August 03, 2019 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @020819
Source: Cordros Weekly Economic and Market Report - August 02, 2019
The US Fed, for the first time since 2008, elected to cut interest rate by 25 bps, to a range of 2.00%-2.25%, a move supported by 8 of the 10 Fed officials. Whist the Fed expressed satisfaction with improving domestic consumption and employment levels, the decision to cut rate was necessitated by the need to cushion and offset shocks stemming from (1) weakening global growth, (2) below target inflation, and (3) persisting Sino-US trade war. The trade story remains critical to the outlook for US monetary policy. Escalation in trade tensions and higher tariffs will likely lead to economic weakness spreading, resulting in more stimulus from the Fed, given the benign inflation backdrop.
Japan’s factory output suffered its second-largest drop in the last five years in June as trade tensions and a slowdown in the global economy dragged exports lower for a seventh straight month. According to the Japanese Ministry of Economy, Trade, and Industry, industrial production declined 3.6% m/m (-4.1% y/y), weighed by lower manufacturing output (-2.4% y/y vs +0.1% y/y in June) and mining activities (-6.7% y/y vs -1.5% y/y in June). The latest figures strengthen the likelihood that Japan’s economy contracted in the second quarter. Looking ahead, we expect output to be more or less unchanged in Q3. Inventory accumulation for last-minute household purchases ahead of a sales-tax hike slated for October is likely to support production. Pulling the other way, weak external demand will likely weigh on production.
Performances in global equity markets across our coverage universe were negative, as positive sentiments buoyed by the U.S Fed rate cut were short-lived, dampened by President Trump’s announcement of a 10% tariff on an additional USD300 billion worth of Chinese imports. Consequently, the US (DJIA: -2.2%, S&P: -2.4%), Euro Area (FTSE: -1.4%, Euro Stoxx: -3.5%), and Asian (CSI 300: -2.9%, Nikkei: -2.6%) markets were set to close in the negative, as at the time of writing. Furthermore, sell-offs in South Korea (-3.3%) and Taiwan (-3.1%) dampened sentiments across emerging markets (MSCI EM: -2.3%). Conversely, gains in Kuwait (+0.7%), and Argentina (+0.7%) buoyed sentiments across frontier markets (MSCI FM: +0.2%).
In the face of negative news surrounding the Nigerian macroeconomic landscape, ranging across (1) unrelenting security challenges especially in the North, (2) lack of policy actions due to the delayed cabinet formation, and (3) weak consumer spending, Nigeria’s manufacturing PMI sustained its expansionary trend. Although the PMI reading only grew marginally, there were a few pockets of weaknesses which signaled activities might struggle in the near term. For evidence, the employment index (-0.2 points to 57.3) expanded at a slower pace, with negative passthrough to production level (-0.4 points to 58.2) and supply delivery time (-0.2 points to 57.5). However, the robust inventory level (+1.2 points to 56.2) gave room for manufacturers to fill new orders (+1.3 points to 57.2) without ramping up production. For the next few months, there are no sufficient reasons for the composite PMI index to nosedive into contractionary terrain, especially in the light of the still stable FX market and moderating input prices, both of which should continue to drive positive business sentiments.
According to the Monthly Financial and Operations Report by NNPC, the total crude oil production for April declined by 4.38% m/m to average 1.94 mb/d. The decline in production was due to the shutdown of Trans Ramos pipeline, and maintenance of Egina, Brass and Bonny terminals. Notably, the number of pipeline vanadalisations declined by 52% m/m to 60 points as the NNPC in collaboration with the local communities, continues to make concerted efforts to reduce and eventually eliminate the issue. We expect production, together with condensates to average 1.96 m/bd (+6.52% y/y) in Q2-19, on our expectation of a reduction in pipeline disruptions and vandalism. Overall, we expect a stout rebound in the oil GDP for Q2 after 4 consecutive contractions. We see oil GDP printing 7.03%y/y.
As an unimpressive earnings season came to a close, the Nigerian equities market extended losses, with the All-Share index declining 1.0% w/w to 27,630.64 points -- lowest since 16th May 2017. Thus, the MtD and YTD losses worsened to 7.8% and 12.1% respectively. Analysing by sectors, the Consumer Goods (-4.4%), Insurance (-2.5%), Banking (-1.9%) and Oil & Gas (-1.2%) indices closed in the red, while the Industrial Goods index was the sole gainer, rising by 2.8% w/w.
Our outlook for equities in the short to medium term remains conservative, amidst the absence of any catalyst to drive positive market returns.
In line with our expectation, the overnight lending rate crashed to 6.43% – a 1,679 bps w/w contraction – as the CBN again refrained from any OMO activity, thus leaving excess liquidity in the system. Mid-week inflows from (1) matured OMO bills (NGN88.68 billion), (2) bond coupon payment (NGN49.61 billion), and (3) FAAC disbursements to state and local governments (c. NGN360 billion) outweighed outflows for FX auctions at both ends of the week, leading to a decline in interbank offered rates.
Next week, inflows from maturing OMO bills (NGN109.80 billion) will boost system liquidity. However, forex interventions by the CBN are likely to exert upward pressure on the overnight lending rate.
Bearish trading at the start of the week, following a squeeze in system liquidity, was enough to offset gains across the rest of the week as the average rose by 14 bps w/w to 11.21%. Investors sold off at the short (+19 bps) and mid (+11 bps) segments. Investor interest was, however, concentrated at the long (-4 bps) end of the curve. At this week’s primary market auction, the CBN fully allotted NGN223.23 billion worth of instruments – NGN28.02 billion of the 91DTM, NGN33.68 billion of the 182DTM, and NGN161.52 billion of the 364DTM – at respective stop rates of 9.75% (previously 9.74%), 10.60% (previously 10.75%) and 11.18% (previously 11.14%).
Yields are expected to fall next week, as system liquidity is expected to remain relatively buoyant.
Trading in the bond market was mixed, with a bearish tilt, following a slowdown in interest from market players. Consequently, average yield across instruments rose by 1 bp w/w to 13.42%. Investors sold off at the mid (+14 bps) segment with yield on the MAR-2024 (+92 bps) recording the largest expansion. Conversely, demand was concentrated at the short (-5 bps) and long (-9 bps) ends of the curve, with yields on the JAN-2022 (-90 bps) and APR-2037 (-29 bps) bonds declining the most.
We expect yields pare over the short to medium term. This is anchored on our outlook for (1) a sustained moderation in inflation, (2) continued currency stability, (3) relatively high crude oil prices and stable crude oil receipts, and (4) sustained FPI inflows amidst stalled monetary policy normalization in developed markets.
Nigeria’s FX reserves declined by USD70 million WTD to USD44.92 billion. Meanwhile, the CBN sustained its FX interventions, selling USD210 million across the different segments of the FX market -- USD100million to the wholesale, USD55 million to SMEs, and USD55 million to the Invisibles segments. Consequently, the naira was flat at NGN360.00/USD at the parallel market but weakened by 0.07% w/w to USD362.23 – highest since 4th February 2019 – at the I&E window. Elsewhere, total turnover at the I&E window decreased by 31.5% WTD to USD734.94 million with trades executed within the NGN357.50-362.25/USD band. In the forwards market, the naira depreciated in the 1-month (-0.1% to NGN364.71/USD) contract, while it appreciated in the 3-month (+0.1% to NGN370.31/USD), 6-month (+0.1% to NGN380.21/USD) and 1-year (+0.6% to NGN399.88/USD) contracts.
Looking ahead, we expect the naira to remain resilient in the short to medium term, as the still elevated crude oil price continues to underpin higher crude oil receipts, thereby supporting the reserves and potential interventions by the CBN.
Monday, August 05, 2019
Exonmobil will on this day hold the Nigeria Annual International Conference and Exhibition (NAICE) 2019 with the theme “Artifical Intelligence, Big Data and Mobile Technology: Changing the Future of the Energy Industry” at Eko Hotel & Suites, Victoria Island Lagos, while the Association for Educational Assessment in Africa (ACAA) Conference will hold on the same day in F.C.T Abuja.
The Faculty of Business and Communication Studies International Conference (FBCS International Conference) will hold on this day at Polytechnic Conference Center, Ibadan, Nigeria.
Tuesday, August 06, 2019
The African Forum for Research and Education in Health Annual Symposium will hold on this day at the Lagos Continental Hotel, Lagos while the National Bureau of Statistics will on the same day release the Selected Banking Sector Data: Sectional Breakdown of Credit ePayment Channels and Staff (Q2 2019)
Wednesday, August 07, 2019
MRS Oil Nigeria Plc will on this day hold its Annual General Meeting at Federal Palace Hotel, Victoria Island Lagos while the African Conference on Emerging Infectious Diseases & Biosecurity will hold on the same day at Sheraton Abuja Hotel, Abuja.
Fidelity Bank Plc will on this day hold the Fidelity SME Funding Connect Lagos at Landmark Event Centre Victoria Island, Lagos.
Thursday, August 08, 2019
The Institute of Director Investiture of the 16th President & Chairman of Governing Council will hold on this day at Civic Center, Ozumba Mbadiwe Avenue, Victoria Island, Lagos, while Red Star Express Plc will on the same day hold its Annual General Meeting at Muson Centre, Onikan, Lagos.
Friday, August 09, 2019
The Glocalisation and Branding Summit 2019 will on this day hold the Positioning Nigerian Businesses for Local and International Market in Ikeja, Lagos, while the National Bureau of Statistics will on the same day release the Telecoms Data: Active Voice and Internet per State, Porting and Tariff Information (Q2 2019).
Saturday, August 08, 2019
Data Science Nigeria will on this day hold the AI Researchers Conference Call for Posters (MSc/PhD stream).
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