November 30, 2019 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @ 291119
Source: Cordros Weekly Economic and Market Report - November 29, 2019
This week, the US' GDP growth was revised to 2.1% y/y, which is stronger than the prior estimate of 1.9% y/y. We highlight that the upward adjustment largely stemmed from inventory investments (-2.7% y/y; previously: -3.0% y/y), business investments (-2.7% y/y; previously: -3.0% y/y), and personal consumption expenditure. The impact of the foregoing offset the downward revision of government spending. Despite the upward revision, the overall growth story in the US remains largely tepid after starting the year on a strong footing (+3.1% y/y). For the rest of the year, growth is expected to slow further, mostly on account of the deteriorating external sector pressured by the Sino-US trade conflict. Should this persist beyond 2019, our prognosis is that the US Fed will remain hard-pressed to maintain its accommodative policy stance.
Although Eurozone inflation increased in November (+30bps to 1.0% y/y), it remains a long way off the ECB CPI target of 2.0%. After moderating in the prior month (October: -10bps), November inflation reading matched the price growth outturn in August 2019, following faster increases in the price of food and services. Similarly, core inflation (Ex. Food and Energy) gathered pace in the same period, accelerating to 1.3% y/y, from 1.1% in October. Clearly, years of monetary stimulus packages, together with a negative benchmark rate have done little to bolster price growth in the bloc. In our view, the elusive inflationary target should leave the ECB on a tightrope in its next policy meeting in December 2019. However, we expect the committee to leave the benchmark rate unchanged.
President Trump's indication that both the US and China are close to signing a first-level trade deal bolstered global equity sentiments for much of the week. To add, the upward revision of the US' Q3-19 GDP further helped strengthen risk appetite. While the US (DJIA: +1.0%; S&P: +1.4%) market was closed on Thursday due to the Thanksgiving holiday in the US, it was positive at the end of the first three sessions of the week. Meanwhile, stronger labour market figures and faster CPI growth supported the accumulation of risk assets in Eurozone area (Euro Stoxx: +0.6%; FTSE 100: +1.0%). Elsewhere, sentiments were mixed in Asia (Nikkei 225: +0.8%; CSI 300: -0.6%), while the positive outturn in India (+1.1%) and poor performance in Vietnam (-0.7%) supported and dragged the emerging (MSCI EM: +0.2%) and frontier market (MSCI FM: -0.1%) indies respectively.
In line with our expectation, the Monetary Policy Committee (MPC) elected to keep all monetary policy parameters at current levels. Shaping the thought of the committee were; (1) the improving domestic growth, (2) inflation - with the committee brushing off the recent uptick, believing it's only an initial reaction to the border closure and thus temporary, and (3) the recent surge in private sector credit, with the committee underscoring the effectiveness of recent LDR policies which has seen credit to the private sector increase by NGN1.10 trillion between June and October 2019. Also, in a bid to boost domestic agricultural production and bridge the demand-supply gap, the committee has developed a "Commodity Development Initiative" to finance 10 commodities across the agricultural value chain. Looking ahead, given the (1) potential of impact on the currency of continued depletion in the foreign reserves, amidst weakened capital inflows and increased repatriation of capital, and (2) our expectation for an uptick in inflation, we see limited scope for a rate adjustment over the short term.
According to the data released by the National Bureau of Statistics (NBS), capital importation into the country declined by 7.8% q/q to USD5.37 billion in Q3-19. The breakdown provided revealed that FDI remained weak, moderating by 10.2% q/q - the fourth consecutive quarter of decline. The weakness of FDI further underscores the need for practical economic policies and structural reforms to support growth in key industries. Elsewhere, FPI inflows pared by 30.1% q/q, driven by softening inflows into the bonds (-71.04% q/q), money market (-26.73% q/q), and equities (-27.91% q/q). In our view, given global growth concerns, unimpressive domestic macroeconomic landscape, and persistent policy revisions that impact confidence in the market, foreign inflows may remain tepid of the short to medium term.
The market seems to not have fully shaken off the policy-induced rally from a few weeks ago, as the All-share index advanced by 0.04% to settle the YTD return at -14.09%. The market closed positive on 3 of 5 days in the trading week, even as the volume and value of trades declined precipitously by 18.0% and 23.6%, respectively. Analysing the performance by sectors, the Consumer Goods sector supported the performance of the market, after the index gained 4.69%, with the Industrial Goods index (+0.35%) recording the only other positive performance. On the flip side, the Banking (-0.68%), Insurance (-0.07%) and Oil & Gas (-0.43%) indices all recorded losses.
In our view, despite the marginally positive performance of the market during the week, the market seems to once again be losing impetus. Consequently, we expect the market to shed points in the coming week, absent a policy-driven catalyst. Nonetheless, the case for the market to record some gains over the short to medium term remains compelling, even as the valuation picture becomes less compelling.
Liquidity in the money market remained robust, averaging NGN344.55 billion during the week. The overnight (OVN) rate rose by a marginal 7 bps w/w to 4.5% as CBN partially mopped up NGN353.60 billion in OMO maturities, selling a total of NGN281.45 billion via OMO auction.
In the coming week, OMO maturities (NGN344.88 billion) will bolster system liquidity. Barring any liquidity mop-up by the CBN, we expect a contraction in the overnight lending rate.
Trading in the Treasury bills market remained bullish this week with the average yield across instruments paring by 67 bps to 11.2%. As with the prior week, most of the activities were localized to the NTB secondary market, where local corporates and individuals are the major players. The average yield on NTBs in the secondary market declined by 136bps to 7.3% as market players looked to cover lost bids from the NTB primary market auction (PMA) which was oversubscribed. Yields on OMO bills also pared, declining by 28bps to 13.1% as eligible market participants looked to invest excess maturities. At the NTB PMA, instruments worth NGN150.60 billion - NGN20.37 billion of the 91DTM, NGN19.16 billion of the 182DTM, and NGN111.07 billion of the 364DTM - at respective stop rates of 6.50% (previously 7.80% auction), 7.20% (previously 9.00% auction) and 8.37% (previously 10.0%).
We expect trading volumes to start to temper in the NTB market, as the average yield trends towards the single-digit level. However, the average OMO yield is expected to remain around the same level, moderately paring in the coming week. Overall, we expect overall volumes in the market to pare and market participants to take positions in Treasury bonds as has been witnessed over the past few weeks.
Activity in the bond market was similarly bullish, with demand spurred by the outcome of the MPC meeting, where the committee reaffirmed the apex bank's policy stance on the exclusion of local investors from the OMO market. Consequently, average yield compressed by 27bps to 11.9%. The FEB-2020 bond (-190 bps) recorded the largest decline in yield, while the APR-2037 bond (+4bps) recorded the largest increase.
The recent restrictions to trading in the Treasury bills market have continued to drive volumes in the Treasury bonds market, as investors have continued to seek out higher-yielding instruments. We expect this pattern to continue over the coming week, and so expect the average Treasury bonds yield to pare.
Nigeria's FX reserves continued to pare this week, declining by USD95.98 million WTD (27 Nov 2019) to USD39.83 billion. Meanwhile, the CBN sustained its weekly FX interventions, selling USD210.00 million across the different segments of the FX market - USD100.00 million to the Wholesale segment, USD55.00 million to the SMEs segment, and USD55.00 million to the Invisibles segment. Nonetheless, the naira depreciated by 0.18% WTD to NGN362.75/USD at the I&E window but closed flat at NGN360.00/USD at the parallel market. Elsewhere, total turnover at the I&E window decreased by 34.09% WTD to USD644.77 million, with trades consummated within the NGN357.00 - 363.00/USD band. In the Forwards market, the naira weakened across all contracts - 1-month (-0.1% to NGN366.18/USD), 3-month (-0.3% to NGN373.15/USD), 6-month (-0.2% to NGN383.05/USD) and 1-year (-1.4% to NGN397.71.70/USD).
Despite the rate of decline in FX reserves orchestrating fears of possible currency devaluation, our model suggests that the CBN's has enough ammunition to sustain its naira defense over 2019 and H1-20.
Monday, December 02, 2019
The Nigerian Content Development and Monitoring Board will on this day begin its 9th Practical Nigeria Forum at NCDMB headquarters, Yenagoa, Bayelsa State while the 234 Finance Mentor Matchup Challenge will hold on the same day at the Lagos Oriental Hotel.
The National Bureau of Statistics will on this day release the National Agriculture Sample Survey 2018/1019.
Tuesday, December 03, 2019
The Bonds, Loans and Sukuk Nigeria will on this day hold its Annual Credit Market Event at Eko Hotel and Suites Lagos while the SME International Week and Trade Fair will begin on the same day at the National Theatre Iganmu, Lagos.
Business day will on this day hold its CEO FORUM with the theme "Nigeria at Crossroads the Private Sector Opportunities" at Lagos Continental Hotel Victoria Island Lagos.
The Chartered Institute of Transport Administration of Nigeria will on this day begin its 2019 National Transport Summit and Annual General Meeting with the theme "Unlocking the Potentials of Transportation for Sustainable Development" at Shehu Musa Yar' Adua Centre Abuja while the National Bureau of Statistics will release the Nigerian Capital Importation (Q3 2019).
Wednesday, December 04, 2019
The Solar Future Nigeria will on this day begin its 2-day Conference at Eko Hotel and Suites, Victoria Island, Lagos while the Cement Company of Northern Nigeria Plc will hold its Annual General Meeting at the Transcorp Hilton Hotel, 1 Aguiyi Ironsi Street, Maitama, Abuja.
The Nigeria-British Chamber of Commerce will on this day hold the First Edition of the NBCC Sharing Experiences Series themed "Building Institutions" at Oriental Hotel 3, Lekki- Epe Expressway Victoria Island, Lagos while the National Bureau of Statistics will on this day release the Pension Asset and Membership Data (Q3 2019).
The Nigerian Economic Summit Group will on this day hold a forum on Gender Inclusion.
Thursday, December 05, 2019
The 7th Human Resources Bootcamp Conference will begin on this day with the theme Thrive; Digital and Inclusive at the Twin Waters Entertainment Centre, Water Corporation Road, Oniru, Victoria Island, Lagos.
Friday, December 06, 2019
Africa Future Summit will hold on this day at the Kuramo Waters Close, Victoria Island, Lagos while Ellah Lakes Plc will hold its Annual General Meeting at Constantial Hotel, 26 Airport Road, Benin City, Edo State.
The Nigeria Tech Summit will hold on this day at the YMCA Complex, 77, Awolowo Road, Ikoyi, Lagos.
Contact for Details:
Latest Reports This Past Week
Latest Videos This Past Week
Previous Week(s) Market Outlook
1. What To Expect From The Markets This Week- 241119
10. The Rich, The Poor and Buharinomics