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Saturday, May 09, 2020 08:00 AM / Proshare Content/ Header Image Credit: EcoGraphics
Nigeria: Economic Dashboard @ 080520
Editor's Pick
Source: Cordros Weekly Economic and Market Report - May 08, 2020
Global Economy
This week, the U.K's monetary policy committee
unanimously elected to keep the policy rate unchanged at 0.1%, amid the
COVID-19 induced economic disruption. However, in recognition of the slack that
is building in the economy as activities stall, the committee expressed its
readiness to cut the benchmark rate into the negative territory, if
needed. Beyond the foregoing, the BoE also voted to continue with its
additional GBP200 billion quantitative easing programme. That together with its
previous Q.E. programme, will bring its total bond-buying programme to
c.GBP645.00 billion. In its assessment of economic growth outlook, the Bank
expects GPD to contract by 14.0% y/y over 2020E, mostly due to the negative
impact of COVID-19 on activities. The U.K. is one of the worst impacted
countries in the COVID-19 epidemic, with over 30,000 coronavirus related
deaths. Assuming the pandemic phases out in H2-20, U.K.'s economy is expected
to rebound strongly in 2021, largely benefitting from a favourably low base in
2020.
In a surprise outturn, China's external sector
rebounded strongly in April 2020, with trade surplus printing USD45.3 billion
(March: USD19.9 billion) - the largest surplus since December 2019. The strong
growth was supported by a recovery in exports (+3.5% m/m vs. -6.6% m/m in
March), relative to a slide in imports (-14. 2% m/m vs. -0.9% m/m in March),
which set the stage for a 127.6% expansion in the trade balance. On exports,
China's National Bureau of Statistics reported significant shipments of medical
and anti-virus supplies in April, following rising coronavirus incidences
across the world. Meanwhile, imports continue to falter as the Chinese economy
is yet to fully recover post-lockdown. For the next few months, the need to
flatten the COVID-19 case curve will continue to support the demand for medical
supplies, which we believe is to China's benefit. Thus, we see further legroom
for China's trade surplus to expand further.
Global equities sentiments were positive, as economies
around the world move to ease respective lockdowns, alongside mixed economic
and earnings data. Stocks in the US (DJIA: +0.6%; S&P: +1.8%) ticked higher
as the US and China pledged to meet their trade deal obligations. Similarly,
European equities (STOXX: +0.9%; FTSE 100: +3.0%) reacted positively to news of
improving US-China relations. Investors in Europe are also expecting a recovery
in global growth as economies around the world tout lockdown easing measures.
Asian equities (SSE: +1.2%; Nikkei 225: +2.9%) were also buoyed by optimism
surrounding improving Sino-US relations. On the other hand, the MSCI EM index
was negative (-2.2%), following declines in South Korean (-0.1%), Taiwanese
(-0.8%) and Indian (-6.2%) equities markets.
Nigeria
In the recent citizens' dialogue session on "government fiscal policy decisions in response to the fall in oil prices and
the COVID-19 pandemic, the minister for finance, budget, and national planning,
Mrs Zainab Ahamed, acknowledged that Nigeria will nosedive into economic
recession in 2020. The government expects GDP growth to contract by 3.5% y/y vs
IMF's estimate of -3.0% y/y (Cordros estimate: -2.07% y/y), mostly driven by
contraction across both the oil and the non-oil sectors. This is expected, given
the damage done thus far by the COVID-19 pandemic, which led to the institution
of the great lockdown in Nigeria at the twilight of March. Meanwhile, relative
to the previous year, oil receipts are expected to fall by as much as 90.0%,
following the COVID-19 induced decline in crude oil prices. The FGN said it
expects oil production to settle at 1.70mbd (Cordros' estimate: 1.79mbd), while
the price of crude oil is expected to average USD20.00/bbl. (Cordros' estimate:
USD30.00/bbl.)
Meanwhile, in recognition of the slack that is
building across various economies as activities stall, we like that Nigerian
economic managers have responded swiftly, adopting a more expansionary monetary
policy while also implementing discretionary fiscal policy in a bid to limit
the impact of the mounting risks. We understand that the government has
launched a COVID-19 intervention fund up to the tune of c.NGN500.00 billion.
Beyond that, the newly approved IMF RFI loan is expected to partly plug the
expanded 2020 budget funding gap. Yet, as with the FGN, we also believe that
the stimulus packages will not prevent an economic contraction this year.
However, it will help with the recovery process post-pandemic.
The Nigerian equities market sustained its upward
trajectory, as the All-Share Index advanced by 4.4% w/w, to settle at 24,045.40
points. We highlight cheap assets prices, gradual lockdown easing, and inflows
of budget facilities from the IMF, as the key drivers of risk assets
accumulation over the week. Accordingly, the YTD loss moderated to -10.4%.
Sectoral performances this week were positive, as gains bellwether stocks
spurred gains all sector indices this week. The Consumer Goods index (+8.5%)
led the gains, followed by the Banking (+4.0%), Oil & Gas (+2.8%),
Insurance (+2.8%), and Industrial Goods (+2.2%) indices.
In our opinion, risks remain on the horizon due to a
combination of the increasing number of COVID-19 cases in Nigeria and weak
economic conditions. Thus, we continue to advise investors to trade cautiously
and seek trading opportunities in only fundamentally justified stocks.
In line with our expectations, the overnight (OVN) rate expanded by 5.58 ppts, w/w, to 8.3%. During the week, outflows from the prior week's OMO auction (NGN100.00 billion) and Monday's FX auctions outweighed this week's inflows from OMO maturities (NGN18.50 billion) and retail SMIS refunds, causing the OVN rate to expand to its current level.
In the coming week, we expect the OVN to contract, as
inflow from OMO maturities (NGN296.95 billion) enter the system.
Trading in the Treasury bills secondary market was
bearish, as the average yield across all instruments expanded by 9bps to 7.9%.
This was driven by the reduced demand for instruments at the OMO segment
(average yield: +21bps w/w to 10.1%) and tempered trading activities in the NTB
segment (average yield: -4bps w/w to 2.7%).
In the coming week, we expect improved demand for
T-bills, as system liquidity is boosted by expected maturities. In the NTB
segment, we expect the focus to be shifted to next week's PMA, where the CBN
will be rolling over NGN33.84 billion worth of maturities.
The Treasury bonds secondary market was quiet through
the week, as investors in the space hold off till the next primary auction,
following the senate's approval of the FGN's request to source its foreign
borrowings (NGN850.00 billion) locally. Thus, trading was mixed, with a bearish
bias, as the average yield across instruments expanded by 3bps to close at
10.2%. Across the curve, yields expanded at the short (+6bps) and long (+15bps)
ends following sell-offs of the JAN-2026 (+101bps) and APR-2037 (+25bps) bonds,
respectively, and contracted at the mid (-18bps) segment, following demand for
the APR-2029 (-45bps) bond.
We expect the current trend in the Treasury bonds
secondary market to persist until the next PMA.
Last week, we had stated that inflows from the IMF's
RFI loan will provide the needed breather for Nigeria's FX reserves and also
serve as a short-term currency defence ammunition to the CBN. As expected,
Nigeria recorded an FX reserve buildup, growing by USD564.33 million WTD to
USD34.09 billion (8th of May 2020). This is the first reserve accretion since
the start of the year. Against that backdrop, the Naira appreciated against the
USD by 0.01% w/w to NGN387.25/USD at the I&E window, and by as much as
4.12% w/w to NGN437.00/USD in the parallel market. As with the spot market, the
naira gained ground against the USD across all contracts in the Forward market.
Precisely, the 1-month (+0.4% to NGN388.77/USD), 3-month (+0.7% to
NGN394.23/USD), 6-month (+1.2% to NGN402.07/USD), and 1-year (+2.1% to
NGN421.52/USD) contracts declined in value.
While we still hold the view that the RFI inflow will
continue to provide short-term support for the FX reserves, we expect the currency
market to remain largely volatile, especially as the CBN has announced the
resumption of FX sales to SMEs and for the payment of school fees, in
anticipation of the gradual re-opening of the economy.
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2.
Total Household Expenditure on Food and Non-food Was
Put At N40.21bn in 2019 - NBS
3.
Poverty and Inequality in Nigeria 2019: 40% of Total
Population Classified as Poor
4.
GDP By Income and Expenditure Approach Q4 2019 - Household
Final Consumption Declined by -2.40%
5.
Nigeria's Total Public Debt
Stood At N27.40trn in Q4 2019 - NBS
6.
FAAC Disburses N647.35bn in
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Banking Sector Records 893.68m
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