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Nigeria: Economic Dashboard @ 140820
Source: Cordros Weekly Economic and Market Report - August 14, 2020
UK economy plunged into recession in Q2-20, when the coronavirus lockdown was
tightest, contracting by the most since the Office for National Statistics
(ONS) began keeping records in 1955. GDP contracted by a record 20.4% q/q
(Q1-20: -2.2% q/q) and 21.7% y/y as Britain's lockdown was more protracted than
elsewhere. More importantly, the monthly GDP figure indicates that activity saw
a much more solid rebound in June (+8.7%) than the disappointing outcome for
May (+1.8%), mostly on wholesale/retail trade, as shops began to reopen. Following the easing of lockdown and
social distancing measures, we expect businesses to increase output to meet up
with the pent-up consumer demand. As such, we expect the U.K economy to rebound
sharply in Q3-20.
According to US Labor Department data, US consumer prices rose in July by more than expected on a jump in auto and apparel costs, though inflation remained broadly muted as the pandemic suppressed demand. Headline and Core Consumer Price Indices (CPI) both posted 0.6% m/m gains vs 0.3% m/m and 0.2% m/m respective consensus expectations. The jump in core CPI was the largest increase since January 1991. The current trend in the CPI reflects the gradual easing of lockdowns as well as the impact of the U.S. stimulus package aimed at boosting depressed due to the COVID-19 pandemic. We see this more as an unwinding of the strains caused by Covid-19 shutdowns rather than a signal that there is a meaningful pick-up in medium-term price pressures. The significantly smaller economy and huge output gap formed due to the pandemic will limit the upside for broader inflation pressures.
equities were broadly positive on improving economic data, rising hopes over a
COVID-19 vaccine and general optimism about a global economic recovery.
Consequently, US (DJIA: +1.7%; S&P: +0.7%) stocks were set to close the
week higher. In addition to the preceding, European (STOXX Europe: +1.2%; FTSE
100: +0.9%) stocks were also set to close the week higher following a telecoms
sector M&A announcement. Asian (Nikkei 225: +4.3%; SSE: +0.2%) stocks were
also up on US stimulus hopes and as some weak consumption data reinforced
expectations that the Chinese government will take more measures to boost
domestic demand. Emerging (MSCI EM: +0.6%) and frontier markets (MSCI FM:
+2.0%) stocks were also set to end the week higher following gains in South
Korea (+2.4%) and Kuwait (+3.1%).
NNPC announced an invitation to investors to bid for the rehabilitation of the
crude oil and petroleum product pipelines as well as the upgrade of the depots
serving the Group's oil refineries through a Build, Operate and Transfer (BOT)
model. The pipeline network was built in the 1970s and plays a critical role in
bringing crude oil to NNPC's refinery complexes, and moving the finished fuels
to consumers. However, the pipelines have fallen into serious disrepair through
normal wear and tear, vandalism and oil bunkering. We see this initiative as positive. The
rehabilitation and upgrade of the facilities will allow the NNPC free up
finances for other purposes while enhancing the efficiency of the network. This
could also offer a boost domestic refinery capacity utilization (2019 domestic
refining capacity utilization: 7.6%) in conjunction with increased protection
from pipeline vandalism.
The Nigerian Bureau of Statistics (NBS) released its Labour Force Statistics report for the first time since December 2018. The unemployment rate rose to 27.1% in Q2-20 (Q3-18: 23.1%), the highest in at least a decade, while the underemployment rate rose to 28.6% (Q3-18: 20.1%). While the working-age population increased by 1.2% to 116.87 million (Q3-18: 115.49 million), we highlight that the number of those who are willing and able to work reduced by 11.3% to 80.3 million (Q3-18: 90.5 million). Youth unemployment also remained significantly high at 34.9% (vs 29.7% in Q3-18). We note that change in methodology and some discrepancies in the official data make like-for-like comparisons difficult. However, taking the data at face value, the unemployment rate more than doubled over the last four years as Nigeria has struggled to recover from the effects of the 2016 recession. The decline in the overall labour force suggests that at least 10 million people, who were previously in full employment, have disappeared from the labour force since 2018 and implies that real unemployment could be much higher.
the first time since January, the domestic bourse closed higher for the third
successive week, primarily driven by foreign investors taking positions in
fungible stocks. Specifically, AIRTEL (+9.2%), NB (+12.5%), and SEPLAT
(+10.0%) were the major drivers of the overall market's gain, with the
All-Share index closing the week 0.6% higher at 25,199.84 points. The YTD loss
moderated to -6.1%, while the MTD gain increased to 2.0%. Performance across
sectors within our coverage was broadly positive with the Oil & Gas
(+5.9%), Consumer Goods (+2.2%), and Insurance (+1.1%) indices recording gains.
The Banking index was flat while the Industrial Goods (-2.7%) index was the
Our view continues to favour cautious trading as 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 seek trading opportunities in only fundamentally justified stocks.
In the coming week, we
expect a contraction in the OVN, as inflows from OMO maturities (NGN181.36
billion) come into the system.
Treasury bills secondary market traded with bullish sentiments, as market
players looked to reinvest inflows from OMO maturities and FX retail refunds,
and as they looked to the secondary market to fill unmet demand from the NTB
PMA. Thus, average yield across all instruments contracted by 9bps to 3.3%.
Across the segments, average yield contracted by 4bps and 13bps to 4.0% and
1.6%, at the OMO and NTB markets, respectively. At the PMA, the CBN rolled over
maturing bills worth NGN56.78 billion with allotments of NGN19.78 billion of
the 91-day, NGN10.00 billion of the 182-day and NGN27.00 billion of the 364-day - at respective stop rates of 1.20% (previously 1.20%), 1.39% (previously
1.50%), and 3.12% (previously 3.40%).
We expect the downward trend in yields to be sustained, with incoming inflows likely to support demand.
Treasury bonds secondary market ended the week bearish, as investors anticipate
renewed supply from next week's PMA. Consequently, average yield expanded by
5bps to 7.9%. Across the benchmark curve, average yield expanded at the short
(+92bps) end following a sell-off of the JAN-2022 (+206bps) bond. Conversely,
yield at the mid (-1bp) and long (-79bps) segments contracted due to demand for
the JUL-2030 (-60bps) and MAR-2036 (-117bps) bonds, respectively.
Next week, we expect investors' focus to be shifted to the PMA on Wednesday, as the DMO is set to offer instruments worth NGN150.00 billion through re-openings of the 12.50% JAN 2026, 12.50% MAR 2035, 9.80% JUL 2045 and 12.98% MAR 2050 bonds. Nonetheless, we still expect increased activity at the secondary market as investors cover lost bids at the auction which is likely to be oversubscribed.
CBN's foreign reserves sustained its descent, dipping by USD32.03 million w/w
to USD35.62 billion, as FX outflows continue to outpace inflows. Nevertheless,
the naira was flat against the US dollar at NGN386.00/USD and NGN475/USD at the
I&E window and parallel market, respectively. In the forwards market, the
naira depreciated against the US dollar in the 1-month (-0.03% to
NGN387.51/USD), and 1-year (-0.3% to NGN409.32/USD) contracts but appreciated
against the dollar in the 3-month (+0.05% to NGN389.81/USD), and 6-month (+0.1%
to NGN393.79/USD) contracts.
Despite the CBN's stronger commitment towards exchange rate unification, we still see legroom for the currency to depreciate further, at least towards its REER derived fair value. Our prognosis is hinged on (1) the widening current account (CA) position, (2) currency mispricing, which could induce speculative attacks on the naira, and (3) the resumption of FX sales to the BDC segment of the market which should place an additional layer of pressure on the reserves as the CBN funds the backlog of unmet FX demand.
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