What To Expect From The Markets This Week - 190721

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Saturday, July 17, 2021 07:00 AM / Proshare Content / Header Image Credit: EcoGraphics


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Nigeria: Economic Dashboard 090721

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Editor's Note

Source: Proshare Research - July 17, 2021

Nigeria Economy

  • According to consumer price index, (CPI) data released on Friday, headline inflation for the month of June 2021 was 17.75 % (year-on-year). This is 0.18 percentage points lower than the rate recorded in May 2021 (17.93) %. This implies that prices continued to rise in June 2021 but at a slightly slower rise than they did in May 2021. While the Food index rose by 22.28% in May 2021, it rose by less (21.83%) in June 2021. The core sub-index also rose by less in June (13.09%) than it did in May (13.15%).
  • Former President Olusegun Obasanjo has warned that Nigeria's rising population might result in an economic crisis if not urgently addressed. Recall that the World Bank report in its recent Macroeconomic Outlook of the Nigerian Economy noted that given the current annual population growth rate of 3.2% about 15 million to 20 million more Nigerians would be trapped into poverty by 2022. Currently, half the country's population line is below the poverty line. According to the report, the impoverishment of the populace was worsened by the 2020 recession (-6.1% in Q2 2020 and -3.6% in Q3 2020) the country's deepest since 1980.
  • AfDB President, Dr. Akinwumi Adesina represented by The Director-General of the Group's Nigeria Country Department, Mr. Lamin Barrow, said at an event held earlier in the week that the Nigerian government's plan to lift 100 million Nigerians out of poverty by 2030 is being threatened by the high rate of unemployment and income inequality in the country. According to the AfDB President the rally in oil prices, increase in the country's VAT rate to 7.5 % and the proposed removal of fuel subsidies are positive developments that should provide some fiscal space.
  • Minister of Works and Housing, disclosed on Wednesday that the Federal Executive Council has approved the award of a contract to Dangote Industries for the construction of five roads totaling 274.9 km at the cost of N309.9bn to be paid for by the advance of tax credit to the company. The roads include Bama to Banki in Borno State; Dikwa to Gamboru-Ngala; and the Nnamdi Azikiwe Road in Kaduna; the deep seaport access road sections 1 and 3 in Lagos State, through Epe to Shagamu Expressway; and the Obele/Ilaro/Papalanto to Shagamu Road, in Ogun State.
  • Vice President Yemi Osinbajo on Wednesday said the Federal Government would henceforth look for the right type of investors in its privatization and commercialization drive. He further explained that the regime would also be looking out for the right models to look at funding available to the investors over an extended period as the government is strongly committed to this approach to national economic development and would put in place the necessary reforms. The Vice President noted that past sector reforms in Nigeria had led to increased opportunities and extensive economic and social progress, highlighting the pension scheme, telecommunications, port, and power sectors.
  • Acting upon the annual report of the Auditor-General for the Federation on the accounts of the federation for the year ended 31st December 2015, the Senate demanded that 59 Federal Government parastatals return allegedly misappropriated funds which amount to N300bn back to the federation account within 60 days. The concerned agencies include the Nigerian Ports Authority (NPA) and the Bureau of Public Enterprises (BPE). Meanwhile, the Senate has rued the under remittance of Nigerian National Petroleum Corporation (NNPC) which it estimates at N3.88tn.


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Global Economy

  • Growth in the Chinese economy is easing as the economy grew by +7.9%  in the last quarter  (April - June 2021), falling less than the +18.3%  growth recorded in the short of estimates. Although compared to other countries the growth figures are still impressive compared to other countries. Slower growth in the Chinese economy could adversely affect the global economy.
  • US Federal reserves Chairman has sustained his optimism about inflation moderating later in the year, although according to him the Fed was prepared to intervene if inflation got out of control. The Fed Chairman however noted that Inflation has increased and will likely remain as high as the current 13 year high of 5.4%, for some months to come before easing.
  • The Chinese Ministry of Commerce earlier in the week rued the latest inclusion of 23 Chinese entities to a US economic blacklist for alleged human rights abuses and military ties. Chinese authorities regard the US decision as a breach of international economic and trade rules and unreasonable repression of Chinese companies and the government will take necessary steps to protect Chinese interests.
  • UK Inflation rose sharply to 2.5% in June, exceeding expectations by far and putting pressure on the Bank of England to take more decisive actions.
  • Reacting to the decision of G20 Ministers of Finance to endorse the US proposed Global minimum tax of 15%, US Treasury Secretary Janet Yellen said at the start of the week that the tax -floor prevents the use of tax havens to attract foreign investment which in turn would force countries to compete on economic fundamentals. According to her, the deal will stop what she referred to as 'the race to the bottom'.
  • The Director-General of the World Trade Organisation, Dr. Ngozi Okonjo-Iweala, proposed earlier in the week, that nations across the globe set aside $50bn and thereby raise enough to vaccinate 40 % of the world population at the end of 2021, and up to 60 % next year. The WTO DG noted that f this can be achieved the world would get onto a sustainable recovery path.

 

Summary & Outlook

Fiscal Policy

In the face of dwindling oil revenues, the government appears to be considering the diversification of its revenue heads by the adoption of alternative project financing models such as the recent grant of tax credit to Dangote Industries in return for the construction of federal roads, we also find that the government is adopting much more aggressive commercialization and privatization drive by putting 38 state-owned assets up for sale or concession. It is hoped that the processes will be transparent and devoid of the typical human factor problems that have bedeviled such initiatives in the past.


Monetary Policy

Given that growth is currently fragile at 0.51%, inflation is still elevated at 17.75% and MPR is at 11.5%, real returns are negative just as they have been for close to 2 years, placing the MPC right in between the rock and a hard place. If rates are hiked domestic investment drops, growth slows further, and unemployment worsens but even if rates are raised negative real returns persist. We, therefore, expect the MPC to continue to strike a balance between containing general price level and supporting growth till unemployment reaches its natural rate.


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Commodities Market

Weekly Review and Outlook

Energy

Domestic

  • The Minister of State for Petroleum Resources, Chief Timipre Sylva, on Monday, said subsidy on petrol will end immediately after President Muhammadu Buhari signs the Petroleum Industry Bill in Law. He further noted that the government would soon begin the rehabilitation of the Warri and Kaduna refineries to increase domestic refining of petrol.
  • The Director-General of the Bureau of Public Enterprises, Alex Okoh, on Monday noted that the Federal Government has halted its plan to privatise Nigeria's refineries following demands by the NNPC to allow the corporation to revamp the dormant facilities.
  • Fuel marketers and Trade Union Congress of Nigeria, on Tuesday, expressed their opposition to a new provision in the Petroleum Industry Bill that seeks to give only active refinery licence holders the right to import petroleum products into the country.
  • The House of Representatives Committee on Public Petitions and the Department of Petroleum Resources (DPR) collided on Tuesday over Dawes Island marginal oil field lost by Eurafric for allegedly holding the national asset for 17 years without production. The DPR had re-awarded the field to Petralon 54 Limited and its partners during the last bid round.
  • The National Assembly on Wednesday included a clause in the PIB that says penalties paid by oil and gas companies for flaring gas will be invested to build midstream gas infrastructure in the host communities.
  • According to the OPEC July report, Nigeria's oil output dropped 11.47% year-on-year (Y-o-Y) in the second quarter (Q2) of 2021. Precisely, Nigeria produced 1.372 mb/d of oil in April, 1.344 mb/d in May, and 1.313 mb/d in June 2021. 

 

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Foreign

  • Oil prices remain steady on Monday as investors and traders awaiting the crucial talks by OPEC following the disagreement over output within the group that could lead to major producers opening their taps to gain market share.
  • United Arab Emirates (UAE) on Monday maintained that it accepts a proposal to raise output in stages by about 2 million bpd from August to December 2021 but rejects an extension of cuts beyond April 2022 without adjusting its baseline production.
  • The International Energy Agency (IEA) on Monday noted that the rebound in global gas demand to 2024 following a record fall last year is set to knock down the global climate goal of achieving net-zero emissions by 2050.
  • Crude oil futures fell on Monday as concerns over slowing global growth prevailed over the prospect of tightening supply after talks among key producers to raise output in coming months came to a halt.
  • China's crude oil imports in the first half (H1) of the year fell by 3% from a year earlier, the first contraction for H1 of a year since 2013.
  • The Energy Information Administration's (EIA) monthly drilling productivity report shows that crude output from seven major shale formations is expected to rise by 42,000 bp/d in August to 7.907 million bp/d, compared with a 28,000 bp/d rise in July.
  • The International Energy Agency (IEA), on Tuesday, reported that the oil market will see tighter supply in the short run amid dispute inside OPEC+ about how to ease production curbs but it may face the risk of a battle for market share if disagreement persists.
  • July OPEC report released on Thursday shows world oil demand would rise in 2022 to reach a level like before the pandemic and this will be led by growth in the United States, China, and India. OPEC maintained its prediction that demand would grow by 5.95 mb/d or 6.6% in 2021 and grow by 3.4% to 99.86 mb/d in 2022.
  • Oil prices fell on Friday as expectations of more supplies shocked investors on the hope that OPEC is likely to add more outputs to meet a potential revival in demand as more countries recover from the pandemic.
  • Brent had a weekly decline of -2.36% (see Table 1).


Metals

Gold appreciated by 0.29% while Silver dipped by -1.72% W-o-W (see Table 1).


Agriculture

  • Cocoa prices declined by -1.07% this week.
  • Corn prices grew by 9.24% W-o-W while Sugar appreciated by 2.44% (see Table 1).

 

Table 1Weekly Change in Commodity Prices

Commodity

16-Jul-21

09-Jul-21

31-Dec-20

Weekly Chg

YTD Chg

Brent

73.77

75.55

51.8

-2.36%

42.41%

Gold

1814.15

1808.89

1898.67

0.29%

-4.45%

Silver

25.7

26.15

26.4011

-1.72%

-2.66%

Cocoa

2314

2339

2597

-1.07%

-10.90%

Corn

561.5

514

484

9.24%

16.01%

Sugar

17.65

17.23

15.28

2.44%

15.51%

Source: Bloomberg, Proshare Research

*Data for 16th July 2021 is as of 5:16pm (Nigerian Time)


Outlook

  • In the coming week, oil prices are expected to be mixed on oversupply fears as OPEC wrangles an agreement.
  • Gold prices are expected to dip in the coming week, amid a stronger dollar and rebounding yields.
  • 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 rise next week as a recent cold spell cuts cane output expectations in Brazil.
  • Corn prices are expected to be bullish next week amid strong demand from China.


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Fixed Income and Money Market 

 

Currency Market

The currency market was flat this week at the BDC market while it depreciated at the official window.

 

It remained flat against major at the BDC, to close at US$/N500, £/N700, and against the Euro at €/N600.

 

At the I & E FX window, the Naira appreciated week-on-week by -0.13% and +0.02% at the NAFEX window.

 

The Naira closed the week at $/N411.20 at the I&E FX window, at the NAFEX (spot market) it closed at $/N411.20.

 

 

09-July-21

16-July-21

% Change

I & E FX Window ($/N)

411.75

411.20

-0.13%

NAFEX ($/N)

411.29

411.21

-0.22%

BDC ($/N)

500

500

0.00%

Source: FMDQ, AbokiFX, Proshare Research

 

Money Market

System liquidity was elevated for the most part this week, due to a massive N711bn Bond and NTB maturity repayments. Accordingly, interbank rates dipped, with the Open Buy Back (OBB) and Overnight (OVN) Rate's trading falling to a record low.

 

At the close of the trading session this week, funding rates declined significantly. Open Buyback (OBB) closed at 4.50% while Overnight (O/N) rates closed at 4.75% indicating a W-o-W fall of -77.22% for OBB and -76.83% for O/N rates.

 

Money Market Rate

 

09-July-21

16-July-21

% Change

OBB (%)

19.75

4.50

-77.22%

O/N (%)

20.50

4.75

-76.83%

Source: FMDQ, Proshare Research

 

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

 

Treasury Bills Market

The treasury bill market started the week on a quiet note, at the end of the week, the overall trading session closed bullish.  

 

At the close of the market on Friday, average benchmark yields for T-bills fell by -2.85% to 6.69% while OMO bills fell more significantly by -6.02% W-o-W to close at 9.29%, CBN's Special Bill fell by -8.22% to close at 8.37%.

 

Average Benchmark Yields

09-July-21

16-July-21

% Change

T. Bills (%)

6.89

6.69

-2.85%

OMO Bills (%)

9.89

9.29

-6.02%

SPEB

9.12

8.37

-8.22%

Source: FMDQ, Proshare Research

 

The CBN sold N150.00 billion worth of notes against N109.43 billion offered at its NTB auction today. The 91-day, 182-day & 364-day notes were allotted at 2.50%, 3.50%, & 8.67% respectively. Compared to the previous auction, rates on the 91-day & 182-day were unchanged while the 364-day paper fell by 48bps.

 

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



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FGN Bond Market

The Bullish momentum in the Bond market waned this week as attention was drawn towards the PMA auction this week.

 

At the close of the week, the overall market was bearish with selling interest seen across the board.

 

The overall average benchmark yields closed at 9.69% for the week which rose W-o-W by +1.56%.

 

Average Benchmark Yields

09-July-21

16-July-21

% Change

Short Tenor (%)

7.34

7.35

+0.19%

Mid Tenor (%)

10.91

11.02

+1.00%

Long Tenor (%)

12.55

12.84

+2.33%

Source: FMDQ, Proshare Research 

 

FGN Eurobond Market

Pockets of demand were seen across the board this week, buoyed by the decline in the U.S. 10-year Treasury yield. The decline in oil on a W-o-W basis also sent negative sentiment to the Eurobond market.

 

We expect the relatively quiet trend to persist in the near term.



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Nigerian Capital Market

  • The Nigerian bourse closed started the week on a negative note while market sentiment remained weak, albeit with occasional bargain hunting. The NGXASI closed the week on a negative note with a decline of -0.12%. The Nigerian Stock Exchange lost N24.49bn thus, year-to-date return moderated to -5.77%, while the market capitalisation settled at N19.77 trillion.
  • The volume and value of stocks traded on the exchange this week advanced by +66.72% and +228.05% respectively.
  • Sectoral performance across sectors tracked was mixed this week as the NGX Oil and Gas was the highest gainer for the week with +1.81% while NGX Insurance recorded the highest decline with -1.07%. NGX Banking, NGX-30, NGX-IND, and NGX Consumer Goods closed the week with +0.09%, -0.19%, -0.30% and -0.85% respectively.
  • Market breadth for the week closed positive with 29 gainers led by FTNCOCOA and NCR as against 32 losers led by IKEJAHOTEL and HMARKINS


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Chart 1: Movement of NSEASI Index Points 09 July. 2021- 16 July. 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 754.11 points and N655.45 with a decline of +1.31% and +23.88% respectively.

 

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Dangote and Toni Index   

Dangote Index closed the week negative with 121.61 basis points from 121.75 basis points recorded the previous week, representing a decline of -0.11%.


DANGCEM and NASCON closed the week flat while DANGSUGAR  recorded a decline of -2.24%.

 

 

Table 2: Dangote Index W-o-W Change

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Furthermore, the Toni Index closed positive with 97.54 basis points from 95.17 basis points recorded the previous week, a W-o-W growth of +2.49%.


UBA and UBCAP and closed the week positive with +3.33%, +3.17% while TRANSCORP and AFRIPRUD closed the week negative with -1.08% and -0.79% respectively. TRANSCOHOT and 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 possibility of sustained bargain hunting as investors look to take advantage of good bargains 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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Latest Reports This Past Week

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

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

3.     424,460 Passengers Travelled Via Rail in Q1 2021 - NBS

4.     37.67% of Nigeria's Total Public Debt Was External as of Q1 2021 - NBS

5.     424,460 Passengers Travelled Via Rail in Q1 2021 - NBS

6.     37.67% of Nigeria's Total Public Debt Was External as of Q1 2021 - NBS

7.     Headline Inflation Increases by 17.93% YoY In May 2021, 0.19% Lower Than April 2021 Rate - NBS

8.     FAAC Disburses N640.31bn in February 2021 - NBS

9.     Average Fare Paid by Commuters for Intercity Bus Journey Increased by 1.48% MoM in April 2021 - NBS

10.  Nigeria's Real GDP Grew by 0.51% YoY in Q1 2021 - NBS



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Related News

1.      Investors Lose N24.49bn WoW as NSEASI Dips by -0.12% to Close the Week Negative

2.     Investors Lose N2.94bn as NSEASI Dips Marginally by -0.01% Amid Positive Market Breadth

3.     Investors Gain N7.97bn as NSEASI Inches Up Marginally by 0.04%, YTD Return Hits -5.96%

4.     NSEASI Closes Flat Amid Positive Market Breadth, Market Turnover Closes Green

5.     Investors Lose N71.01bn as NSEASI Dips by -0.36% to Open the Week Negative



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