What To Expect From The Markets This Week - 090821

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Saturday, July 31, 2021 09:00 AM / Proshare Content / Header Image Credit: EcoGraphics


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Nigeria: Economic Dashboard 060821

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Editor's Note

Source: Proshare Research - August 07, 2021

Nigeria Economy

  • Panelists at LCCIs Mid-Year Economic and Business Outlook Webinar noted that Nigeria's revised FTY2021 growth projections of +2.5% and +1.8% by the International Monetary Fund and the World Bank respectively were on the back of an improved Purchasing Managers Index, steadily increasing oil prices, market-reflective exchange rate, and increased vaccinations. Speakers at the event stated that growth was still constrained by forex liquidity issues arising from a decline in foreign investments, diaspora remittances, insecurity, rising debt, and service costs.
  • According to recent data from the Central Bank of Nigeria, external reserves gained $280m in two weeks. The reserves had successively dipped in the last couple of months, losing to $33.09bn as of July 12 from $33.28bn on July 1, before rising to $33.38bn on July 29 from $33.1bn on July 14 While in June, the reserves lost $905.5m, after it fell to $33.32bn at the end of June 30 from $34.23bn on May 31. 
  • MTN Nigeria Communications Plc said it is set to undertake the refurbishment of the Enugu-Onitsha Expressway. The company said it was responding to the Federal Government's call for public-private partnerships in the rehabilitation of critical road infrastructure in Nigeria. Under the Road Infrastructure Tax Credit Scheme. 
  • The Nigerian Senate asked the Bureau of Public Enterprises to refund N8.7bn to the Consolidated Revenue Fund following a review of the AuGF report for 2015. The Senate alleged non-remittance of N4.74bn dividend received on Federal Government holdings as well as N1.14bn interest earned on fixed deposits. The committee also accused the BPE of diverting N2.5bn, proceeds of the defunct Power Holding Company of Nigeria, to finance staff housing scheme, in violation of the Financial Regulation 3205. Senate had also alleged irregularities in FG's N1.1tn investments in a UK firm.
  • Using indicators from the World Bank, International Telecommunication Union, Eurostat, and U.S. Census the NetBlocks Cost of Shutdown estimates the economic impact of the Twitter app restriction at a loss of N150.46bn. According to the tool, it costs Nigeria's economy N102.77m ($250,600) every hour to ban Twitter. It has been 1,464 hours (61 days) since the ban. The Federal Government had on June 4 announced the suspension of Twitter in Nigeria.
  • The Federal Executive Council (FEC) approved the award of the contract for the Lagos-Calabar coastal standard gauge rail.  The proposed project which is expected to cost $11.17bn would run from Lagos to Obudu Ranch; with a branch line from Benin City to Asaba, Onitsha Bridge, and then Port Harcourt to Onne Deep Seaport. According to government officials, the Lagos-Calabar coastal route is critical because it would link all coastal cities in Nigeria.
  • The Federal Government has directed the Nigerian Sovereign Investment Authority to source $200m for the settlement of the International Court of Arbitration award in favor of the Chinese firm, Sunrise Power and Transmission Company Limited. Officials of the Federal Ministry of Power said the government agreed to pay the sum and had mandated NSIA to work out measures for settling the $200m judgment debt which was awarded to compensate Sunrise Power for the unlawful termination of the contract for the 1,525 megawatts Mambilla hydropower project and the re-award of the same to another Chinese firm.


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Global Economy

  • According to the US Labour Department, the employment report on Friday showed that Nonfarm payrolls increased by 943,000 jobs in July after rising by 938,000 in June. Economists had projected an increase in Nonfarm payrolls of 870,000 jobs. Employment is now 5.7 m jobs below its previous peak in February 2020.
  • The Commerce Department reported on Thursday that the US trade deficit rose +6.7% from a revised May deficit of US$71 bn. The US trade deficit increased to a record US$75.7 bn in June as a rebounding American economy made the demand for imports appreciate. The June deficit exceeds the old record high of $75 bn set in March. Exports rose modestly by +0.5% while imports rallied by +2.1% through the first six months of this year, making the trade deficit amount to US$428.6 bn, which represents an increase of +46.4% Y-o-Y.
  • The Board of Governors of the IMF approved a raise in the general allocation of Special Drawing Rights (SDRs) to US$650bn to boost global liquidity. The new SDR allocation which will become effective on August 23, 2021, is the largest in the history of the IMF and it is expected to support the global economy at a critical time.  The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. 
  • Indonesia is billed to report this week an economic growth of more than +6% for  Q22021, however, a new wave of COVID-19 cases is dampening optimism about the subsequent quarter. The median forecast of 22 analysts in a poll was for gross domestic product (GDP) growth of +6.57% in April-June on an annual basis, the first expansion in five quarters. That is also the fastest clip since 2010, albeit less optimistic than the government's projection of +7% and the central bank's estimate of +6.75%. Southeast Asia's biggest economy shrank 2.1% last year, the first contraction since 1998.
  • Mexico's economy bounced back to annual growth in Q2 2021 supported by services and manufacturing for export to the United States, its top trading partner, a preliminary estimate from the national statistics agency showed. This represents a growth of +19.7% Y-o-Y, the first year-on-year quarterly growth since before the pandemic.


Summary and Outlook

Growth data for Q2 is expected later in the month, and while FTY2021 forecasts range between 2.5% (IMF), 3%(FG), and 3.15%(CBN), the major determinants of where the needle rests at the end of the day would be issues pertaining largely to the global economy such as the covid 19 pandemic and crude oil prices. The spread of the delta-variant of covid 19 currently casts doubt on global recovery, following the increased number of cases in the US, China, and Japan- three of the largest economies in the world. While this may have forced a reversal in the upward trend in oil prices, the recent tensions in the middle east appear to create a counteracting effect. On the local scene, slightly improved but weak naira, the parallel premium in the Fx market, insecurity, and the large infrastructural deficits would make attracting FDI cumbersome. On a brighter note, the increased SDR allocation of US$650bn by the IMF to member countries should see Nigeria access a soft loan of up to $3.4bn which to provide investible funds, shore up the reserves and help with increasing liquidity in the Fx market. 


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Commodities Market

Weekly Review and Outlook

Energy

Domestic

  • The GMD of NNPC, on Monday, said the corporation is set to roll out policies to guide its IOC Partners who wish to divest from the joint ventures or the Nigerian oil and gas industry. The NNPC boss noted that the corporation cannot stop partners from divesting their interests, even though it will create a challenge for the country in terms of getting the right and competent investors to take the positions and add value to the assets.
  • A report released by NNPC during the week shows that the total revenue generated from the sale of white products for the period of March 2020 to March 2021 stood at N2.13tn, where petrol contributed about 99.24% of the total sales with a value of N2.11tn. In March 2021, the Petroleum Products Marketing Company said it recorded N234.63bn revenue from the sale of white products.
  • On Tuesday, Senegalese Energy Minister, Aissitou Sophie Gladima, had a courtesy visit to Nigeria's Minister of State for Petroleum Resources, Timipre Sylva. The senegalese minister said Nigeria's over 50 years of oil production is an excellent example for Senegal as it is beginning to grow its oil industry. She noted that her country is reaching out to Nigeria to support its oil and gas industry in the areas of security management, national oil company (NOC) organisation and strategies, and local content regulations.
  • The Department of Petroleum Resources (DPR) on Tuesday said it is formulating a Maximum Economic Recovery (MER) strategy for Nigeria to attain maximum value from its oil and gas resources.
  • The Federal Executive Council on Wednesday approved $1.48bn for the rehabilitation of two refineries in Warri and Kaduna. The contract was awarded to Messers Saipem SPA and Saipem Contracting Limited and would run in three phases of 21, 23, and 33 months.
  • The price of Nigerian Bonny Light, its premium crude oil grade, on Wednesday dipped to $71.24 per barrel from $72 recorded the previous day, over fears of increasing United States stock and the spread of Delta variant.
  • The Department of Petroleum Resources (DPR) on Thursday said it is working towards capturing all the 33,000 filling stations in Nigeria into its Downstream Remote Monitoring System (DRMS) by December to check fuel smuggling and other illegal activities in the downstream oil sector.


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Foreign

  • The Executive Secretary, African Refiners, and Distributors Association, Anibor Kragha on Tuesday said African nations need to focus on reducing sulfur levels in petroleum products because Africa's consumption of fossil fuels would rise quickly in the coming decades even as the supply of clean energy continue to grow.
  • Oil prices fell on Monday by over 3% as weak economic data from China and the United States surfaced. China's July factory activity grew at the slowest pace since February 2020 and U.S. manufacturing sector also recorded lower growth while higher crude output from OPEC producers stoked fears of weakness in oil demand and oversupply.
  • Iran's foreign minister on Monday said the country will respond promptly to any threat against its security as the United States, Israel, and Britain blamed her for an attack on an Israeli-managed tanker off the coast of Oman.
  • The Middle East state-held oil firms, including Saudi Aramco and the Abu Dhabi National Oil Company (ADNOC), are considering selling more assets to investors to monetize their stakes and attract foreign investors as oil prices rise.
  • The state-owned Indian Oil Corporation (IOC), the largest oil refiner in the country, says it is looking to boost its crude oil refining capacity by one-third over the next half-decade as it believes that gasoline and diesel demand will continue to rise in India
  • Oil prices extended the previous session gains on Friday but headed for the biggest weekly decline since March as travel restrictions to curb the spread of the COVID-19 Delta variant are raising concerns about fuel demand.
  • Brent had a weekly decline of -7.35% (see Table 1).

Metals

Gold depreciated by -2.93% while Silver dipped by -4.64% W-o-W (see Table 1).



Agriculture

  •  Cocoa prices grew by 5.04% this week.
  • Corn prices rose by 2.39% W-o-W while Sugar appreciated by 4.02% (see Table 1).

 

Table 1Weekly Change in Commodity Prices

Commodity

06-Aug-21

30-Jul-21

31-Dec-20

Weekly Chg

YTD Chg

Brent

70.72

76.33

51.8

-7.35%

36.53%

Gold

1761.7

1814.9

1898.67

-2.93%

-7.21%

Silver

24.265

25.445

26.4011

-4.64%

-8.09%

Cocoa

2478

2359

2597

5.04%

-4.58%

Corn

557.5

544.5

484

2.39%

15.19%

Sugar

18.65

17.93

15.28

4.02%

22.05%

Source: CNBC, Proshare Research

*Data for 6th August 2021 is as of 6:12pm (Nigerian Time)

 

Outlook

  • In the coming week, oil prices are expected to dip on worries that travel restrictions to curb the spread of the Delta variant of COVID-19 will derail economic gains.
  • Gold prices are expected to decline in the coming week, following a strong U.S. jobs report which boosted expectations the Federal Reserve could begin tapering its economic support sooner than previously anticipated.
  • Cocoa prices to be bearish next week as the market struggles to absorb excess supplies following bumper harvests in top growers Ivory Coast and Ghana.
  • Sugar prices are expected to be steady next week as frost in Brazil limits output.
  • Corn prices are expected to be bullish next week amid a severe drought in the United States.


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Fixed Income and Money Market 

Currency Market

  • There was a sense of calm in the currency market especially at the BDC market, the Naira strengthened at the BDC market as the banks seem to have complied with the new CBN stance to sell FX to retailers.
  • At the I & E FX window, the domestic currency dipped slightly by +0.01% on a week-on-week (W-o-W) basis to close at N411.50/US$ at the close of trading on Friday.
  • Against the US dollar at the BDC it closed at US$/N508 appreciated by -3.24%, against the British pound it also appreciated by -1.40% to close at £/N705, and against the Euro by -0.17% to close at €/N602.
  • Naira closed the week at $/N411.50 at the I&E FX window, at the NAFEX (spot market) it closed at $/N411.10.

 

30-July-21

06-Aug-2021

% Change

I & E FX Window ($/N)

411.44

411.50

+0.01%

NAFEX ($/N)

411.19

411.10

-0.02%

BDC ($/N)

525

508

+3.24%

Source: FMDQ, AbokiFX, Proshare Research


Money Market

  • For a major part of trading this week, system liquidity was elevated pushing money market rates low and trading in single digits.
  • However, at the close of the session on Friday, funding rates rose significantly. Open Buyback (OBB) closed at 20.00% while Overnight (O/N) rates closed at 20.50% indicating a W-o-W rise of +166.67% for OBB and +164.52% for O/N rates.

Money Market Rate

 

30-July-21

06-Aug-2021

% Change

OBB (%)

7.50

20.00

+166.67%

O/N (%)

7.75

20.50

+164.52%

Source: FMDQ, Proshare Research


  • Funding rates are expected to trade in double digits trend in the coming week in the absence of any maturity.

 

Treasury Bills Market

  • The treasury bill market was broadly bullish for most of the trading session this week, as we saw some buying across all tenors this week.
  • At the close of the market this week, average benchmark yields for T-bills fell by -4.65% to 5.63%, OMO bills declined up by -10.53% W-o-W to close at 7.78%, CBN's Special Bill fell marginally by –0.12% to close at 8.22%.

Average Benchmark Yields

30-July-21

06-Aug-2021

% Change

T. Bills (%)

5.90

5.63

-4.65%

OMO Bills (%)

8.69

7.78

-10.53%

SPEB

8.23

8.22

-0.12%

Source: FMDQ, Proshare Research

We expect activity next week to be dictated by the market liquidity situation. 


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FGN Bond Market

  •  The bulls dominated the FGN bond market as positive sentiment was seen across the board.
  • The overall average benchmark yields closed at 9.06% for the week which fell W-o-W by -2.10%.

Average Benchmark Yields

30-July-21

06-Aug-2021

% Change

Short Tenor (%)

6.63

6.31

-4.87%

Mid Tenor (%)

10.40

10.34

-0.62%

Long Tenor (%)

12.69

12.55

-1.09%

Souce: FMDQ, Proshare Research 

 

FGN Eurobond Market

  • The Covid-19 induced risk-off sentiment caused yields in the Eurobond market to inch up this week and selling was seen across the board with minimal volumes traded.
  • On the domestic space, the Federal Government of Nigeria appointed transaction advisers for a Eurobond issue. The Eurobonds to be issued, are to raise funds for the New External Borrowing of N2.343 trillion (about USD6.2 billion) provided in the 2021 Appropriation Act to part finance the Deficit.



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Nigerian Capital Market

  • The Nigerian bourse closed the week on a positive note with some cherry picking and bargain hunting. The NGXASI closed the week with a growth of +0.68%. The Nigerian Stock Exchange gained N137.38bn, year-to-date return moderated to -3.63%, while the market capitalization settled at N20.22 trillion.
  • The volume and value of stocks traded on the exchange this week dipped by -56.66% and -56.41% respectively.
  • Sectoral performance across sectors tracked was broadly negative this week as the NGX-30 was the highest loser for the week with -0.11% while NGX-IND, NGX Consumer Goods, NGX Banking, NGX Oil & Gas and NGX Insurance declined by -0.21%, -0.48%, -0.58%, -0.61% and -1.65% respectively.
  • Market breadth for the week closed negative with 23 gainers led by CUTIX and REGALINS as against 36 losers led by NEIMETH and AIICO


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Chart 1: Movement of NSEASI Index Points 30 Jul. 2021- 06 Aug. 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 752.81 points and N654.32 with a growth of +0.04% and +0.04% respectively.


 

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Dangote and Toni Index   

Dangote Index closed the week negative with 130.66 basis points from 130.93 basis points recorded the previous week, representing a decline of -0.20%.


NASCON  recorded a growth of +1.38% while DANGSUGAR recorded a decline of -4.32% respectively while DANGCEM closed the week flat W-o-W.

 

 

 

Table 2: Dangote Index W-o-W Change

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Furthermore, the Toni Index closed negative with 96.52 basis points from 98.08 basis points recorded the previous week, a W-o-W decline of -1.59%.

 

AFRIPRUD, TRANSCORP, UBA and UBCAP and closed the week negative with -5.51%, -6.86%, -1.35% and -4.29% respectively while TRANSCOHOT closed positive with +9.80% W-o-W.

 

Table 3: Toni Index W-o-W Change

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Outlook

 

In the coming week, we expect to see further bargain hunting around the half year earnings season as companies continue to release their results and impressive earnings reports should spur some interest. However, other macroeconomic developments are 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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Latest Reports This Past Week

1.      Total Value of Capital Imported into Nigeria in Q2 2021 Declined by 54% QoQ - NBS

2.     Average Fare Paid for Bus Journey Increased by 2.80% MoM in June 2021 - NBS

3.     Average Price of 1kg of Tomato Increased by 13.92% YoY in June 2021 - NBS

4.     Headline Inflation Increases by 17.75% YoY in June 2021, 0.18% Lower Than May 2021 Rate - NBS

5.     Headline Inflation Increases by 17.75% YoY in June 2021, 0.18% Lower Than May 2021 Rate - NBS

6.     All Commodity Group Import Index Increased by 0.82% in Q1 2021 - NBS

7.     424,460 Passengers Travelled Via Rail in Q1 2021 - NBS

8.     37.67% of Nigeria's Total Public Debt Was External as of Q1 2021 - NBS



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