July 8 – July 15, 2022: Weekly financial markets review and outlook with Stephen Kaboyo

The Uganda shilling weakened early in the week and later recouped some losses in choppy trading as mid month tax payments took away appetite for dollars. Trading was in the range of 3760/70. Elsewhere in the region, the Kenya shilling was on the back foot, touching an all time low of 118.25/45, due to increased dollar demand as election anxiety picked up.

In bond market, upbeat demand kept yields relatively flat at 14.750 and 16.750 for the 3 and 5 year bonds. Currently, Uganda’s yield curve from the middle to the long end has been flat, going forward, this is likely to change the term structure of interest rates as issuance of long bonds increase.

In the global financial markets, the US dollar continued its dream run, with little standing in its way as it basks in safe haven glow as well as expectation of aggressive Federal reserve rate hikes stemming from global recession fears. Sentiment around the Federal Reserve behaviour caused a knee jerk reaction in energy markets that saw oil prices rise to 100.35 dollars per barrel.

Outlook for the shilling remains grim with international economic environment, change in risk appetite and local fundamentals likely to contribute to the drop in the shilling’s value.