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Saturday,
November 02, 2019 07:40 AM / Proshare Content
Nigeria: Economic Dashboard @ 011119
Editor's Pick
Source: Cordros Weekly Economic and Market Report -November 01,
2019
Global Economy
Amidst the continued trade tension, US GDP grew at an
annualised rate of 1.9% -- the slowest since Q4-18, which was slightly below
the 2.0% y/y pace recorded in the second quarter and higher than the 1.6% y/y
consensus estimate. Sifting through the breakdown, we highlight that the slower
growth emanated from weakened domestic consumption (+2.9% y/y) -- 60% of US's
GDP - which slowed markedly from the 4.6% y/y recorded in the prior quarter.
Similarly, government consumption expenditure (+1.8% y/y), dipped marginally
from 1.9% y/y recorded in the prior quarter, while domestic investment (-1.5%
y/y) continued its descent, amidst weakened business investment (-15.3%
y/y). While consumer spending
growth is likely to remain modest, thanks to the still-strong labour market, we
highlight the slowing business and manufacturing sectors as the key downside
risk to growth over the next few quarters.
In line with market expectation, the US
Federal Reserve cut the benchmark interest rate by 25bps to a range of 1.5% to
1.75% -- the third cut in 4-month. The cut is a response to the continued
slower domestic growth (Q3-19: 1.9% y/y, the slowest since Q4-18) and weakened
global growth (3.0% projection by IMF). Given the (1) strengthened US's inflation
(Sept: 1.7% y/y), which is slightly lower than the 2% fed target, (2) still
strong consumer spending (Sept 2.9% y/y), and (3) trade talk progress between
US and China, the US Fed's forward guidance is to keep rate at current levels
in the short to medium term. Our view aligns with the committee, as we expect
the US monetary policy undertone to remain soft given depressed growth.
Global Equities
Save for the slight pullback in the Euro Area (FTSE: -0.6%,
Euro Stoxx: -0.3%), global equities market sustained its decent run from the
previous week following packs of gains recorded across most of our coverage
universe. For one, the market welcomed another rate cut by the US Fed which is
expected to help limit the impact of trade tension on US economic growth.
Beyond that, better than expected economic data in China also helped bolster
appetite for risk assets over the week. Evidently, the US (DJIA: +0.1%, S&P:
+0.8%) and Asian (CSI 300: +0.7%, Nikkei: +1.4%) markets look set to close in
the positive terrain, at the time of writing. Further afield, even as the
Frontier market (MSCI FM: -0.0%) was flat, Emerging market (MSCI EM: +1.7%)
recorded weekly gains, buoyed by strong performance in China and India (+2.8%),
with the latter touching its highest mark in 2019.
Nigeria
Economy
In our last PMI report, we argued that the
impact of festive induced spending in the last quarter of the year is expected
to strengthen business performance and sentiments. True to our prognosis,
Nigeria's PMI in October rebounded after slower growth in prior month. To start
with, the manufacturing PMI rose by 0.5 points to 58.20 index points - the
highest since January 2019, following significant increases recorded across the
production level (+8.0 points), new order (+7 points), and employment level
(+2.0 points). Similarly, modest growth recorded in business activities (+0.7
points) and new order (+1.0 point) had a positive pass-through to the
non-manufacturing PMI, which grew marginally by 0.2 points to 58.20 index
points. Elsewhere,
sustained closure of land borders continued to mount pressure on prices, as
output prices increased by +0.6 points. For the rest of the year, we expect the blend of festive induced
spending and FX stability to keep the PMI afloat.
According to the NNPC's monthly financial and
operations report for July 2019, average daily crude production surged by
17.42% y/y to 2.09 Mb/d - the highest since January 2016. The improved reading
was underpinned by (1) modest count of terminal shutdowns, with the NNPC
reporting only 8 shutdowns and a loss of 0.04 Mb/d (2) a low production base of
1.78mb/d from the corresponding period of last year. Elsewhere, despite the
overall improved production level, the number of product theft and vandalism
rose to 228 - the highest since January 2019. Looking ahead, the case for a stronger oil GDP
in Q3-19 (+2.06% y/y) is higher, given the improved crude production which
should help support our view of a sturdy non-oil growth (+2.12% y/y). On
balance, we estimate overall GDP growth at 2.11% y/y in Q3-19.
Capital markets
Equities
As an unimpressive
earnings season came to a close, the Nigerian equities market extended losses,
with the All-Share Index declining by 0.2% w/w to 26,293.30 points. Thus, the
MtD and YtD losses worsened to 4.8% and 16.3% respectively. Analysing by sectors,
the Consumer Goods (-0.7%) and Banking (-0.6%) indices closed in the red, while
the Oil & Gas (+5.0%), Industrial Goods (+1.1%), and Insurance (+0.3%)
indices recorded gains.
In our view, the trend witnessed through the
year is likely to persist through the final quarter of the year, although we
expect pockets of gains over the final months of the year as fund and portfolio
managers realign portfolios prior to the start of 2020. Nonetheless, we note
that valuations remain attractive driven by price deterioration throughout the
year. Hence, we advise that long-term investors consider appropriately timed
investments.
Money market and fixed income
Money market
As expected, inflows into the system tethered the OVN rate in
the single-digit territory during the week, resulting in a 279bps decline to
4.07%. The rate pared on each of the first three trading days of the week,
declining by 1.86ppts, 1.21ppts, and 1.29ppts over those days to settle at
3.71%. Thereafter, on the penultimate trading day of the week, the rate
increased by 1.64ppts as system liquidity became strained following Treasury
bills PMA and OMO auctions.
In the coming week, OMO
maturities (NGN351.67 billion) are expected on the 7th of November, which
should support system liquidity and keep the rate tethered. Also, the
substantial liquidity position of the market (NGN398.08 billion) further
substantiates our expectations for the coming week.
Treasury bills
Trading in the Treasury bills market was tepid, as market
players threaded the cautious path after the CBN issued a directive which
stated that individuals and local corporates could no longer trade for OMO
bills in either the primary or secondary markets. Consequently, the average
yield pared by 36bps to 12.42%. During the week, the CBN held an OMO
auction for instruments worth NGN363.09 billion - 96DTM(NGN16.50 billion),
187DTM (NGN10.50 billion) and 362DTM (NGN336.09billion) -, which were sold at
respective stop rates of 11.55% (previously: 11.55%), 11.75% (previously:
11.79%) and 13.32% (previously: 13.35%). Also, the CBN held a Treasury bills
PMA, which predictably closed with lower stop rates, as the 91DAY, 182DAY, and
364DAY instruments were auctioned at respective stop rates of 9.50%
(previously: 10.80%), 10.45% (previously: 11.00%) and 11.55% (previously:
12.95%).
The directive from the CBN
means that more funds are chasing fewer instruments - Bid-to-Offer of 4.27x for
aggregated offer amount, with oversubscription recorded on all instruments -,
which should result in yields paring further in the coming week. That being
said, we expect some investors to refocus on the Treasury bonds market over the
coming weeks, given restrictions.
Bonds
Given the restrictions on trading in the T-Bills
market, activities moved to the bonds market, as participants invested excess
liquidity. Consequently, the average yield pared significantly by 82bps to
settle at 13.19%. To buttress this point, data collated from FMDQ showed that
there were 455 more deals done in this week over the prior week for instruments
worth NGN611.03 billion; representing an increase of 141.8% over the prior
week. Also, there were yields declines across all trading instruments in the
week, signal to the increased interest from investors, with the 14.20% MAR-2024
instrument (-197 bps) recording the largest decline in yield.
We expect investors to
continue to take position in the Treasury bonds market as long restrictions to
the trading in the T-Bills market remain. Consequently, we expect yields to
pare further in the coming week.
Foreign exchange
Nigeria's FX reserve continued its descent, declining by
USD22.05 million WTD (30 Oct 2019), the lowest since 26 January 2019.
Meanwhile, the CBN sustained its weekly FX intervention, selling USD210.00
million across the different segments of the FX market - USD100.00 million to
the Wholesale segment, USD55.00 million to the SMEs segment, and USD55.00
million to the Invisibles segment. Nonetheless, the naira depreciated by 0.18%
WTD to NGN362.75/USD at the I&E window but closed flat at NGN360.00/USD at
the parallel market. Elsewhere, total turnover at the I&E window surge by
150.9% WTD to USD1.29 billion, with average trades executed within the
NGN357.00 - 362.94/USD band. In the Forwards market, the naira weakened across
all contracts - 1-month (-0.2% to NGN365.82/USD), 3-month (-0.2% to
NGN372.27/USD), 6-month (-0.2% to NGN382.61/USD) and 1-year (-0.7% to
NGN410.25/USD).
Despite the continuous
depletion of reserves amidst sell-offs by off-shore investors, our estimate suggests
no naira devaluation in 2019, as we expect CBN's sustained intervention to keep
the naira resilient in the short to medium-term.
Monday,
November 04, 201 9
The Nigerian - Canada Investment
Summit will hold on this day at Transcorp
Hilton Abuja, while the 4th African International
Conference on Islamic Finance 2019 will hold on the same day with the theme:
Infrastructure Financing,
Sustainability and the Future of African Market at Eko Hotel &
Suites, Victoria Island, Lagos.
Tuesday, November 05, 2019
The International
Produced Water Management Conference and Exhibition will commence on this day at Continental Hotel Lagos,
while the Africa Polling Institute in
Collaboration with African Heritage Institution will on the same day hold the Public
Dissemination of the Nigeria Social Cohesion Survey 2019 at AfriHeritage Conference Hall,
54 Nza Street Independence Layout, Enugu.
The UPDC Real Estate Investment
Trust Plc will on this day hold
its Annual General Meeting at NEM
House, 199 Ikorodu Road, Obanikoro, Lagos
Thursday, November 07, 2019
The Africa Maintenance &
Reliability Conference will commence on this
day at Lekki Colliseum, Victoria Island Lagos, while the 18th WimBiz Annual Conference will hold on the same day with the theme: Shaping the Future: Strategizing to Win at Eko Hotel &
Suites, Victoria Island Lagos.
The FMDQ OTC Securities Exchange will on this day hold its Capital Market Conference at Grand
Ballroom, Oriental Hotel, Victoria Island, Lagos, while the PMI Nigeria Chapter Conference
2019 will
hold on the same day with the theme: Beyond
Project: Re-thinking the Future at Shell Hall, Muson Center, 8/9
Onikan, Lagos.
Friday, November 08, 2019
The Nigerian- America Chamber of
Commerce will on this day hold
its Breakfast Meeting at Lagos
Continental Hotel, Plot 52, Kofo Abayomi Street, Victoria Island Lagos, while FMDQ Gold Award will hold on the same day at Oriental Hotel 3, Lekki-
Epe Expressway Victoria Island Lagos
Check out our Events Calendar for event details and follow us on Web, TV, APP and Social Media for updates as the week unfolds. Yours to Serve!
Contact
for Details:
For further information, enquiry
or submission of information, kindly email market@proshareng.com and research@proshareng.com Tel: 0700PROSHARE
(070077674273). Call us NOW!
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