underscoring the challenge of delivering jobs in the world's most populous country, where millions graduate every year.

Inequality has surged in India in the last decade. According to a report by World Inequality Lab, wealth concentrated in the richest 1% of India’s population is at its highest in six decades.

The government is aiming for a fiscal deficit of 4.9% of India’s gross domestic product for the 2024-25 financial year, lower than the 5.1% figure in February’s short-term budget, Sitharaman said.

India is one of the highest current sources of emissions that lead to global warming, but the government announced plans Tuesday to set up a new 800-megawatt coal-fired thermal power plant. Sitharaman said the government will also support development of small and modular nuclear reactors to help meet India’s future energy demand.

The budget also allocates $1.37 billion to address damage from floods. India, which is one of the countries most vulnerable to climate impacts, has suffered an increase in flooding due to extreme rains and glacier melt in the last few years.

The budget requires approval from both houses of Parliament, but it is bound to be enacted as Modi’s coalition government holds a majority.

Source：AP

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Economic

World markets steadied on Tuesday as investors looked beyond Joe Biden's exit from the U.S. presidential race, turning their focus to corporate earnings and economic data.

Biden's exit from the race has cast some doubt over a Republican victory under Donald Trump and could see investors unwind trades betting that such a win would add to U.S. fiscal and inflationary pressures.

Vice President Kamala Harris will campaign in the battleground state of Wisconsin on Tuesday as the Democrats's presumed nominee.

The pan-European STOXX index was up 0.2%, while U.S. stock futures were down 0.1% following a 1.1% rise in the S&P 500 on Monday.

The U.S. dollar was up 0.1% against a basket of currencies. .

Having digested the news of Biden quitting the race, "markets appear to be in a bit of a holding pattern," said Michael Brown, senior strategist at broker Pepperstone in London.

Investors will now focus on whether the polls show a closer race against Trump than when Biden was the Democratic candidate, Brown said.

"You'd expect that, were polls to narrow, and the race be seen as a closer contest, volatility to tick higher, and perhaps some downside creep into the equity space too," he added.

Still, Asian markets remained supported on Tuesday, with Taiwan's benchmark snapping five sessions of losses, rising over 2%.

That tracked a broader rebound in chipmaking shares and recovering some of the $100 billion in market value that was wiped off TSMC, the world's largest contract chipmaker, over the previous few sessions following Trump's comments on Taiwan.

Focus was firmly on earnings on Tuesday, with Tesla and Alphabet due to report after the session close in New York, beginning the season for the "Magnificent Seven" megacap group of stocks.

The tech sector is projected to increase year-over-year earnings by 17%, while profit for the communication services sector is seen rising about 22%, according to LSEG IBES.

Big movers in premarket trading on the back of earnings so far on Tuesday included Spotify, which leapt around 14%, and United Parcel Services, which slumped over 10%.

In Europe, France's LVMH will be closely-watched as sliding demand from China has pummelled the sector.

DATA WATCH

In currency markets the yen was in focus, last up 0.7% against the dollar at 155.96.

Comments form a senior Japanese politician on Monday added to the pressure on the Bank of Japan, which meets on July 31, to keep hiking rates to help boost its currency, which Tokyo has intervened to prop up this month.

China's surprise interest rate cuts on Monday, putting a spotlight on weakness in the world's second largest economy, continued to hurt markets on Tuesday.

Chinese stocks recorded their biggest single-day drop in six months, copper prices dropped to their lowest in 3-1/2 months, while Australia and New Zealand's currencies, often seen as liquid proxies for the Chinese yuan, also fell.

The euro was down 0.3% at $1.086.

Focus remained on central banks. Markets have priced in two U.S. rate cuts this year with the first in September, but expectations could be ruffled by growth and consumer price data due later in the week.

Having ticked up on Monday, benchmark 10-year U.S. Treasury yields fell three basis points to 4.23%. Two-year yields , sensitive to interest rate expectations, were down 2 bps at 4.50%.

Advance U.S. gross domestic product is forecast to show growth picking up to an annualised 2% in the second quarter on Thursday, while the closely watched Atlanta Fed GDPNow indicator points to growth of 2.7%, suggesting some risk to the upside.

On Friday, the core personal consumption expenditures index, the Fed's preferred inflation measure, is seen rising 0.1% in June, pulling the annual pace down a tick to 2.5%.

Gold prices were pinned around $2,400 after peaking above $2,450 last week. Brent crude futures , which hit a one-month low on Monday, were down 0.8% at $81.77.

Bitcoin , which has rallied on bets a Trump administration would take a light-touch approach to cryptocurrency regulation, was down over 2% at $66,428.

Source: Reuters

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Economic

Stocks

Vice President Kamala Harris will campaign in the battleground state of Wisconsin on Tuesday as the Democrats's presumed nominee.

The pan-European STOXX index was up 0.1% (.STOXX), opens new tab while U.S. futures were down 0.2% following a 1.1% rise in the S&P 500 on Monday.

The U.S. dollar, which had edged higher on Monday, was unchanged against a basket of currencies on Tuesday .

"Markets appear to be in a bit of a holding pattern this morning having now digested the weekend news flow of Biden quitting the presidential race," said Michael Brown, senior strategist at broker Pepperstone in London.

Investors will now focus on whether the polls show a closer race against Trump than when Biden was the Democratic candidate, Brown said.

"You'd expect that, were polls to narrow, and the race be seen as a closer contest, volatility to tick higher, and perhaps some downside creep into the equity space too," he added.

Still, Asian markets remained supported on Tuesday, with Taiwan's benchmark (.TWII), opens new tab snapping five sessions of losses, rising over 2%.

That tracked a broader rebound in chipmaking shares recovering some of the $100 billion in market value that was wiped off Taiwan's TSMC (2330.TW), opens new tab, the world's largest contract chipmaker, over the previous few sessions.

The stock had come under pressure following Trump's comments that Taiwan should pay to be defended and accusing the island of stealing American chip business

Focus was firmly on earnings on Tuesday, with Tesla (TSLA.O), opens new tab and Alphabet (GOOGL.O), opens new tab due to report after the session close in New York, beginning the season for the "Magnificent Seven" megacap group of stocks.

The tech sector is projected to increase year-over-year earnings by 17%, while profit for the communication services sector (.SPLRCL), opens new tab is seen rising about 22%, according to LSEG IBES, but richly valued stocks are also prone to disappointment.

Others reporting include France's LVMH (LVMH.PA), opens new tab, which will be closely-watched as sliding demand from China has pummelled the sector.

DATA WATCH

In currency markets the main mover was the yen, which was last up 0.6% against the dollar at 156.04.

Australia and New Zealand's currencies, often seen as liquid proxies for Chinese yuan, also dropped following China's surprise interest rate cuts on Monday, which has also put a spotlight on weakness in the world's second largest economy.

The euro was down 0.2% at $1.0873.

Having moved higher on Monday, benchmark 10-year Treasury yields inched two basis points lower to 4.24% and two-year yields , sensitive to interest rate expectations, were down 2 bp to 4.51%.

Advance U.S. gross domestic product is forecast to show growth picking up to an annualised 2% in the second quarter, while the closely watched Atlanta Fed GDPNow indicator points to growth of 2.7%, suggesting some risk to the upside.

The core personal consumption expenditures index, the Fed's preferred inflation measure, is seen rising 0.1% in June, pulling the annual pace down a tick to 2.5%.

Gold prices were pinned around $2,400 after peaking above $2,450 last week. Brent crude futures , which hit a one-month low on Monday, were up 0.1% at $82.48 a barrel.

Bitcoin , which has rallied on bets a Trump administration would take a light-touch approach to cryptocurrency regulation, was down 1.8% to $66,920.

Source：Reuters

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Warren Takunda

Cryptocurrency

Another tranche of Mt. Gox Bitcoin, worth $3.2 billion, was moved to the Bitstamp exchange and an unknown wallet. Spot Ether exchange-traded funds have received the final approval necessary to begin trading in the US. Meanwhile, a crypto advocacy group has penned a letter to US Vice President Kamala Harris urging her to consider adopting a more blockchain-friendly stance.

Mt. Gox sees $3.2 billion BTC in outflows in just two hours

Mt. Gox began shifting funds again on July 23, moving over 47,500 Bitcoin, worth almost $3.2 billion, to two unknown addresses at 5:05 am and 6:27 am UTC.

According to Arkham Intelligence data, Mt. Gox holds 90,344 Bitcoin BTCUSD worth $6.02 billion, but this is outdated, and its current holdings now stand at around 42,744 BTC worth $2.85 billion.

Following the defunct exchange’s repayments statement on July 5, it established plans to “promptly” carry out repayments to creditors that seem well underway.

The Mt. Gox wallet labeled “Mt. Gox: Cold Wallet (1Jbez)” sent 5,110 BTC worth around $340 million to an unknown wallet and the cryptocurrency exchange Bitstamp.

Of the 5,110 BTC, 2,871 BTC, worth around $191 million, was sent to an unknown address starting with 1JKMS, while the remaining funds, worth $149 million, landed on Bitstamp.

On July 22, Mt. Gox began preparing to repay creditors through Bitstamp, according to onchain fund holding movements.

Spot Ethereum ETFs get approval to begin US trading on July 23

Spot Ether exchange-traded funds have been given the final approval to begin trading in the United States on July 23.

On July 22, the United States Securities and Exchange Commission gave the necessary approvals for their launch on their respective stock exchanges, including the Nasdaq, New York Stock Exchange, and Chicago Board Options Exchange.

The successful spot Ether ETF issuers include BlackRock, Fidelity, 21Shares, Bitwise, Franklin Templeton, VanEck and Invesco Galaxy. Analysts expect Grayscale to also begin trading on the day.

Meanwhile, analysts from Kaiko expect the price of Ether to be “sensitive” to spot Ether ETF inflows in the coming days, as investors will remember lackluster demand for ETH futures products late last year.

“The launch of the futures-based ETH ETFs in the US late last year was met with underwhelming demand, all eyes are on the spot ETFs’ launch with high hopes on quick asset accumulation,” said Kaiko’s head of indices Will Cai in a July 22 market report.

The Digital Chamber pens letter to Vice President Kamala Harris

The Digital Chamber penned an open letter to United States Vice President Kamala Harris on July 22 advocating for a more crypto-friendly stance and industry engagement from the potential Democrat nominee, should she secure the party’s 2024 presidential nomination.

The Digital Chamber’s letter outlines three actionable points for a potential Harris campaign, including support for digital assets in the Democrat Party’s platform, a vice presidential candidate “sophisticated” in digital asset policy, and lines of communication between the presumptive candidate’s campaign and industry leaders.

After weeks of speculation, a letter was posted to President Joe Biden’s X social media account on July 21, announcing that the incumbent was dropping out of the 2024 presidential race. This development was hotly contested in predictive markets.

Following the announcement, crypto markets briefly dipped due to the uncertainty created by the election shakeup, though markets rallied later that day, with Bitcoin (BTC) reaching a price of around $68,000.

Source: Cointelegraph

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Samantha Luan

Economic

Energy

In its July 2024 report, the International energy Agency (IEA) projected that nuclear energy production will hit an all-time high by 2025. This optimistic forecast is driven by the increasing global focus on nuclear power as a dependable source of electricity to meet climate objectives and cut carbon emissions. According to the IEA, nuclear power generation is expected to surge by 3.5 percent in 2025, reaching over 2,900 terawatt hours of electricity globally. For 2024, the agency anticipates a growth rate of 1.6 percent, translating to around 2,800 terawatt hours.

The anticipated rise in nuclear energy output is due to several key factors, including the gradual increase in nuclear capacity. The French nuclear fleet is playing a significant role in this growth, having recently completed extensive maintenance. In addition, Japan is restarting several of its reactors, and new reactors are being brought online in countries such as China, India, South Korea, and across Europe. These developments reflect a growing commitment to nuclear energy as an essential part of the global strategy for sustainable energy production and climate change mitigation.

The report highlights that these expansions and restarts are central to the anticipated peak in nuclear power generation. The ongoing maintenance and upgrades to existing facilities, along with the introduction of new reactors, contribute significantly to the overall growth in nuclear energy. This progress underscores a broader strategy to leverage nuclear power in the fight against climate change and ensure a more stable energy future.

Overall, the IEA's forecast indicates a robust future for nuclear energy, driven by both technological advancements and increased investment. As countries continue to invest in and expand their nuclear capabilities, the role of nuclear power in achieving global climate goals and meeting rising electricity demands is expected to become increasingly prominent.

Source：menafn

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Economic

Central Bank

The Bank of England could still cut interest rates on August 01, but it is increasingly clear it will have to show caution in the subsequent months as the new government commits to inflation-busting pay increases for public sector workers.

Rachel Reeves is preparing to hand millions of public sector workers an above-inflation pay rise and attempt to blame the Conservatives for any tax rises needed to fund it.

This is after independent pay review bodies covering half a million teachers and more than 1.3 million NHS staff recommended a 5.5% increase, significantly more than the 3% budgeted for.

"Reeves may be hoping an MPC interest rate cut before October reduces government-bond yields and debt interest costs. But the more she boosts public spending, the less room the MPC will have to cut interest rates," says Robert Wood, Chief UK Economist at Pantheon Macroeconomics.

The Bank of England keeps a close eye on pay settlements as they can boost demand in the economy and contribute to higher inflation levels. If it thinks pay will remain robust, it might be cautious in its approach to cutting interest rates.

The Times reports pay awards for the rest of the six million public sector workers, including doctors, police, members of the armed forces and civil servants, are understood to be similar.

"How significant is this? BoE May MPR projections anticipated total economy average earnings growth easing from 5.25% in 2024 to 2.25% for 2025. Even if public sector workers are only 18% of total employment, pay increases of 5.5% look difficult to square with that 2025 forecast absent a much deeper downward correction in the private sector," says Sam Hill, Head of Market Insights at Lloyds Bank.

Hill says is still not clear that the necessary downward shift in private pay is happening. "Private sector regular pay growth may have eased from 5.9% 3m/y to 5.6% 3m/y last week, but other survey evidence casts doubt on how confident we should be about the downward trajectory," he explains. Pound Sterling: Reeve's Inflation-busting Pay Rises to Offer Fresh Tailwinds Against Euro and Dollar_1

Pound Sterling: Reeve's Inflation-busting Pay Rises to Offer Fresh Tailwinds Against Euro and Dollar_1

"Suspense over the timing of the first BoE rate cut remains high after above-forecast inflation data for June and political pressure grows on Chancellor Reeves to accept a 5.5% hike in public sector pay to keep pace with private sector pay," says Kenneth Broux, an analyst at Société Générale.

Pound Sterling is the best-performing major currency of 2024 as it benefits from expectations that UK interest rates will remain elevated to those elsewhere, offering international investors superior returns. The flow of money from low to high interest rate areas is potent and is the primary driver of FX value in times of low volatility.

However, accepting pay recommendations across the board would require Reeves to find about £8BN. This will need to come from within existing spending plans, which means cuts elsewhere or from further tax rises which could ultimately restrict the economy's potential.

The Pound to Euro exchange rate (1.1870) has retreated from recent highs as expectations for an August 01 rate cut have ticked higher again over the coming days. Money markets show the odds of such a move are at 50-50.

The Pound to Dollar exchange rate (1.2929) has also eased from recent highs amidst a recovery in rate cut expectations, however, global investor sentiment and U.S. politics are also an important driver of this pair.