Business
Euro sags after inflation data, EM steady after rout
LONDON – The euro fell and the bloc’s government bonds rallied on Friday as weaker-than-expected inflation data increased pressure on the European Central Bank to either cut rates or employ other easing tools at its meeting next week.
Eurostat’s first reading of January inflation showed it slowed back down to 0.7 percent, the level that saw the ECB catch markets off guard with a rate cut in November.
The banks sees 2 percent inflation as optimal for the region’s economy and with little chance of being anywhere near that level anytime soon, calls have been intensifying on it to take more aggressive action.
“It’s now more likely than ever that Draghi is going to have to step in with some extraordinary measure to stave off deflation,” said Aberdeen Asset Management fixed income investment analyst Luke Bartholomew.
“The big challenge is exactly what to do. With the store cupboard of conventional measures largely bare, any policy action is likely to be unprecedented.”
While more forward-looking data has painted a brighter picture for the euro zone and its debt strained periphery members, unemployment figures, which came alongside the inflation reading, remained at a record high.
Whatever form it takes, the prospect of more ECB easing sent the euro lower against its major currency peers and pushed down the all-import money market rates which are the benchmark for borrowing costs in the bloc.
The euro was last at $1.3541 against the dollar having started the week at $1.37, while euro zone government bonds which become more attractive the lower borrowing costs go, rallied. <GVD/EUR>
Although it is more likely to wait until March when it has new in-house forecasts available, the most obvious option available to Draghi and his fellow policymakers is to take rates even closer to zero, and in the case of the deposit rate that acts as floor for money rates, into negative territory.
But they could just as easily increase the amount of cash sloshing around the system by no longer “sterlising” the 170 billion euros of Italian, Spanish and other bonds bought at the peak of the euro crisis.
“It should keep speculation on the table that the ECB may have to take further action to help fight disinflation in the months ahead and as such could prove negative for the euro,” said Josh O’Byrne, FX Strategist at Citi.
SHARED PAIN
European shares .FTEU3 saw no gain from the data as they struggled to shake off the difficulties that have spread from emerging markets this week.
Britain’s FTSE 100 .FTSE and France’s CAC 40 .FCHI extended early losses to 0.7 and 0.9 percent respectively, while Germany’s DAX .GDAXI was nursing the biggest falls, dropping 1.3 percent as weaker than expected retail sales and pressure on Deutsche Bank added extra gloom.
European banking authorities sketched out some of the details of their upcoming stress tests, saying big banks would have to ensure they still had 5.5 percent in spare capital if another financial meltdown took place.
Lunar new year celebrations meant a number of bourses in Asia had been shut, but those that were still open remained weak as fears about the impact of the Federal Reserve’s stimulus withdrawal on emerging markets offset the reassurance of Thursday’s upbeat U.S. growth data.
Japan’s Nikkei stock average .N225 reversed sharply and ended down 0.6 percent as a resurgent yen, combined with data dousing hopes of more stimulus from the BOJ, left the index with its third worst January in 50 years.
For world stocks on MSCI’s 45-country, all-world index .MIWD00000PUS not only was it the end of their first down month in five, it was also their biggest monthly drop in almost two years.
“I think the BOJ is unlikely to adopt additional easing because there is no reason to justify it, given the positive macro-economic environment,” said Junko Nishioka, chief economist at RBS Securities.
EMERGING TENSIONS
In the currency market, the dollar .DXY gained the upper hand after the soft euro zone inflation reading while the yen hit a two-month high on the euro. The Turkish lira was also steadier after its torrid week at 2.2570 to the dollar.
Political issues in countries such as Turkey, South Africa and Argentina have amplified worries about economic imbalances, hammering their currencies and wiping over a trillion dollars off the value of world stocks this week.
Central banks in Turkey, South Africa and India have all reacted by hiking interest rates while Russia’s central bank has pledged unlimited foreign exchange interventions to keep the rouble in check.
On the commodities front, spot gold was nearly flat at $1,245.00 an ounce, but a 2-percent overnight fall following the strong U.S. GDP data was set to end a five-week rally.
Brent oil and U.S. crude hovered at $107.90 and $97.80 a barrel respectively while growth-attuned metal copper drifted toward a 4 percent monthly fall.
“The absence of the Chinese market for the next week means that we may see some further downside on commodities, especially if we do see the dollar gaining ground,” said Tim Radford, of Sydney-based metals adviser Rivkin.
– REUTERS
The Central Bank of Nigeria (CBN) has issued a stern warning to Deposit Money Banks (DMBs) over the illegal sale of mint Naira notes to currency hawkers.
The apex bank, in a circular signed by the Acting Director of Currency Operations, Mr. Solaja Olayemi, on Friday, emphasized that erring banks would face stringent penalties.
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As part of its efforts to curb the abuse of the national currency, the CBN announced plans to conduct nationwide checks to seize mint notes sold by hawkers.
Banks found to have released such notes will be required to pay a fine of 10% of the value of the affected cash withdrawn from the CBN on the date in question.
Subsequent violations will attract an additional penalty incrementally increased by 5%.
The CBN also reiterated its commitment to enforcing the Clean Notes Policy, warning that banks involved in hoarding, diversion, or any actions that disrupt efficient cash distribution would face appropriate sanctions.
With the festive season fast approaching, the apex bank urged DMBs to enhance internal controls to ensure transparent cash distribution.
It highlighted the need for proper utilization of Automated Teller Machines (ATMs) to ensure easy access to new notes by the public.
Furthermore, the CBN disclosed plans to intensify its mystery shopping and spot checks, working closely with law enforcement agencies to clamp down on any practices that undermine the integrity of the Naira.
Nigeria’s inflation rate surged to 33.88% in October 2024, up from 32.7% in September, according to the latest Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) on Friday.
The month-on-month increase of 1.18 percentage points marks yet another strain on the nation’s economy, with transportation and food costs cited as the main drivers of inflation.
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Steep Year-on-Year Increase
Compared to October 2023, when the inflation rate stood at 27.33%, the October 2024 figure reflects a significant rise of 6.55 percentage points. This sustained upward trend highlights the worsening cost-of-living crisis for Nigerians.
Month-on-Month Breakdown
Inflation on a month-on-month basis also showed an uptick, rising to 2.64% in October 2024 from 2.52% in September. The faster rate of price increases further underscores the growing economic pressure on households.
Food Inflation Soars to 39.16%
Food inflation, a major component of the headline rate, reached 39.16% in October 2024, up from 31.52% in the same month last year.
The increase was driven by higher prices of staple items, including: Cereals and Tubers: Guinea Corn, Rice, Maize Grains, Yam, Water Yam, and Coco Yam. Oils and Fats: Palm Oil and Vegetable Oil. Beverages: Milo, Lipton, and Bourvita.
On a month-on-month basis, food inflation rose by 0.30 percentage points to 2.94% in October, up from 2.64% in September.
Price hikes in Palm Oil, Vegetable Oil, Fish, Meat, and Bread categories were major contributors.
Annual Food Inflation Hits 38.12%
The average annual food inflation rate over the past 12 months climbed to 38.12%, a sharp increase of 11.79 percentage points from the 26.33% recorded in October 2023.
The consistent rise in inflation, particularly food and transportation costs, continues to erode the purchasing power of Nigerians.
The Manufacturers Association of Nigeria (MAN) has expressed the view that support of both Nigerians and the government for the Dangote Refinery, would enable the giant refinery to perform optimally.
It added that such support will also serve as an impetus for other investors to invest in the downstream sector of the petroleum industry in Nigeria.
The President of MAN, Otunba Francis Meshioye, who made the call after a tour of the Dangote Petroleum Refinery, Petrochemical Complex and Fertilizer Plant advocated that Nigerians and the government should do all they can to support the multi-billion-dollar company, which he described as a source of pride and a gift not only to Nigeria but also to the African continent and the whole world.
He described the Dangote Refinery as a game-changer in the Nigerian oil and gas industry, saying that it is not only creating jobs and driving economic growth but also contributing to our nation’s energy security and self-sufficiency.
According to him, the project is quite inspiring, and he admired the inspiration of the promoter of the project, Aliko Dangote.
He said, “To have been inspired to establish this facility is very magnificent, it is the first ever in Africa and the first ever of such refinery in the whole world. It has many first, first and first.”
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The company has the capacity to produce all our needs locally, petroleum, and other similar products: no one would come to the facility and he would not be inspired or encouraged to ensure that all the support that the company requires should be given to it.
The MAN President said the government should do all that is humanly possible to ensure that the facility works Optimally. “It is prudent and expedient that the necessary supports are given to the company for the economic benefits of Nigeria.
“If the facility can produce 650,000 barrels of crude per day and Nigeria is producing far above this volume per day, she should give the facility all crude it needed to produce”.
He noted that apart from the fact that the facility can give Nigerians what they need locally, the excess will be exported, and when they are exported, the country benefits because it will earn foreign exchange for the government.
“So, whichever way we look at it, the facility requires the government’s support to be able to operate optimally. We have seen the laboratory which is in a class of its own. It is first among equals around the world. It is functioning very well. It is a complex on its own.
“With this kind of facility that starts from quality control to quality assurance, just to ensure that the harmful effects of the products are at zero level, what can be greater than this? This is very unique and I will encourage all stakeholders to give maximum support, and not by the way support, but maximum support.
“I cannot see anything that is lacking in this company, we have been here since morning and went through all the units. The facility can deliver products between 1760 trucks to 1800 trucks per day. So if you have such several trucks going out of the facility a day to various destinations in Nigeria, so many people will benefit from it. There will be more jobs, many families will be comfortable because of the jobs this will create, many artisans will benefit and it will have a spillover effect on so many sectors of the economy.
“If they can produce AGO, gasoline and Jet A fuel, this is good and the government should have no reason not to ensure the facility gets its backing to carry out its activities, because it is going to benefit massively,” he added.
The MAN boss who stated that his organization is an advocacy group, said to a large extent it will support the Dangote Refinery by pushing its case with the government, and also solicit the support of necessary government agencies that can ensure that it operates fully.
The association, he said, always discusses with the government issues that affect its members and it has always listened to it , and always finds solutions to those issues, stating further that Dangote Refinery’s case will not be different.
“The sheer scale and ambition of this project is truly impressive, and we applaud the vision and determination of the Dangote Group in making this refinery a reality.
As manufacturers, we understand the importance of reliable and affordable energy in driving our businesses forward. The Dangote Refinery will undoubtedly have a positive impact on the entire manufacturing value chain, providing a reliable source of fuel and petrochemical products that are essential for capacity utilisation and value addition.
“I believe that the success of the Dangote Refinery serves as an inspiration to all of us in the manufacturing sector. It demonstrates what is possible when we combine innovation, technology, and investment to create world-class facilities that benefit the entire nation,” he asserted.
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