What To Expect From The Markets This Week - 070621

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Saturday, June 05, 2021 08:00 AM / Proshare Content / Header Image Credit: EcoGraphics


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Nigeria: Economic Dashboard @ 040621

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Editor's Note

Source: Proshare Research - June 05, 2021

Nigeria Economy

  • Nigeria's Foreign Portfolio Investment increased by +1635% Q-o-Q in the first quarter and this can be attributed to the low base effect as well as improvements in foreign investor confidence and optimism. However, Year on year, FPI saw a decline of about -77.4% from $4.31 b in Q1 2020 to $974.1m in Q1 2021.
  • The Nigerian Ports Authority has said it is making significant progress in decongesting the ports in Lagos with the e-call up system. The NPA states that 11,796 trucks gained access to the ports via the e-call up platform in the period between May, 24- May, 30.
  • According to the Ministry of Works, 75 companies have submitted bids for 12 federal roads under the Highway Development and Management Initiative HDMI.
  • Federal Government plans to concession four airports for up to 30 years. The Airports up for concession include Lagos, Port-Harcourt, and Kano Airports
  • 36 states are to get $20m each from the World Bank's $750m grant under the National covid-19 action recovery and economic stimulus, NGCARES.
  • RMAFC stated that a total of N1.54tn was remitted into the federation account in Q1 2021, of this amount, the Federal Inland Revenue Service paid N759,857,249,035.40 as Corporate Income Tax and N496, 390,010,655.56 as Value Added Tax, while the Ministry of Mines and Steel Development accounted for the rest. The remittance by FIRS surpassed the targeted tax revenue by more than N36, 803,760.80 representing 108.01% for the quarter.
  • The Central Bank governor has stated that in order to achieve double-digit growth there is a need for N35trillion investment in infrastructure, an amount too large for the government alone to provide.
  • The number of food-insecure citizens in Nigeria rose from about 25 million to 50 million due to insecurity across the country and the impact of the COVID-19 pandemic, the Nigerian Economic Summit Group said on Wednesday.
  • Nigeria failed to meet its National Financial Inclusion Strategy target for 2020 to include 80% of its adult population into the financial system. EFInA Data shows that only 64.1% were financially included by the end of 2020. 


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Global Economy

  • World Economic Outlook on Monday predicted global economic growth of +5.8 % FY2021 and +4%FY 2022. The OECD revised the economic growth of the United States in 2021 to +6.9 % up from its previous forecast of +6.5 %.
  • The forecasted growth rate for the EU was upwardly reviewed 2021 from +3.9 % to +4.3 % FY2021 but retained next year's projections at +4.4%
  • According to OECD, China will record a (GDP) growth rate of +8.5 % in 2021 and +5.8 % in 2022.
  • The US is pushing for a global minimum tax of 15% corporate Income tax. According to the Secretary of the US Treasury, Corporations around the world should pay at least a corporate income tax of 15% tax on their earnings, in a bid to prevent Profit-shifting.
  • The $1.9 trillion pandemic relief package and the expansion of the COVID-19 vaccination program to all adult Americans have led to a surge in demand which is stretching supply. Analysts forecast double-digit GDP growth this quarter, which would help the economy to achieve growth of at least +7%.
  •  GDP Data released by Australian authorities show that the economy may be in the middle of a sustained contraction owing majorly to a slow-down in tourism, devastating bush fire season, and to a lesser degree the pandemic. In order to counteract the economic downturn, the monetary authorities have cut short-term interest rates to a record 0.25% as well as efforts at Quantitative easing through a large buy-back of bonds.
  • Amidst concerns that a steady rise in the Yuan would result in the reduced competitiveness of China's export, the PBOC has had to introduce new measures to control a rising Yuan. The currency has recently surged to a high against the dollar in three years. The measures require local financial institutions to increase reserves from +5% to +7% by the middle of June.  This policy instrument was last employed at the peak of the global financial crisis in 2007.
  • Analysts have reviewed India's growth rate expectations from +10.4% to +7.9% FY2022. Analyst had expected economic activities in the Southeast Asian nation to return to pre-pandemic levels by FY2022. However, most now expect a double trough recovery where pent-up demand of a largely rural population would not be sufficient to achieve a full recovery.
  • Chinese Vice Premier held talks with US Treasury Secretary Janet Yellen over economic cooperation and the two sides concluded that the economic relationship between the two countries is "very important,". In addition, both sides mentioned that they are willing to have further discussions.
  • The International Monetary Fund has agreed to provide a $1 billion facility to Uganda, the second of such to an African country, in a week, in order to help the continent's economies, mitigate the impact of the coronavirus pandemic. The loan to Uganda is a follow-up on an earlier grant of $1.5 billion to the Democratic Republic of Congo over the next three years.
  • Growth in the Brazilian economy for the first three months of the year has reached +1.2% Q-o-Q, but in the service sector, which employs large populations, grew only by+0.4%
  • Recent Goldman Sachs Research expects China's shrinking working-age population to lower overall investment rates and economic growth.  According to the report, the current working-age population constrains the country's potential GDP.


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Commodities Market

Weekly Review and Outlook

Energy

Domestic

  • The NNPC on Monday said it is currently considering equity participation in six private refineries across the country in line with the Federal Government policy directive which stipulated mandatory participation of the corporation in any privately-owned refinery that exceeded 50,000 barrels per day capacity.
  • The Federal Government on Monday through the Department of Petroleum Resources on Monday disclosed that out of the 7,000 discovered oil reservoirs in the country, only 1,700 of the reserves are currently producing crude oil. The DPR said it has also issued letters of award to investors who emerged successful in the marginal field bid round that was launched a year ago.
  • The Federal Government through the Senior Special Assistant to the President on Niger Delta Affairs, Senator Eta Enang, on Wednesday said a policy on the operations of artisanal refineries in the country would soon be unveiled. 

 

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Foreign

  • Oil prices grew on Monday in early Asian trade, supported by the bright outlook for fuel demand growth in the next quarter, while investors looked ahead to the OPEC+ meeting during the week to see how producers will respond.
  • The OPEC's Joint Technical Committee on Monday revised its oil demand upwards following the progress in COVID-19 vaccination campaigns globally. OPEC Secretary-General, Mohammad Barkindo, said world oil demand is expected to increase by 6 million barrels per day in 2021 to average 96.5 million barrels per day.
  • A research published on Thursday by U.S. think-tank Global Energy Monitor noted that world's coal producers are currently planning as many as 432 new mine projects with 2.28 billion tonnes of annual output capacity. China alone is currently building additional 452 million tonnes of annual coal production capacity despite the IEA call for a giant leap toward net zero emissions.
  • The Energy Information Administration reported on Thursday that U.S. crude inventories fell by 5.1 million barrels for the week ended May 28.
  • Also on Thursday, the world's top oil exporter, Saudi Arabia, raised its official selling prices to Asia for July shipments in the midst of international oil prices rally and expected strong outlook for oil demand most likely to recoup June discounts.
  • Oil prices recouped early losses and steadied on Friday as concerns about the patchy roll-out of COVID-19 vaccinations around the globe tempered optimism over recovering fuel demand.
  • Brent had a weekly growth of 2.67%  (see Table 1).


Metals

Gold eased by -0.39% while Silver also dipped by -0.29% W-o-W (see Table 1).



Agriculture

  • Cocoa prices slid by -0.32% this week.

  • Corn prices climbed by 2.93% W-o-W while Sugar gained by 2.42% (see Table 1).

 

Table 1Weekly Change in Commodity Prices

Commodity

04-Jun-21

28-May-21

31-Dec-20

Weekly Chg

YTD Chg

Brent

71.62

69.76

51.8

2.67%

38.26%

Gold

1890.71

1898.16

1898.67

-0.39%

-0.42%

Silver

27.78

27.86

26.4011

-0.29%

5.22%

Cocoa

2456

2464

2597

-0.32%

-5.43%

Corn

676.75

657.5

484

2.93%

39.82%

Sugar

17.79

17.37

15.28

2.42%

16.43%

Source: Bloomberg, Proshare Research

*Data for 4th June 2021 is as of 5:33pm (Nigerian Time)

 

Outlook

  • In the coming week, oil prices are expected to be bullish as OPEC+ supply discipline and recovering demand continues to counter concerns about patchy COVID-19 vaccination rollout around the globe.
  • Gold prices are expected to rebound in the coming week, as dollar declines after news of U.S. adding 559,000 jobs in May, missing expectation.
  • Cocoa prices to decline next week on weak global demand.
  • Sugar prices are expected to rise next week due to the sugar supply shortage in Brazil and Thailand.
  • Corn prices are expected to be bullish next week on continued demand from China.


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Fixed Income and Money Market 

Currency Market

The bears continued their run in the currency market this week at the BDC window, majorly driven by speculators.

 

It depreciated against the US dollar, British Pound, and Euro by +1.02% +2.17%, +1.68% respectively closing at $/N495, £/N705, and €/N605 at the BDC window. 

 

At the I & E FX window, the Naira appreciated marginally week-on-week by -0.30% and -0.02% at the NAFEX window.

 

The Naira closed the week at $/N412.0 at the I&E FX window, at the NAFEX (spot market) it closed at $/N411.00.

 

 

28-May-21

04-June-21

% Change

I & E FX Window ($/N)

412

410.75

-0.30%

NAFEX ($/N)

411.00

410.93

-0.02%

BDC ($/N)

490

495

+1.02%

Source: FMDQ, AbokiFX, Proshare Research

 

Money Market

System liquidity opened the week in a deficit of N193.60bn and funding rates continued their double-digit trend this week.

 

Funding rates declined at the close of the week. Open Buyback (OBB) closed at 15.00% while Overnight (O/N) rates closed at 15.25% indicating a Week-on-Week (W-o-W) fall of -19.66% for OBB and -20.45% for O/N rates.


Money Market Rate

 

28-May-21

04-June-21

% Change

OBB (%)

18.67

15.00

-19.66%

O/N (%)

19.17

15.25

-20.45%

 







Source: FMDQ, Proshare Research


Funding rates are expected to trend in double digits in the coming week.

 

Treasury Bills Market

The Treasury bills market started the week on a bearish note which was also maintained for most of the trading session, however, the market ended on a bullish note.

 

At the close of the week, the average benchmark yield for T-bills was rose by +2.65% to close at 6.26% while OMO bills rose by +3.84% W-o-W to close at 9.96%.

 

Average Benchmark Yields

28-May-21

04-June-21

% Change

T. Bills (%)

6.10

6.26

+2.65%

OMO Bills (%)

9.59

9.96

+3.84%

SPEB

-

9.17

-

Source: FMDQ, Proshare Research

 

We expect the activity in the treasury bills market to remain subdued next week as system liquidity remains relatively tight.

 

The CBN offered N50 billion worth of OMO notes but sold N41.00 billion at its this week. The offer was over-subscribed. The 96-day, 180-day & 348-day notes were allotted at 7.00%, 8.50%, & 10.10% respectively.

 

FMDQ Securities Exchange Limited approved the quotation of the Fidson Healthcare PLC N4.50 billion Series 1 Commercial Paper under its N10.00 billion Commercial Paper Issuance Programme on the Exchange.

 

Also, FMDQ approved the Quotation of the Union Bank of Nigeria PLC N2.58 billion Series 8 and N32.38 billion Series 9 Commercial Papers (the "CPs") under its N100.00 billion Commercial Paper Issuance Programme on the Exchange platform.



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FGN Bond Market

The bullish sentiment in the Bond market persisted at the start of the week as short covering was seen across the board particularly on the mid to long end of the curve which was maintained throughout the week.

 

At the close of the week, the market was bullish with buying interest seen majorly across the curve.

 

The overall average benchmark yields closed at 9.74% for the week which fell W-o-W by -2.60%.

 

Average Benchmark Yields

28-May-21

04-June-21

% Change

Short Tenor (%)

7.57

7.42

-1.92%

Mid Tenor (%)

11.84

11.46

-3.25%

Long Tenor (%)

13.47

13.29

-1.35%

Source: FMDQ, Proshare Research

 

FGN Eurobond Market

Activity in the FGN Eurobond market was subdued at the beginning of the week, this was propelled by the public holiday which was observed in the UK and US. At the mid and end of the week, the market closed bullish which was largely supported by improvement in crude oil prices.

 

The average benchmark yield closed at 5.82% at the end of the week declining W-o-W by -4.34%.

 

We expect market sentiment to remain soft in the near term in the absence of any trigger.


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Nigerian Capital Market

  • The Nigerian bourse closed the week on a positive note with a growth of +1.23%. The Nigerian Stock Exchange gained N244.51bn thus, year-to-date return moderated to -3.84%, while the market capitalization settled at N20.18 trillion.
  • The volume and value of stocks traded on the exchange this week dipped by -12.95% and -56.66% respectively.
  • Sectoral performance across sectors tracked was significantly bullish this week as the NSE-IND was the highest gainer for the week with +2.60% while NSE Oil and Gas recorded the highest decline with -0.79%. NSE-30, NSE Insurance and, NSE Banking closed positive with +1.35%, +1.25% and +0.04% respectively while NSE Oil and Gas and NSE Consumer Goods closed the week negative with -0.79% and -0.37% respectively.


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Chart 1: Movement of NSEASI Index Points 28May. 2021 - 06 June. 2021

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Source: NSE, Proshare Research

 

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NASD OTC 

 

The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week with a positive movement in Market capitalization and NSI. The NSI and Market capitalization closed the week at 773.22 points and N549.61bn with a growth of +2.78% and +2.78% respectively. 

 

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Dangote and Toni Index  

Dangote Index closed the week positive with 116.36 basis points from 112.79 basis points recorded the previous week, representing a growth of +3.17%.


NASCON and DANGSUGAR declined by -8.78 and -0.87% respectively while DANGCEM appreciated by +3.53% WoW respectively. NASCON recorded the highest loss W-o-W.

 

 

Table 2: Dangote Index W-o-W Change

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Furthermore, the Toni Index closed negative with 91.23 basis points from 91.64 basis points recorded the previous week, a W-o-W decline of -0.45%


AFRIPRUD, TRANSCORP  and UBCAP all closed the week negative with -7.81%, -1.12% and -0.48% respectively while TRANSCOHOT and UBA closed flat W-o-W.


 

Table 3: Toni Index W-o-W Change


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Outlook

 

In the coming week, we expect the bearish sentiment in the market to persist however, press releases from listed companies and other macroeconomic developments is likely to impact investors’ decisions.

 

In addition, we expect investors to monitor the movement of yields in the fixed income market.



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