10th – 17th APRIL 2020: Weekly financial markets review with Stephen Kaboyo UGX remains flat, bond appetite remains high and USD holds ground

The forex market was calm with the UGX trading flat for most of the trading sessions as market activity was at the lowest ebb. Market players were seen on the fence as demand dipped due to the lockdown. Trading was in a narrow range, holding at UGX3765/3775 on the bid and ask.

In the fixed income segment, a treasury bond auction of a 2 year and 5-year bond was held at fixed coupons of 11.00% and 14.00% Amount on offer was split as UGX75 billion and UGX210 billion for the 2 and 5-year respectively. Both tenors were oversubscribed and yields printed at 13.949% and 16.470% respectively.

BOU managed rates by cutting off outlier bids.

In the regional currency markets, the Kenya shilling was relatively stable but was seen coming under pressure due to reduced inflows from remittances and less portfolio interest.

Trading was in the range of KES106.00/20.

There were mixed signals in the global markets with the US dollar holding ground as news reported signs of success in a Covid-19 drug trial as well as early plans to reopen the US economy drove optimism and risk appetite. Wall Street, however, tumbled on a stream of bad news about the economic damage caused by COVID-19 as data showed a historical plunge in US retail sales and a slump in factory output.

In China, the economy shrank 6.8% in the first quarter of 2020, its first reversal since 1992 as Covid paralyzed production and spending.

Outlook indicates that the local currency (UGX) is likely to be capped at the current market levels drawing support mainly from the removal of excess liquidity by the Central Bank amid thin market activity. However, on the global scene demand for safety will remain the key theme.