Global Markets: Interest Rate Repricing; + BMI’s Expanding Africa Banking Coverage

We suggested in mid-June that short-term interest rate futures had gotten ahead of themselves in projecting rate hikes by the US Federal Reserve and Bank of England (BoE). Between May 22, when Fed Chairman Ben Bernanke suggested that QE3 would soon come to an end, and mid-June, futures markets sold off substantially, with the December 2014 contracts moving up by an implied 29bps in the US and around 55-60bps in the UK. The end-2015 contract price action was similar.

But since then, there has been a massive retracement, with UK implied rates back to where they were in early May, and there is even now talk of an imminent BoE rate cut. But notably, US implied rates have been more stubborn, particularly for end-2015: eurodollar futures are pricing in 3-month rates of 1.36% at that point, up from 0.90% before Bernanke’s talk of QE tapering. Overall, this still looks a little high, and we will probably see a bit more consolidation. That said, the long end of the yield curve has remained elevated, and could go higher yet. The 10-year US Treasury yield has held on to key support at 2.75%, and looks set to consolidate in the 2.50% area, but a move to 3.00% looks probable over the next 9-12 months.

BMI’s Expanding Africa Banking Coverage

Meanwhile, BMI has expanded its banking sector coverage for Sub-Saharan Africa this quarter, adding seven new countries (Botswana, Mauritius, Mozambique, Namibia, Tanzania, Uganda and Zambia) to the existing four which we cover on a systematic basis (Ghana, Kenya, Nigeria and South Africa).

The key articles are already available to subscribers on Business Monitor Online, and the full banking sector reports will appear on BMO within the next few weeks. In our regional banking analysis, we identify four key trends affecting the industry: rapid growth fuelled by buoyant economic activity; the extension of services to the unbanked; measures to improve the assessment of credit risks; and measures to improve the monetary policy transmission mechanism.

We are particularly upbeat on the prospects for Nigeria, where the banking sector is benefiting from the substantial reforms of recent years and the economy is expanding at a rapid clip. Indeed, we have held a bullish view on Nigerian bank stocks in BMI‘s Macro-Industry Strategy since March 2012 – since which time our proprietary equity index has risen by over 70%.

This Week’s Trivia Question

Last week’s trivia question was inspired by Detroit’s decision to file for chapter 9 bankruptcy. We asked, which late 1980s US science fiction blockbuster is set in a crime-ridden, decaying Detroit, parts of which are planned to be razed to make way for a new city in the film? And separately, in view of Japan’s Upper House elections that weekend, which South American individual made an unsuccessful bid for a seat in the Japanese Upper House in 2007? The answers are, a) Robocop, and b) former Peruvian president Alberto Fujimori.

Our question this week is as follows: This weekend marks the anniversary (we won’t reveal which one) of the end of a 20th century conflict in which Chinese troops fought against troops from a Latin American country. What was that conflict, and which Latin American country was it?