Market Commentary

Fed Reserve comments dominated movements in stock this week creating nervousness and thus high volatility on the broader market. These moves followed the release of minutes from the Fed’s latest meeting, which emphasised the Fed’s intent to raise interest rates soon, provided the U.S. economy continues to strengthen. However, a handful of mixed data on Thursday did not offer investors more clarity about the health of the economy.

Over the past week, several Fed officials have tried to convince investors they should still expect the central bank to raise interest rates twice this year. The market does not seem to buy it just yet. Despite stronger than expected U.S. retail sales and business inventories released on Friday which helped drive expectations for second-quarter economic growth higher and recent more hawkish comments, investors do not seem to believe that rate hikes could happen at a faster pace than previously thought. Indeed, so far, global growth remains weak and in addition, U.S. data on inflation, manufacturing and consumer spending has been mixed. The lyrics are fairly known by now, the lower the probability of a US rate hike, the better the music for African markets.

The party theme must certainly have been red this week on African markets as most of them adopted the look perfectly. African stocks experienced the longest losing trend since December, as markets held their breath on concerns the United States April payroll report could support the idea that the US economy is strong enough to justify higher interest rates.

This week's inaction from two major central banks, namely the US Federal Reserve and the Bank of Japan, has caused the global equity indices ... and the US dollar to weaken. Indeed, slower US growth than expected encouraged the Fed not to raise interest rates and to lower its expectations for any more hikes this week. It’s all about global sentiment, generally the statement that the Fed would be more cautious moving forward was supportive for African currencies.