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Saturday, December 14, 2019 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @ 201219
Editor's Pick
Source: Cordros
Weekly Economic and Market Report -December 20, 2019
Global economy
As reported by the National Bureau of
Statistics, China's industrial production and consumption expanded at a
faster-than-expected pace in November, indicating a possible rebound in activities,
after Beijing moved to halt an economic slowdown in the country. Reflecting the
effects of supportive policies and favourable seasonal factors, industrial
production increased by 6.2% from a year earlier and retail sales climbed by
8.0%. At the same time, fixed-asset investments in the first 11 months of 2019
grew by 5.2% - the slowest pace since at least 1998. The 'phase-one' trade deal
with the U.S. helps to lift the outlook but does not alleviate the pressure on
the economy. Chinese authorities are expected to maintain an accommodative
stance on fiscal and monetary policy, though the extent of general fiscal and
monetary easing may be scaled back.
Japan's headline inflation ticked up
again in November in the wake of an earlier sales tax increase on utilities and
mobile phone charges. Data from the ministry of internal affairs showed
consumer prices (excluding fresh food) rose 0.5% from a year earlier, edging up
from 0.4% in October. After factoring out the impact of the sales tax and
free pre-school education, though, core inflation maintained the same pace of
just 0.2%, highlighting the difficulty the Bank of Japan is facing in lifting
price growth toward its 2.0% target. The 2.00ppt increase in the sales tax has
pushed up prices of goods and services but also damped consumer demand - a key
driver of inflation. Anemic wage growth is still the foremost hurdle to
long-term price growth and unless incomes rise, consumption will not increase
sustainably and businesses will not be able to raise prices.
Global markets
Global equity indices hit record highs
at the end of the week, as optimism pervaded markets after the U.S. and China,
agreed on an initial ('phase-one') trade deal. European shares (Euro Stoxx:
+1.1%; FTSE 100: +3.2%) led the way following positive company and economic
updates. US stocks (DJIA: +1.2%; S&P: +1.2%) hit all-time highs as the U.S.
Treasury Secretary said the initial trade deal had been penned and would be
signed in early January 2020, dispelling fears of another escalation in the
trade dispute. Sentiments were mixed in Asia (Nikkei 225: -0.9%; CSI 300:
+1.2%) as investors in Japan chose to book profits ahead of the year-end
holiday. Elsewhere, investors, comforted by the preliminary trade truce,
continue to view riskier assets in emerging and frontier (MSCI EM: +1.8%, MSCI
FM:+0.7%) more favourably towards the end of the year.
Nigeria
Economy
In line with our expectations for
continued food price pressure, November's headline inflation printed 11.85% y/y - the highest since May 2018. The outturn is 25bps higher than the prior month
(October:11.61% y/y) and 4bps shy of our estimate (11.89% y/y). The dual impact
of the sustained border closure and festive induced demand took a toll on food
prices, as food inflation surged by 39bps to 14.48% y/y. Elsewhere, core
inflation expanded by 12bps to 8.99% y/y - highest in 7 months - with pressure
emanating primarily from energy inflation (+44bps). In our view, the pressured
energy price was due to a sharp jump in AGO (diesel) prices (+2.52% y/y). For
December, we expect festive induced demand, coupled with the impact of the
border closure to have a negative passthrough to food inflation. That said,
despite continued FX stability and liquidity, we expect core inflation to
increase further, given the low base from the corresponding period in the prior
year. Overall, we expect headline inflation to sustain its upward trajectory,
rising to 12.05% y/y (0.92% m/m) in December.
According to the Monthly Financial and
Operations Report by NNPC, refineries consolidated capacity utilisation in
September settled at 0.0% for the 3rd consecutive month. The poor performance
of the refineries can be attributed to the seemingly perpetual process of
revamping the refineries. We highlight that the continued sclerotic state of
the refineries reflects on the figures for the Oil refining sub-sector of
Manufacturing GDP, which has remained in recession for 6-consecutive quarters.
Looking ahead, we expect oil refining output to remain negligible, due to primarily
to continued funding issues.
Capital markets
Equities
Trading in the equities market was
highly volatile this week as year-end activities ramped up. Positive sentiments
trailed large-cap Consumer Goods & Banking stocks; however, selloffs of
index-heavyweight, MTNN (-2.4%), capped gains, leading the index to close flat
week-on-week. Consequently, the MTD and YTD losses remained at -1.8% and
-15.6%, respectively. On sectoral performances, the Consumer Goods (+1.3%),
Insurance (+1.0%), and Banking (+0.8%) indices edged higher, driven by gains in
NB (+10.0%), WAPIC (+9.1%) and STANBIC (+3.9%). Conversely, selloffs of OANDO
(-6.1%) and WAPCO (-1.4%) led to declines in the Oil & Gas (-0.7%) and
Industrial Goods (-0.5%) indices.
We see the level of activity and
volatility being sustained over the final days of the year, with some pockets
of gains expected, as fund and portfolio managers realign portfolios prior to
the start of 2020.
Money market
The overnight (OVN) rate maintained an
uptrend during the week, advancing on three of the five trading days in the
week, before settling higher by 0.14ppts at 2.9%. On the first trading day, the
rate settled 0.6ppts higher at 3.4% as system liquidity thinned out. Similarly,
by the second trading day, the rate advanced by 0.3ppts, before then declining
on the subsequent trading day as investors committed capital to auctions - Treasury bonds and bills PMAs. However, on the penultimate trading of the week,
the rate pared by 0.1ppts to 2.9% as the system became awash with liquidity
from maturities (NGN100.62 billion) which could not be re-invested on the prior
trading day.
In the coming week, OMO maturities
worth NGN279.90 billion will hit the system on the 24th (NGN17.54 billion) and
26th (NGN262.26 billion). This, we expect to boost system liquidity and tether
the OVN rate in the current range.
Treasury bills
Trading in the Treasury bills market
remained bullish this week, as the average yield across instruments pared by
21bps to 10.5%. The positive sentiments were witnessed primarily in the OMO
segment of the market, where the average yield pared by 49bps to 5.8%. However,
in the NTB segment, the market traded sideways as the average yield advanced by
1bp to 13.1%. Also, there was a Treasury bills PMA auction held on the 18th of
December, for instruments worth NGN7.00 billion - 91DAY (Stop rate: 4.0000%;
Previous stop rate: 5.0000%; Bid-to-offer: 12.36x), 182DAY (Stop rate: 5.0000%;
Previous stop rate: 6.1900%; Bid-to-offer: 9.34x), 364DAY (Stop rate: 5.4950%;
Previous stop rate: 6.8800%; Bid-to-offer: 18.87x).
In our opinion, rates have declined to
the trough, where the magnitude of the bid-to-offers at PMAs and trade volumes
in the secondary market should begin to wane. Nonetheless, we expect yields to
pare marginally in the coming week.
Bond
Trading in the Treasury bonds secondary
market was seemingly bearish, as the average yield across instruments settled
24bps higher at 11.1%. In our view, this was due to the outcome of the PMA
auction held by the DMO during the week, on the 18th of December. At the
auction, three instruments worth NGN150.00 billion were offered to investors
through re-openings - 12.75% APR-2023 (Bid-to-offer: 1.41x; Stop rate:
11.0000%), 14.55% APR-2029 (Bid-to-offer: 1.84x; Stop rate: 12.0000%), and
14.80% APR-2049 (Bid-to-offer: 2.52x; Stop rate: 13.0000%). Notably, all
instruments closed with stop rates above the secondary market trading levels,
which we surmise was responsible for the direction of yields in the secondary
market. Also, the DMO eventually allotted instruments worth NGN264.40 billion,
representing 1.76x the offer amount.
The level of subscriptions witnessed at
the PMA during the week substantiates our view that volumes should begin to
move towards that market. We expect this trend to persist over the coming
weeks, just as yields decline given strong buying activity.
Foreign exchange
Amidst continued sell-offs by offshore
investors, Nigeria's FX reserve dipped by USD238.02 million WTD to USD39.01
billion (18th Dec 2019). 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 weakened at the I&E window by 0.2% WTD to NGN364.06/USD - an 11-month
high -, but closed flat at NGN363.00/USD at the parallel market. Elsewhere,
total turnover at the I&E window declined by 43.0% WTD to USD864.62
million, with trades consummated within the NGN357.00 - 364.80/USD band. In the
Forwards market, the naira was stronger across all contracts, WTD - 1-month
(+0.3% to NGN365.55/USD), 3-month (+1.2% to NGN368.86/USD), 6-month (+2.3% to
NGN374.66/USD) and 1-year (+2.5% to NGN390.67/USD).
Despite the rate of decline in FX
reserves, which has heightened fears regarding the possibility of a currency
devaluation, our model suggests that the CBN has enough ammunition to sustain
its naira defence through to at least H1-20.
Monday, December
23, 2019
The Launch of Sanwo-Olu Cares Initiatives will
hold on this day in Lagos Nigeria
Tuesday, December 24, 2019
The National Bureau of Statistics will on this day release the Federation Account
Allocation Committee (FAAC) (November 2019 disbursement), Petroleum
Products Imports Statistics Q3 2019 Report and also the Selected
Banking Sector Data: Sectorial Breakdown of Credit, ePayment Channels, Deposits
and amp; Domestic Credit breakdown and Staff strength (Q3 2019)
Wednesday,
December 25, 2019
Christmas an Annual Festival
commemorating the Birth of Jesus Christ will hold on this day while the Guild of Muslim Professionals (GMP)
and the Muslim Public Affairs Centre (MPAC) Nigeria 7th Convention will hold on this day with the theme: The
World by 2050, How Ready Are We?
At Academy Guest house & events hall, plot 6, Lateef Jakande road,
Agidingbi, Ikeja, Lagos
Check out our Events Calendar for event details and follow us on Web, TV, APP and Social Media for updates as the week unfolds. Yours to Serve!
Contact for Details:
For further information, enquiry or submission of information, kindly email market@proshareng.com and research@proshareng.com Tel: 0700PROSHARE (070077674273). Call us NOW!
Latest Reports This Past Week
1. NBS Publishes 2019 Corruption in Nigeria Survey Report
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Report
3. Banking Sector Records 800.21m Volume Of Transaction
In Q3 2019 - NBS
4. N275.12bn Generated As VAT In Q3 2019 - NBS
5. Pension Fund Asset Under Management Stood At N9.58trn
As At Q3 2019 - NBS
6. Average Price of 1kg of Rice Increased By 2.55% YoY
to N382.57 in October 2019 - NBS
7. Average Fare For Intercity Journey Increased By 0.59%
To N1,636.86 MoM in October 2019 - NBS
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