MARKET LIQUIDITY levels in the Jamaican dollar fixed income market declined throughout the week, resulting in higher secondary market rates (Table 1), as investors sought to invest in the GOJ's new investment instrument.
The instrument is an unlimited 27-month FR 16.50% 2007 Series Aq Investment Debenture, which matures on March 16, 2007. The subscription period opened on December 14 and closes on December 17, 2004. The debenture is expected to provide a significant portion of the remaining J$7 billion needed for Jamaica's budgetary expenses.
In the coming week, approximately J$10.2 billion is expected to enter the market from coupon payments on 33.5% 2005 Series Aa, 16.25% 2027A, 2009/2010, 16.50% 2009, 2010/2011C, 2011/2012C, 2024/2025, 2030/2031, 2011/2012D, 2018/2019, 14.375% 2006AF, 14.25% 2008AG, 15.00% 2010AB, 15.00% 2011AA, 14.00% 2013AD, 14.75% 2014AA, 16.15% 2022A, 16.75% 2005AD, 2014/2016 Tr.A, 2014/2016 Tr.B, 2014/2016 Tr.C, 14.50% 2004 Series W on LRS's and BOJ COSH payments.
INFLATION COMMENTARY
Jamaica's inflation rate for November was 2.4 per cent (Figure 1), following the 3.3 per cent spike in October.
This brings the annual rate of inflation to 13.9 per cent for the 12 months to November, compared with 12.3 per cent for October.
Jamaica revised its fiscal (12 months to March 2005) inflation target after Hurricane Ivan from between eight to nine per cent to between 10 per cent to 11 per cent .
Achieving 11 per cent for the fiscal year would require the normalising (one per cent outturn) of monthly inflation in December and an average decline of between 0.3 per cent and 0.5 per cent in monthly rates during the March quarter, as local food production returns to normal levels.
Assuming the normalizing of rates in December, inflation for the calendar year 2004 would be the same as the 14.1 per cent recorded in 2003.
The current spike in the annual inflation rate may be seen as a 'one-off' event, due to the unforeseen disasters of hurricanes Ivan and Charley and higher fuel prices to a lesser extent.
US DOLLAR FIXED
INCOME MARKET
Liquidity levels in the US$ fixed income market continued to be sustained by coupon payments from various instruments over the past two months.
Consequently, secondary market repo rates have remained relatively stable, with 30-day rates trading between 6.00 per cent and 6.10 per cent. Overnight rates traded between three per cent and four per cent.
SOVEREIGN RATING COMMENTARY
Last week, credit rating agency Standard & Poor's revised its outlook on Jamaica's sovereign ratings from 'negative' to 'stable'.
The Standard and Poor's release stated that "the revised outlook is supported by Jamaica's improving fiscal and external liquidity situation, ongoing commitment to fiscal austerity, and stronger growth prospects all of which have resulted in the stabilisation of the Jamaican dollar and an increase in the confidence of domestic businesses. The support of fiscal and macroeconomic policies by the trade unions and the private sector, as demonstrated by the preparation of the Partnership for Progress agreement and the signing of the Memorandum of Understanding with labour unions, makes it more feasible to meet the challenging fiscal targets this year and beyond. It also lowers the risk of social tension in times of austere reform."
The revised outlook confirms what the market had anticipated for some time.
Jamaica's eurobond prices had rallied to record highs in the weeks following Hurricane Ivan when Jamaica signalled that it would stick to its medium term fiscal targets, despite the effects of the hurricane.
The change in outlook resulted in increased activity in Jamaica's eurobond market this week, as the demand for longer dated bonds increased.
There was particular interest in the GOJ 2022s, which gained 2.5 points while the less liquid euro-denominated issues gained a point each.
FOREIGN EXCHANGE MARKET
The Jamaican dollar began the week at $61.93 to $U$1 but by Thursday had appreciated to $61.85 to US$1, a gain of J$0.08.
The currency continues to reflect a buoyant level of foreign reserves, which were US$1.82 billion at the end of November, just US$125 million from the record US$1.94 billion achieved in March 2002.
Alumina exports, whidh represent 50 percent of export earnings, have resumed post Hurricane Ivan, and were up 11.4 per cent in November.MOVEMENT OF INDICES
The JSE main index surged by 2,198 index points (Table 4) this week, on the back of advances in Trinidad Cement Ltd (390.66 index points), Lascelles DeMercado Group Ltd (212.59 index points) and Bank of Nova Scotia Jamaica Ltd (188.90 index points).
ACTIVITY BY SECTOR
The finance and communications sectors led the volume traded, accounting for 42.8 per cent and 34.9 per cent of total volume, respectively (Table 5). The finance and conglomerate sectors led in value traded, accounting for 64.3 per cent and 23.9 per cent of total value traded, respectively.
This week, the number of advancing stocks outnumbered the number of declining stocks 14 to 11 (Table 6), while market capitalisation increased by J$2.7 billion or o.32 per cent (TAble 7).
DISCLAIMER
All information contained herein is obtained by JMMB's investment research group sources believed by it to be accurate and reliable. All opinions and estimates constitute the analyst's judgement as of the date of the report. However, neither its accuracy and completeness nor the opinions based thereon are guaranteed.
As such no warranty, express or implied, as to the accuracy, timelliness or completeness of this report is given or made by JMMB in any form whatsover.
Note: JMMB may make markets and effect transactions, or have positions in securities mentioned herein. IN addition, employees at JMMB may have positions and effect transactions in the securities mentioned herein.
Unless otherwise stated, all rates quoted are indicative and do not constitute and offer to buy or sell.
Table 1
Secondary Market Repo Rates
Tenor This Week Last Week
| Overnight | 10.00% to 15.00% | 7.00% to 9.00% |
| 30 Day | 14.10% to 14.25% | 14.00% to 14.10% |
Source: JMMB Investment Research
Taken from the Sunday Gleaner, December 19, 2004.
