Morning Market Brief – 1st October 2018

September 2018 Inflation
Inflation for the month of September edged up 166bps m/m to 5.70%. The uptick in inflation was mainly attributed to the rise in the Transport Index (17.29% y/y; 7.99% m/m) on account of the upward revision of the fuel pump price in Petrol and Diesel. Electricity for consumption of 50Kwh and 200Kwh increased 82.90% y/y and 67.20% y/y, respectively, due to the revision of the electricity tariff structure.

2Q18 GDP Growth
2Q18 GDP growth rate was estimated at 6.30% as compared to 4.70% growth recorded in 2Q17. Positive (y/y) growth was recorded in the agriculture, manufacturing, electricity & water supply, wholesale & retail trade, accommodation & restaurant, information & communication and real estate sectors. The agriculture sector which grew 5.60% y/y (0.80% y/y in 2Q17) was bolstered by the favourable weather conditions spread out across the country. Manufacturing sector posted a growth of 3.10% y/y (-0.20% y/y in 2Q17) partly attributed to the agro-processing sub-sector. In 2Q18, private sector business sentiment improved with Purchasing Managers Index (PMI) print averaging 55.60 in the period against 49.17 in 2Q17

August 2018 KRA Revenue Collection
Data from National Treasury indicates the that total revenue collection in the month of August totalled KES 108.70Bn (KES 105.83Bn in tax revenue and KES 2.87Bn in non-tax revenue). Revenue collection in the two months summed up to KES 207.67Bn (KES 204.79Bn in tax revenue and KES 2.88Bn in non-tax revenue). Public debt repayments totalled KES 49.84Bn in August, representing 45.85% of the month’s total revenue collection. Expenditure towards recurrent and development totalled KES 83.75 and KES 11.69Bn, respectively. In aggregate, recurrent expenditure totalled KES 133.23Bn in the first two months of the financial year. Disbursements to county government summed up to KES 4.03Bn in August. Overall, tax revenue collection at KES 204.79Bn is behind schedule by KES 76.92Bn on a pro-rated basis as at end August. The Supplementary Appropriation Act 2018 has reduced the revenue target by KES 37.60Bn in FY2018/19 with the cut in recurrent and development expenditure by KES 9.06Bn and KES 28.54Bn, respectively.

Fixed Income
We open the new month and final quarter of 2018 cautious but on the lookout for opportunities created through the movements expected in the key variables of inflation, currency and the CBR. The inflation print as expected rose 166Bps to 5.70%, the shilling hit a high of 101.05 but stabilised after intervention to close at 100.8 while in last weeks meeting the MPC held the rate at 9%. This week we expect to see continued downward movement in the long term yields while demand on short to medium term is expected to increase as KES liquidity eases.

Trading Expectation
Activity remained subdued towards the end of last week as expected, following the end of the reporting cycle. In today’s session, we expect activity to remain subdued with concentration on the key traded counters, Safaricom, Equity and KCB. In Safaricom, we might see the price trade higher due to demand pressure on the counter, supported by foreign interest, while the banking counters are expected to stabilize in the week

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by Gerald Muriuki