Saturday, November 23, 2019 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @ 221119
Source: Cordros Weekly Economic and Market Report - November 22, 2019
This week, Germany's GDP printed a surprise outturn, growing by 0.5% y/y in Q3-19. This was from slower growth of 0.3% y/y recorded in the prior quarter. The surprising growth largely stemmed from faster increases recorded in household consumption (+2.1% y/y), government spending (+2.3% y/y) and gross investment (+0.8% y/y). From the prior quarter, the economy grew marginal by 0.1%, exceeding analysts' expectation of a possible second consecutive quarter of decline. Despite the improved GDP reading and the economy narrowly avoiding a technical recession, growth still remains fragile and thus, we expect the clamour for fiscal stimulus to increase over the next few months.
Elsewhere, Japan's trade balance swung into surplus territory in October from a deficit position in the corresponding period last year. Exports dipped by 9.2% y/y, amidst slowing external demand due to continued global trade protectionism. Combined exports to the US and China, which constitutes c.36.0% of Japan's exports, declined by 21.7% y/y. Further worsening Japan's export position was a 23.1% y/y decline in exports to South Korea, given the continued trade conflict between the two countries. Elsewhere, imports dipped by 14.8% y/y, due majorly to the reduction in purchases of mineral fuels (-24.9% y/y) and chemicals (-17.6% y/y). Looking ahead, slowing external demand - as highlighted by the IMF's cut in its global growth forecast - will continue to weigh on Japan's exports. However, the looming 'phase one' trade agreement between the U.S and China could provide some respite for Japan's trade position.
As with the prior week, global equity performance was mixed as the news of a possible delay in the signing of the 'Phase one' trade deal between the US and China dampened investor sentiments. That together with the continued global growth weaknesses continued to unsettle risky assets across our coverage universe. After a positive start to the week, the US (DJIA: -0.9%; S&P: -0.5%) and Asia (Nikkei 225: -0.8%; CSI 300: -0.7%) markets tanked, mostly on account of a trade deal which appears to be falling through. Meanwhile, it was the case of mixed sentiments in the Eurozone (Euro Stoxx: -0.6%; FTSE 100: +0.5%), where better economic data releases supported appetite for risk assets. While losses across emerging market (MSCI EM: -0.4%) equities persisted, largely due to the losses in South Korea (-2.8%) and China, frontier markets (MSCI FM: +0.4%) extended their positive run, following gains in Morocco (+1.6%), Kuwait (+0.9%) and Nigeria (+0.5%).
In line with our expectation, economic growth strengthened in the third quarter of 2019, with the recently released GDP reading showing that economic activities expanded by 2.28% y/y (vs. an upwardly revised 2.12% y/y in Q2-19). The outturn is 17 bps shy of our estimate of 2.11%, with the variance stemming from sharper than expected growth in Oil GDP. Sifting through the breakdown provided, we highlight that the improved reading emanated from faster growth in the non-oil sector (+1.85% y/y vs. +1.64% in Q2-19), driven by improved reading in service sector (+3.45% y/y), Agriculture sector (+2.23% y/y) and manufacturing sector (+1.23% y/y), while the oil sector printed a slower growth of +6.49% y/y (vs. 7.17% y/y in Q2-19). For Q4-19, we expect sustained growth in the Oil sector (+6.28%), driven by low base in the corresponding quarter in the prior year, and an improved crude production (2.03 mb/d), while we expect faster growth in the Service and Agriculture sectors to support non-oil GDP growth of 2.06% y/y. Overall, we expect growth to settle at 2.36% y/y and 2.21% in Q4-19 and 2019FY, respectively.
On the heels of the sustained pressure from the food basket, consumer prices in October printed 11.61% y/y, -- the highest since May 2018 -- representing 28bps and 36bps higher than our estimate and prior month respectively. To start with, despite the full-blown harvest season in October, food inflation surged by 58bps to 14.09% -- the highest since April 2018, as the impact of all land borders closure continued to take a toll on food prices. Elsewhere, against the surprising uptick recorded in the prior month, core inflation tapered by 7bps to 8.88% y/y, on account of the subdued energy prices. Given the recent decision to extend border closure till early next year, together with the festive induced demand, we expect food inflation to widened in November. That said, despite CBN's hard stance on the currency and muted energy pressure, we expect core inflation to increase marginally, given the low base from the corresponding period in the prior year. Overall, we now expect headline inflation to sustain its upward trajectory, expanding to 11.87% y/y (1.04% m/m).
The rally in the domestic equities market was sustained for a third consecutive week - first time since May 2019, as investors' hunt for positive real return continued amidst depressed fixed income (FI) yields. The All-Share index ended 0.5% higher w/w following four consecutive days of gains. Consequently, the MTD gain grew to 2.4% while the YTD loss shrank to 14.1%. On sectors, investors piled into heavyweight Consumer Goods (+6.0%) and Oil & Gas (+2.2%) stocks, as the sectors outperformed. The Insurance (+0.5%) index also closed in the green. On the flip side, profit taking across Banking (-0.9%) and Industrial Goods (-2.2%) sectors, whose stocks and respective indices were the top gainers last week, led to underperformances in the indices.
In our view, the still compelling valuations and attractive dividends yields have driven market performance over the past few weeks, a reaction to a limited outlet for investments given recent policy directives limiting domestic participation in the FI market. In the short term, we expect that stock market will continue to benefit, especially as FI yields remain on the downtrend.
The overnight (OVN) rate declined by 964bps w/w to 4.43% as system liquidity was boosted by inflows from OMO maturities (NGN389.89 billion), FAAC disbursements to states and local governments (NGN386.70 billion) and bond coupon payments (NGN17.87 billion). The CBN, for the first time in 14 weeks, did not conduct an OMO auction.
In the coming week, OMO maturities (NGN352.70 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 as the average yield across instruments pared by 66 bps to 11.8%. As with the prior week, most of the activities were localized to the NTB market, where local corporates and individuals trade. The average yield on NTBs in the secondary market declined by 225bps to 8.6% as demand remained strong in the face of a shallow market for securities in the face of persistent OMO maturities. However, the yields on OMO bills increased by 9bps to 13.4% reflecting the weak demand for those instruments in the newly segmented market. There will be an PMA Treasury bills auction on the 27th of November, where instruments worth NGN150.60 billion will be issued across the 91DAY (NGN24.37 billion), 182DAY (NGN23.16 billion), and 364DAY (NGN103.07 billion) Instruments, while an equal amount will mature on the following day.
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.
Trading in the Treasury bonds secondary market was tepid, as market players reacted to the higher October inflation figure. Consequently, average yield pared marginally by 4bps to settle at 12.2%. The JUL-2021 bond (-24 bps) recorded the largest decline in yield, while the APR-2023 bond (+62bps) recorded the largest increase. Also, the DMO held a PMA Treasury bonds auction during the week when three instruments were offered through re-openings - 12.75% FGN APR 2023 (Bid-to-offer: 0.86x; Stop rate: 12.0000%), 14.55% FGN APR 2029 (Bid-to-offer: 1.88x; Stop rate: 12.9300%), and 14.80% FGN APR 2049 (Bid-to-offer: 2.30x; Stop rate: 13.3900%).
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.
Amidst continued sell-offs by offshore investors, Nigeria's FX reserves dipped below the UDS40.00 billion 'psychological' level this week - the first time this year-- after declining by USD68.28 million WTD (20 Nov 2019) to USD39.97 billion. Meanwhile, the CBN sustained its weekly FX intervention, 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 0.02% WTD to NGN362.64/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 37.39% WTD to USD978.34 million, with trades consummated within the NGN340.50 - 363.50/USD band. In the Forwards market, the naira weakened across all contracts, with the exception of 1-year (+0.8% to NGN397.94/USD), as the 1-month (-0.% to NGN366.35/USD), 3-month (-0.3% to NGN372.34/USD) and 6-month (-0.7% to NGN382.75/USD) contracts declined.
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.
Sunday, November 24, 2019
The 24th Edition of the PEARL Awards will hold on this day at Eko Hotel & Suites, Victoria Island Lagos.
Monday, November 25, 2019
The Central Bank of Nigeria will on this day hold its 270th Monetary Policy Committee (MPC) Meeting at the MPC Meeting Room, 11th Floor, Wing C, CBN Corporate Headquarters, Abuja, while the Global Spectrum Energy Services Plc will on the same day hold its Annual General Meeting at the Lagos Chamber of Commerce and Industry, Alausa, Ikeja, Lagos.
The Convention on Business Integrity in collaboration with Action Aid & LCCI will on this day launch a Web-based Portal for Ethical Compliance Standards (#ethicsQED) at the Radisson Blu Hotel, Victoria Island, while the Agra Innovate West Africa will hold on the same day at the Landmark Centre, Lagos.
Tuesday, November 26, 2019
The 6th Goddy Jidenma Lecture will hold on this day at the Nigerian Institute of International Affairs, Victoria Island, Lagos.
The Association of Reporting Accountants and Auditors in the Capital Market will on this day hold its 2019 Annual Conference with the theme Public Trust in the Corporate Financial Reporting at the Westwood Hotel (formerly Protea Hotel), 22, Awolowo Road, Ikoyi, Lagos, while the West Africa Property Investment Summit will hold on the same day at the Eko Hotels & Suites, Lagos.
The Nigeria LPG Summit will hold on this day with the theme Harmonizing Development and Growth in Nigeria and Africa at the Federal Palace Hotel & Casino, Lagos, while the Nigerian Big Data Analytics and Innovation Conference will hold on the same day at Baze University, Abuja.
Wednesday, November 27, 2019
The International Sustainability Conference 2019 will hold on this day with the theme Innovating for Inclusion and Sustainable Growth at the Honeywell Auditorium, Lagos Business School, Ajah, Lagos.
Thursday, November 28, 2019
The Nigerian- South Africa Chamber of Commerce will on this day hold its November Breakfast Meeting at the Fantasia Hall, Eko Hotel & Suites, Victoria Island Lagos, while R.T.Briscoe (Nigeria) Plc will on this day hold its Annual General Meeting at NECA House, Plot A2, Hakeem Balogun Street, Central Business District, Alausa, Ikeja, Lagos.
Multiverse Mining and Exploration Plc will on this day hold its Annual General Meeting at the Ace Olivia Hall, 2nd Floor City Mall, Onikan, Lagos, while the International Financial Inclusion Conference 2019 will hold on the same day at the Honeywell Auditorium, Lagos Business School, Ajah, Lagos.
The National Bureau of Statistics will on this day release the Internally Generated Revenue At State level (Half year-2019)
Friday, November 29, 2019
The International Conference on Management, Economics & Social Science will hold on this day at Blowfish Hotel, Ikoyi II, while the 2nd African Islamic Fintech Summit will hold on the same day with the theme African Financial Inclusion in the Digital Era.
The Chartered Institute of Bankers will on this day hold its 54th Annual Bankers Dinner at the Federal Palace Hotel, 6-8, Ahmadu Bello Way, Victoria Island, Lagos, while the Lagos Property Auction will hold on the same day at the Four Point by Sheraton, Victoria Island Lagos.
Saturday, November 30, 2019
The Association of Enterprise Risk Management Professionals will on this day begin its 2019 ERM & Compliance Week at Chartered Institute of Bankers of Nigeria, Adeola Hopewell, Victoria Island, Lagos, while the National Bureau of Statistics will on the same day release the Household Consumption and Expenditure Q3, 2019.
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