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ECB Speakers Spar On Rate Hikes As Inflation Hits New High Published: 01 June 2022

  • European Central Bank policymakers sparred over the size of their upcoming rate increases on Tuesday as data showed euro zone inflation rising to another record high in May. Prices have risen sharply across Europe in the past year, with the ECB initially blaming lingering supply chain problems following the COVID-19 pandemic, then the Ukraine war which has caused the cost of energy and some foods to surge. 
  • Inflation in the 19 countries sharing the euro accelerated to 8.1% this month from 7.4% in April, while price pressures continued to broaden, indicating that it is not just energy pushing up the headline figure. 
  • The ECB has pencilled in gradual interest rate increases in July and September but, after Tuesday's data, markets and at least one ECB rate-setter doubt that hikes worth 25 basis points each will be enough to tame fast price growth. 
  • The ECB's deposit rate, currently used as its benchmark, is set at minus 50 basis points, meaning banks are charged to park their money safely at the central bank. Negative interest rates are the legacy of a decade of ultra-low inflation, which has been swept away in the space of a few months. 
  • But while headline inflation is four times the ECB's 2% target, policymakers may be more worried by the rapid rise in underlying prices, which indicates that what was once seen as a transitory jump is now becoming embedded. Inflation excluding food and energy prices, watched closely by the ECB, accelerated to 4.4% year-on-year from 3.9% while an even narrower measure that also excludes alcohol and tobacco accelerated to 3.8% year-on-year from 3.5% in April.

(Source: Reuters)

Oil Bull Run continues as EU agrees to ban most Russian oil Published: 01 June 2022

  • Oil prices extended a bull run on Tuesday after the EU agreed to a partial and phased ban on Russian oil and China decided to lift some coronavirus restrictions amid rising demand ahead of the peak U.S. and European summer driving season. 
  • Brent crude for July, which expires on Tuesday, rose $2.11, or 1.7%, to $123.78 a barrel, after rising to $124.10 earlier in the day- its highest since March 9. The August contract rose from $1.57 to $119.17. The premium of August-loading Brent contracts over a six-month spread hit a nine-week high at close to $15 a barrel, indicating current supply tightness. 
  • Both July-loading contracts are set to end May as the sixth straight month of rising prices. European Union leaders agreed in principle to cut 90% of oil imports from Russia, the bloc's toughest sanction yet on Moscow since the invasion of Ukraine three months ago. 
  • Once fully adopted, sanctions on crude oil will be phased in over six months and on refined products over eight months. The embargo exempts pipeline oil from Russia as a concession to Hungary. 
  • "As two-thirds of the Russian crude oil exports are seaborne around 1.5Mn barrels per day (bpd) of oil will need to be replaced by the EU," PVM analyst Tamas Varga said. "This volume is actually closer to 2.1-2.2Mn bpd as both Poland and Germany are planning to phase out pipeline purchases by the end of the year."

(Source: Reuters)

Lasco’s Manufacturing And Distribution Segment Sees Solid Growth In FY 2021 Published: 31 May 2022

  • Lasco Manufacturing and Lasco Distribution Limited have both seen growth in their respective bottom lines. The manufacturing segment reported a 23.8% increase in net profit to $1.71Bn for its FY ending March 2022, while the distribution segment saw an 11.8% growth in net profit to $1.02Bn. 
  • Both companies’ financial performance was supported by revenue growth. Revenue from the Manufacturing and Distribution segments grew by 15.4% and 15.0%, respectively, supported by an increase in business activity for both companies. 
  • However, when their efficiency levels were assessed, both companies saw a slight decline in their respective gross margins. There was a 1.2p.p reduction in the manufacturing arm’s margin, while the Distribution arm saw a 1.4p.p reduction. This was caused by higher direct costs owing to increased costs for logistics services and materials. 
  • During their FY 2022, we expect that both companies will benefit from greater resumption of economic activity supported by the withdrawal of the COVID-related restrictions under the Disaster Risk Management Act. This will however be tempered by rising commodity prices, which will negatively impact margins. 
  • Lasco Manufacturing's stock price has increased by 9.7% since the start of the calendar year. The stock closed Tuesday’s trading session at $5.21 and currently trades at a P/E of 12.6x earnings which is below the Junior Market Manufacturing Sector Average of 19.5x. 
  • Meanwhile, Lasco Distribution's stock price has decreased by 2.1% since the start of the calendar year. The stock closed Tuesday’s trading session at $3.32 and currently trades at a P/E of 11.5x earnings which is below the Junior Market Distribution Sector Average 23.2x.

(Sources: Company Financials and NCBCM Research)

General Accident See’s Stellar Q1 Earnings Published: 31 May 2022

  • General Accident reported a net profit of $25.64Mn for its first quarter ended March 31, 2022, which represents a 65.2% increase relative to the corresponding period in 2021. This outturn was largely driven by an 11.4% increase in gross premium written to $3.67Bn. This comes as a result of selling more insurance policies across its three operating territories—Jamaica, Trinidad, and Barbados. 
  • Genac’s investment consolidated income for the quarter was $44.00Mn compared to the prior year of $48.90Mn. Although lower, the company believes that as interest rates trend upwards, there will be a corresponding increase in its consolidated investment income over the short to medium term. 
  • Overall,  the company’s presence in all three of the Caribbean’s largest insurance markets diversifies its underwriting risk and will continue to create economies of scale. Additionally, the company has been investing in digital insurance solutions which will support its business activity going forward. 
  • General Accident's stock price has decreased by 2.0% since the start of the calendar year. The stock closed Tuesday’s trading session at $5.88 and currently trades at a P/E of 29.4x earnings which is above the Junior Market Financial Sector Average of 19.6x.

(Sources: Company Financials and NCBCM Research)

Improvements to Trinidad and Tobago’s Trade Environment Underway with CDB & EU Support Published: 31 May 2022

  • The private sector in Trinidad and Tobago (T&T) will see improvements in the trading environment as a result of three new trade initiatives underway at the Ministry of Trade and Industry (MTI) and its agencies. 
  • The MTI has accessed assistance from the Economic Partnership Agreement and Caribbean Community (CARICOM) Single Market and Economy (CSME) Standby Facility for Capacity Building, which is managed by the Caribbean Development Bank (CDB) with European Union (EU) funding. 
  • The initiative is aimed at establishing an online focal point for trade queries, building the capacity of local entrepreneurs, generating new trade opportunities and building networks within select markets in Europe. These projects will increase efficiency and communication among state agencies and improve revenue generation in smaller, export-oriented businesses. 
  • The CDB is partnering with Trinidad and Tobago’s Government across sectors and integrating trade facilitation measures in its programming to increase employment as well as revenue, and to reduce poverty in alignment with the Sustainable Development Goals (SDGs). 
  • The Government of Trinidad and Tobago sees the interventions as worthwhile contributors to national development priorities focused on building competitiveness and expanding and strengthening the private sector.

(Source: CARICOM Today)

Mottley’s Ministries Seek Strategies To Protect Citizens From Rising Costs Published: 31 May 2022

  • Barbados Prime Minister Mia Mottley has tasked the ministries of her government to work with the major players in their sectors to develop strategies to protect citizens from rising prices. She explained that the increasing costs being faced by her people were “unsustainable and unacceptable”. 
  • Considering what happened in the United Kingdom with the Chancellor of the Exchequer (Rishi Sunak), Mottley said that this is not a problem that is unique to the Caribbean. On May 26, Sunak unveiled a package of measures to try to ease a cost-of-living crisis for the British public, with government support amounting to £37Bn (US$46.61Bn). This support to vulnerable households is equal to one and a half per cent of the United Kingdom’s GDP.

(Source: Our Today

UK Business Confidence Ticks Higher In May - Lloyds Banks Published: 31 May 2022

  • Sentiment among British businesses edged higher in May, except for consumer-facing companies that are most exposed to the growing cost-of-living crunch, a survey showed on Tuesday. The Lloyds Bank Business Barometer rose in May to 38% from 33% in April, its first increase since February, despite worries about a slowing economy. 
  • The Lloyds survey brought mixed news on inflation pressures. While the proportion of companies planning to raise prices eased by a percentage point to 57%, pay intentions remained strong. Some 16% of firms intend to raise pay by 4% or more in the coming year - high by the standards of the Lloyds survey. 
  • Morale in the construction and manufacturing sectors improved, but in the retail sector, it fell to its lowest since March 2021 when non-essential shops were still shut due to COVID restrictions. 
  • "Business confidence improved this month and firms, in general, seem able to rebuild some of their margins through price increases," said Hann-Ju Ho, Senior Economist at Lloyds Bank Commercial Banking. "Consumer-facing industries, such as retail, are not feeling the same confidence uplift amid the widespread reports of a squeeze on household incomes."

(Source: Reuters)

 

Canadian Dollar Rallies As Current Account Surplus Hits 14-Year High Published: 31 May 2022

  • The Canadian dollar rose to its highest level in more than five weeks against the greenback on Monday, as data showed Canada's current account surplus turning positive ahead of an expected interest rate hike this week by the Bank of Canada. 
  • Canada's current account surplus was C$5.0 billion in the first quarter, swinging from a revised C$137 million deficit in the fourth quarter. It was the widest surplus since the second quarter of 2008. 
  • "We expect the ongoing strength in commodities to support the current account in Q2 (second quarter), though offset by a deeper services deficit as travel recovers more fully," said Shelly Kaushik, an economist at BMO Capital Markets.
  • The Canadian dollar was trading 0.5% higher at 1.2657 to the greenback, or 79.01 U.S. cents, after touching its strongest since April 22 at 1.2651. Gains for the loonie came as world share markets rose and the U.S. dollar lost ground against a basket of major currencies, with investors betting on a possible slowdown in U.S. monetary tightening.

(Source: Reuters)

GK Announces New Joint Venture with TTUTC Published: 27 May 2022

  • GraceKennedy (GK) has announced that the investment and advisory arm of its GraceKennedy Financial Group (GKFG), GK Capital Management Limited (GK Capital), has signed a joint venture agreement with the Trinidad and Tobago Unit Trust Corporation (TTUTC). The new venture, which remains subject to the requisite regulatory approvals, will allow GK and TTUTC to partner in the distribution of mutual funds in Jamaica. 
  • TTUTC is the largest operator and manager of mutual funds in the Caribbean, and currently manages US$3.7Bn for over 625,000 investors. Speaking at the signing of the agreement which took place on May 20, 2022, at GK’s Headquarters in downtown Kingston, GK Group CEO Don Wehby explained that the vision is for GraceKennedy to grow as a global consumer group. This will include leveraging relationships with its international partners. 
  • Locally, the unit trust and mutual funds markets are growing.  This partnership will likely benefit investors as it will provide them with more options.  Additionally, the inclusion of GK into the market could possibly fuel efforts to improve the performance of funds governed by other operators which could potentially benefit investors. 
  • Furthermore, GK’s management highlighted that though the company is entering a competitive space, it believes that the design of the funds will deliver a unique customer experience and drive client acquisition.

(Source: JSE)

MFS Acquires 79% Stake in SSLVC Published: 27 May 2022

  • MFS Acquisition Limited (MFS) has announced that it has completed the acquisition of 79% of the shares in SSL Venture Capital Limited (SSLVC). The transaction which was completed on May 25, 2022, saw the company paying out J$30Mn to purchase the majority shareholding of SSLVC. 
  • MFS is a private company that offers short-term funding solutions to both individuals and micro, small and medium-sized companies (MSMEs). The Director of MFS, believes that the addition of SSLVC will assist in the company’s long-term strategy of becoming the premier private equity outfit in the Caribbean. 
  • This acquisition is likely to bring many changes to SSLVC as MFS management highlighted that a new board of directors will be announced shortly. As such, we can expect to see new initiatives from the company in the coming months. Furthermore, MFS has a client base from which SSLVC can leverage and upsell its private equity services, which could have a positive impact on its financial performance.

(Source: JSE)