September 07, 2019 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @ 060919
Source: Cordros Weekly Economic and Market Report â€“September 06, 2019
The August composite PMI for the United Kingdom dipped to 49.7 index points (below the 50.0 points benchmark), as a combination of uncertainty surrounding 'Brexit' and stressed global growth, pressured economic activities. To start with, activities within the Services industry, which represents c.60.0% of GDP, contracted significantly, owing to a decline in business confidence (-32.0 index points). Consequently, Services PMI declined to 50.6 from 51.4 points in July - the lowest reading since July 2016. Also, manufacturing activities did not fare better, as the impact of declines in production (-1.40%) and capacity utilization (-1.70%) had a negative passthrough effect on Manufacturing PMI (47.4 vs 48.0 in July). In our view, after growth slowed by 0.1% q/q in Q2-19, the downside risk to further contraction in Q3-19 and eventual recession is higher, especially in the face of the country's impending exit from the EU.
In the US, manufacturing data for August was released during the week. The data showed that manufacturing PMI for August dipped to 50.3 index points (vs. 50.4 in July) - the weakest level since September 2009. In analyzing the subcomponents, we noted that manufacturing production tilted toward negative terrain (49.5 points vs. 50.8 in July), as producers cut production due to lackluster demand patterns as new orders declined (47.2 points vs. 50.8 in July). Similarly, export orders sank to 43.3 points - the lowest reading since April 2009 during the depths of the last recession. Also, Service PMI fell to 50.7 points from 53.0 registered in the prior month. In our view, sluggish global growth and trade friction between the U.S. and China are responsible for the lackluster readings. Given that there seems to be no respite in sight, we expect activities within the US manufacturing sector remain under pressure.
Global equities markets welcomed the news that the US and China agreed on Thursday to hold high-level talks in early October, as hopes were raised regarding a de-escalation of the trade conflict between the two countries. Consequently, US (DJIA: +1.2%; S&P:+1.7%) and Asian (CSI 300: +3.9%; Nikkei: +2.4%) equities indices recorded substantial gains. Also, European markets (FTSE: +0.7%, Euro Stoxx: +1.6%) were also set to close higher on renewed trade optimism and progress for U.K. lawmakers trying to block a no-deal 'Brexit'. The general positive sentiment filtered through to the Emerging Markets (MSCI EM: +1.9%), with the markets in China and South Korea (+2.1%) hitting five and one-month highs, respectively. Conversely, investors' risk-off sentiment regarding Frontier Markets persisted (MSCI FM: -0.5%), as markets in Vietnam (-1.0%) and Nigeria (-1.8%) closed in the red.
Economic performance was weaker than expected in the second quarter of 2019, with the recently released Q2-19 GDP data showing that the economy grew by 1.94% y/y (vs. an upwardly revised 2.10% y/y in Q1-19). Dissecting the numbers, we noted that the Oil sector (+5.15% y/y vs. -1.46% y/y in Q1-19) rebounded after five consecutive quarterly declines. However, overall growth was weighed down by slower growth in the Non-Oil sector (+1.64% y/y vs. 2.47% y/y in Q1-19). On the former, we noted that improved daily crude oil production (+7.6%y/y to 1.98mb/d), coupled with a decline in the number of product thefts and vandalisms (21.8% y/y) drove the performance recorded. Looking ahead, we expect sustained growth in the Oil sector in Q3-19, albeit at a slower pace than in Q2. We forecast oil production of 1.98 mb/d, reflecting 2.06% y/y growth. On the Non-Oil sector, we expect modest growth of 2.17%. Overall, we forecast Q3-19 and 2019FY GDP growth at 2.11% y/y and 2.02% respectively.
According to the capital importation data released by the National Bureau of Statistics, inflows into the country declined by 31.4% q/q but grew by 5.6% y/y to USD14.31 billion. Dissecting the numbers, we note that FDI inflows remain weak, after declining by 14.7% y/y to USD466.25 million. Similarly, FPI inflows declined significantly by 39.9%q/q, signifying tempering inflows despite attractive yields on money market instruments, although year-on-year inflows have increased by 4.2%, reflecting the increased inflows that followed the post-election period. In our view, global recession fears have been the major driver of the slowdown in capital importation witnessed quarter-on-quarter, as investments have flooded into safe-haven assets and territories. While there has been some positive news recently regarding the trade war, we expect sentiments to remain the same even despite expectations of rate cuts in the EU and US, which should have ordinarily resulted in stronger Capim into the country's MM and Treasury bonds instruments.
The Nigerian equities market extended losses from the prior week amidst continued risk-off sentiments and the absence of positive market catalysts. Although the benchmark index opened the week in the green, negative out-turns from midweek, following sell-offs of some bellwethers - DANGCEM (-4.9%), MTNN (-2.1%), NESTLE (-3.2%) and GUARANTY (-3.3%) - dragged the overall index. Consequently, the ASI declined 1.4% w/w to 27,146.57 points, with the YtD loss increasing to -13.63%. Analyzing by sectors, the Consumer Goods (-1.3%) and Oil & Gas (-0.02%) indices were the sole losers, while the Insurance (+0.8%), Industrial Goods (+0.6%), and Banking (+0.2%) indices recorded gains.
Over the coming week, we expect the market to remain pressured given global risk-off sentiments and weak domestic participation. Nonetheless, we note that valuations remain attractive, while price deteriorations have resulted in expected dividend yields on some stocks rising significantly. Hence, we advise long-term investors to consider taking positions in such fundamentally justified equities, while short-term investors should tread the cautious trading path.
Money market & fixed income
As expected, the OVN rate remained tethered in the single-digit territory through the week as liquidity levels were boosted by OMO maturities. Consequently, the overnight lending rate settled at 3.86%, representing a decline of 6.64ppts w/w. On the first trading day, the rate settled at 9.86%, lower from the previous week's close of 10.50%. Thereafter, the OVN rate declined by 0.93ppts to 8.93% before marginally rising by 0.57ppts on the next trading day. However, on the penultimate trading day of the week, as maturities amounting to NGN563.82 billion hit the system, the rate declined by 4.36ppts to settle at 5.14%.
In the coming week, maturities worth NGN529.25billion are expected to hit the system on the 12th of September - OMO (NGN347.68 billion); PMA (NGN158.65 billion); FGNSB (NGN22.92 million). This, we surmise will keep the OVN rate moderated in the coming week.
Activities in the Treasury bills market were seemingly bullish as the average yield pared by 52bps to settle at 13.33%. The CBN held an OMO auction on the 5th of September for instruments worth NGN332.60 billion - the 84DTM (NGN0.64 billion), 189DTM (NGN0.48 billion), and 364DTM bills (NGN322.60 billion) were sold at respective stop rates of 11.59% (same as the previous auction), 11.79% (same as previous auction), and 13.50% (previously 12.50%). Also, the CBN will be holding a PMA on the 12th of September for instruments worth NGN158.65 billion - 91DAY (NGN15.00 billion), 182DAY (NGN14.00 billion), and 364DAY (NGN129.65 billion).
In the coming week, we expect the CBN to hold multiple auctions to mop-up the maturities expected in the week. Consequently, we expect yields to further temper in the secondary market, as investors take advantage of higher yields on some mid-tenor instruments trading in the market, as opposed to participating in the OMO or PMA.
Trading in the Treasury bonds market was bearish, as the average yield increased by 3bps to 14.16%. There were yield expansions across the curve save for on three instruments - 16.00 29-JUN-2019 (-87bps), 7.00 23-OCT-2019 (-55bps), and 15.54 13-FEB-2020 (-2bps) -, as investors have seemingly refocused on higher-yielding TBs.
While we expect the trend in the Treasury bonds market to persist into the coming week, in our view investors should begin refocusing on the bonds market given the yield levels. Nonetheless, we expect this will happen over the next few weeks as the yield differential between bills and bonds widens.
Nigeria's FX reserves declined by USD54.44 million WTD to USD43.19 billion (September 4, 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 SMEs segment, and USD55.00 million to the Invisibles segment. Nonetheless, the naira depreciated by 0.20% w/w to NGN362.11/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 21.1% WTD to USD902.57 million, with trades executed within the NGN357.50-364.00/USD band. In the Forwards market, the naira rate on the 1-month (-0.2% to NGN365.82/USD) and 1-year (-0.1% to 385.40/USD) contracts pared against the USD, while it appreciated on the 3-month (+0.2% to NGN373.23/USD) and 1-year (+0.9% to NGN412.58/USD) contracts.
Looking ahead, while we acknowledge there might be continuous depletion of reserves amidst sell-offs from foreign investors, we still expect the naira to remain resilient in the short to medium-term.
Sunday, September 08, 2019
The Lagos Leather Fair 2019 will hold on this day at the Harbour Point 4 Wilmot Point Road Lagos
Monday, September 09, 2019
Fintech First Drive: A Fintech Fundamentals Training will hold on this day at the Bankers House, Adeola Hopewell, Victoria Island, Lagos, while the Launch of the Big 5 Portfolio of International Construction will hold on the same day at the Landmark Center Victoria Island Lagos.
The Institute of Chartered Accountant of Nigeria will on this day hold its 49th Annual Accountants Conference with the theme: Building Nigeria for Sustainable Growth and Development at International Conference Centre & Sheraton Abuja Hotel, Abuja.
Tuesday, September 10, 2019
The National Bureau of Statistics will on this day release the Rail Transportation Data (Q2 2019-Q2 2019), while the Lagos Business School will on the same day hold the Net Promoter Score (NPS) Masterclass at the Lagos Business School, Gtbank Room, Lekki Express Lagos.
Wednesday, September 11, 2019
The Nigerian Stock Exchange will on this day hold the Market Data Workshop with the theme Partnerships, Product and the Customer at Habour point 4 Wilmot Close Victoria Island, Lagos, while the Association of Enterprise Risk Management Professional will on the same day hold the Steam 2 Managing Risks in Credit Portfolio at Suite 11, Kingway House (Near Cash & Cary), 51/52, Marina, Lagos.
The World Symposium on Climate Change Adaptation will hold on this day at the Federal University of Technology, Akure (FUTA), Akure, while Lasaco Assurance Plc will on the same day hold its Annual General Meeting at the City Hall, Catholic Mission Street, Lagos Island, Lagos.
The 11th Annual Nigeria.com event will hold on this day at the Oriental Hotel 3, Lekki- Epe Expressway Victoria Island Lagos, while the SEC Nigeria & UNILAG Conference on Capital Market for Economic Growth, Development will hold on the same day at the University of Lagos.
Friday, September 13, 2019
The African Private Equity and Venture Capital Association will on this day hold a session themed "Private Investment in Nigeria" at Eko Hotel & Suites Victoria Island Lagos, while Endeavour Nigeria's Flagship Scale Entrepreneurship Forum will hold on the same day at Federal Palace hotel, Victoria Island Lagos.
Saturday, September 14, 2019
Data Science Nigeria will on this day hold the Post Kaggle Validation Call for InterCampus
Machine Learning Competition and Deep Learning Nigeria.
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