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Saturday, February 22, 2020 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @ 210220
Editor's Pick
Source: Cordros Weekly Economic and Market
Report - February 21, 2020
Global Economy
Japan's economy is at the brink of a technical
recession, as the sales-tax hike and the negative impact of typhoon "Hagibis" plunged the economy into its biggest contraction in five years in Q4 19.
Specifically, GDP plummeted by 0.4% y/y (Q3-19: -1.7% y/y). Consumer spending
which accounts for 60.0% of the GDP fell by 2.9% y/y after the national sales
tax was raised in October to 10.0% from 8.0%. Also, business spending and
exports slipped by 3.7% y/y and 0.4% y/y, respectively. For Q1-20, the
uncertainty caused by the coronavirus outbreak has cast a shadow over the
possible recovery of Japan's economy. Also, the outlook for domestic
consumption looks benign, given the negative ripple effect from the sales-tax
hike.
In the US, consumer prices accelerated by 20bps to
2.5% y/y in January 2019 - the highest rate since October 2018 and the 5th
consecutive month of increase -, primarily due to the unusually low base in the
corresponding period of last year. The surge in inflation was on account of
higher housing costs (+10bps to 3.3% y/y) and a significant jump in energy
prices (+270bps to 6.3% y/y). Excluding volatile food and energy items,
inflation rose slightly by 10bps to 2.3% y/y. Looking ahead, headline inflation
is expected to retreat towards the Feds 2.0% target, especially as the low base
effect dissipates. Meanwhile, the benchmark interest rate is expected to be
kept on hold over 2020, following three rate cuts in 2019.
Global markets
Stocks across the globe were set to end the week lower
on Friday, as investors avoided riskier assets given fears about the global
economic impact of the coronavirus outbreak. US (DJIA: -0.6%; S&P: -0.2%)
and European (Euro Stoxx: -0.9%; FTSE 100: -0.3%) shares were down at the time
of writing. Asian markets were mixed as Japanese (Nikkei 225: -1.3%) investors
closed their positions ahead of the 3-day weekend amidst mounting coronavirus
cases. Conversely, Chinese (CSI 300: +4.1%) stocks surged as Chinese
policymakers vowed to help companies hurt by the fast-spreading outbreak. on
expectations of further monetary stimulus to mitigate the impact of the
coronavirus epidemic on the global economy. Emerging markets (MSCI EM: -1.0%)
and Frontier markets (MSCI FM: -0.5%) were not immune to virus fears, with
losses in South Korea (-3.6%) and Kuwait (-0.4%) weighing down the respective
indices.
Nigeria
Economy
In our December inflation note, we had argued that
consumer prices would rise, on account of (1) the sustained border closure, and
(2) the unfavourably low base from the prior year. In line with our
expectations, headline inflation rose to 12.13% y/y in January 2020 - the
highest level since April 2018. The outturn is 15bps higher than the prior
month (January: 11.98% y/y) and broadly in line with our estimate (Cordros
Research est: 12.12% y/y). On a month-on-month basis, headline inflation
increased slightly by 18bps to 0.87%. For February, we expect headline
inflation to maintain its upward trajectory, largely on account of continued
pressure from food inflation and a low-base driven uptick in core inflation.
Hence, we forecast increases in food and core inflation by 12bps and 16bps
respectively to 14.96% y/y and 9.51% y/y, respectively. Tying it all together,
we expect headline inflation to print 12.30% y/y in February 2020.
According to the Office of the Accountant-General of
the Federation (AGF), the balance of the Excess Crude Account (ECA) - the
country's stabilisation fund -, fell by 77.9% m/m to USD71.81 million. The
utilization of the funds was not disclosed. However, we note that various
administrations have used funds from the ECA for fuel subsidy payments, and
augment state government revenue shortfalls, amongst other uses. Despite
numerous recommendations by the Monetary Policy Committee (MPC) to the FGN to
consider building fiscal buffers that can weather the storm of external shocks,
the FGN has continuously depleted the Excess Crude Account (ECA). For a
mono-product economy with little to no savings for rainy days, Nigeria is
exposed to a downside risk of global crude oil prices declining and/or crude
production disruption, especially from the viewpoint of economic growth,
inflation, and exchange rate stability. Hence, accountability and transparency,
with regards to the management of the oil fund, are needed.
Capital markets
Equities
This week, the bears dominated the domestic equities
market, amidst continued risk-off sentiments and the absence of positive market
catalysts. Consequently, after 4 trading days of losses, the benchmark index
dipped by 1.32% w/w to 27,388.62 points. Analysing the performance by sectors,
significant losses recorded in the Consumer Goods sector dampened the market
performance, after the index plummeted by 6.8%. Also, the Banking (-2.6%),
Insurance (-2.1%) and Oil and Gas (-1.28%) indices closed negative. On the flip
side, a gain of 1.0% was recorded in the Industrial Goods sector.
Amidst continued weak market sentiments, we advise
investors to trade cautiously, taking positions in fundamentally justified
stocks.
Money market and fixed income
Money market
In line with our expectations, the overnight (OVN)
rate expanded by 58bps, w/w, to 3.83%. During the week, the OVN was largely
depressed as system liquidity remained buoyant against the backdrop of the
significant inflows (NGN1.40 trillion) that came into the system in the prior
week and inflows this week from OMO maturities (NGN627.22 billion). However,
the rate expanded at the end of the week following outflows from OMO (NGN300.00
billion) and FGN bond (NGN100.00 billion) auctions.
We expect the OVN rate to remain depressed in the
coming week, supported by a significant boost to system liquidity from OMO
inflows worth NGN927.75 billion on Thursday.
Treasury bills
The Treasury bills market remained bullish as the
average yield across all instruments contracted by 80bps to 9.4%. This was
driven by the OMO segment (average yield: -128bps w/w to 12.0%) of the market
given the still buoyant system liquidity. On the other hand, the average yield
in the NTB market expanded by 7bps to 3.9% as market participants unloaded
instruments in anticipation of the FGN bond auction. There was an OMO auction
held during the week, during which the CBN fully allotted instruments worth
NGN300.00 billion - NGN10.00 billion of the 89DTM, NGN44.78 billion of the
180DTM and NGN245.21 billion of the 362DTM instruments at respective stop rates
of 11.45% (on sale in the prior week), 11.59% (previously 11.60%), and 13.02%
(previously 13.04%).
We expect the bullish trend to continue in the Treasury
bills market, supported by relatively healthy liquidity.
Bonds
Trading in the FGN bond secondary market was
bullishly, as yields readjusted to the lower PMA stop rates. Consequently, the
average yield across instruments contracted by 28bps to close at 9.8%. At the
auction, instruments worth NGN140.00 billion were offered to investors through
re-openings - 12.75% APR 2023 (Bid-to-offer: 1.7x; Stop rate: 8.7500%), 14.55%
APR 2029 (Bid-to-offer: 2.1x; Stop rate: 10.7000%), and 14.80% APR 2049 (Bid-to-offer:
4.5x; Stop rate: 12.1500%). Despite subscriptions across instruments settling
at NGN458.20 billion, the DMO eventually allotted instruments worth NGN100.00
billion (excluding an NGN60.00 billion non-competitive allotment), resulting in
a bid-cover ratio of 4.6x.
We expect sustained demand next week across the bond
yield curve, as market players seek to re-invest excess liquidity from incoming
maturities.
Exchange rate
As foreign outflows intensified, Nigeria's FX reserves
declined by USD380.2 million WTD to USD36.77 billion (21th Feb 2019), as the
CBN maintained its support for the currency via its weekly FX interventions;
USD210.00 million was sold 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. Consequently, the
naira appreciated by 0.1% w/w to NGN364.26/USD at the I&E window but closed
flat at NGN360/USD in the parallel market. In the Forwards market, the naira
appreciated across the 1-month (+0.2% to NGN365.94/USD), 3-month (+0.5% to
NGN368.79/USD), 6-month (+2.3% to NGN373.87/USD) contracts, while the rate on
the 1- year (0.1% to NGN392.47/USD) contract appreciated.
Looking ahead, we expect the still healthy foreign
reserves to support the CBN's currency defense over H1-20. Further out, the
blend of tighter cash inflows, faster pace of capital repatriation, and
possible resurgence of speculative attacks on the naira will force the CBN to
throw in the towel in our opinion.
Sunday, February 23, 2020
The International Bar Association Anti-Corruption in Africa Conference will hold on this day.
Monday,
February 24, 2020
The National Bureau of Statistics will on this day the release the Nigerian Gross Domestic Product
by Outlook Report (Q4 2019 and Full year 2019) while the Social Media Week Lagos 2020 will commence
on the same day at Landmark Centre Plot 2 & 3 Water Corporation Road Lagos.
The Nigerian Stock Exchange will on this day host the Honorable Minister of Finance, Budget
and National Planning to a closing gong ceremony at the 9th Floor
Gallery, Stock Exchange House.
Tuesday,
February 25, 2020
The National Bureau of Statistics will on this day release the Pension Asset and Membership Data( Q4
2019), Selected Banking Sector Data: Sectorial Breakdown of Credit and ePayment
Channels and Staff Strength (Q4 2019), while the Sub Saharan Africa International Petroleum Exhibition And Conference will hold on the same day at Eko
Convention Centre Victoria Island, Lagos.
Wednesday, February
26, 2020
Zenith Bank Plc will on this day
hold a teleconference call with its senior management to discuss its financial
result, while Morison Industries Plc will on this day hold its Annual General Meeting at Morison
Crescent, Oregun Industrial Area, Ikeja.
The Phillips Consulting Webinar on the Future of Learning & Development will hold on this day.
Thursday, February 27,
2020
The National Bureau of Statistics will on this day release the Gross Domestic Product (GDP) by
Expenditure Q1 and Q2 2019 while Disruptive Africa Expo and Conference will hold on the same day at LAGOS
Oriental Hotel, Lagos.
The Nigerian-South Africa Chamber of Commerce will on this day hold its February 2020 Monthly Networking
Breakfast Meeting Forum with the theme: Nigerian in a New
Decade: Navigating the Fault Lines at Fantasia Hall, Eko Hotel &
Suites, Adetokunbo Ademola Street, Victoria Island, Lagos while the Nigerian- American Chamber of Commerce will on this day hold a Training Course on Customer Relationship
Management at NACC Board Room
Capwire Buliding, 19A Sinari Daranijo Street, off Ajose Adeogun Street,
Victoria Island, Lagos
Friday, February 28, 2020
The National Bureau of Statistics will on this
day release the Nigerian Capital Importation (Q4 2019
Saturday, February 29, 2020
The GTI Finance Academy
IFRS9 Training will hold on this
day.
The
Harvesters Entrepreneurs Forum 2020 will
hold on this day with the theme: Re-Imaging Africa's Path to Prosperity
through Innovation 2020 while the Future Summit 2020
will hold on the same day at Isaac Aluko street Igbo Efo lekki Lekki, 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!
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