Global financial markets started the year in red as renewed uncertainty over growth induced heightened volatility. Whilst for China the depth of economic slowdown and its monetary authority’s attempt to defy the “impossible trilemma”1 were at the heart of worries, concerns over the sustainability of US’ fledgling recovery—despite its strong labour market growth—and danger of potential reversion to deflation in Europe compounded decision making for investors. On the policy front, apex banks across developed markets largely maintained their expansionary course, with Bank of Japan (BoJ) and European Central Banks (ECB) respectively guiding to extension of negative interest rates and quantitative easing programmes in coming periods. Whilst the US had looked the more likely to buck the DM easing trend on the back of its December 2015 rate adjustment—the first in nearly ten years, concerns over Brexit and slowing global growth have made it harder for FOMC to justify a rate hike in 2016, after December 2015’s 25bps raise.
Across most emerging markets, commodity price depression and flagging Chinese growth continued to drive subdued macroeconomic conditions, save for India where private consumption benefited from energy savings and boosted economic growth. In Nigeria, renewed insurrection in Niger Delta creeks and extended FX crises conspired to aggravate impact of falling crude prices—leaving the largest economy in Africa in a fight against looming recession. Worse still, an acceleration of inflation to six year highs of 16.5% and rising unemployment rate have kept disposable income suppressed just as the late passage of the budget quenched hopes of stimulatory government spending in the current year. Nonetheless, clear positives emerged on the policy front with partial deregulation of PMS prices in May and switch to flexible FX market architecture a month later with the former appearing to be particularly well-received by markets. In our last report, we framed the key assessment parameter for the Buhari government as the question of whether the economic ravages are so deep cutting as to render untimely economic intervention ineffectual in the near term. So far, lingering fundamental weakness with faint signs of counter-cyclical government spending have served to re-enforce that the answer is in the affirmative.