What To Expect From The Markets This Week - 160821

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Saturday, August 14, 2021 07:30 AM / Proshare Content / Header Image Credit: EcoGraphics


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Nigeria: Economic Dashboard 130821 

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Editor's Note

Source: Proshare Research - August 14, 2021

Nigeria Economy

  • The Manufacturers Association of Nigeria and the Lagos Chamber of Commerce and Industry on Thursday warned against the misuse of funds to be generated from tolls on selected federal roads. The Federal Government had announced earlier in the week, that toll plazas are to be reintroduced on selected dual carriageways across the country.  According to the Ministry, when the toll plazas become functional, up to 1,963km or around 5.6 % of Nigeria's 35,000km federal highway network would be tolled. MAN and LCCI noted that it is necessary for the government to deploy technology in tolling to avoid traffic and to make for more
  • Data from the MTEF&SF for 2022 to 2024 shows that between January and May 2021, the Federation Account Allocation Committee disbursed the sum of N3.18tn to the three tiers of government - an N329.6bn shortfall when compared with the budgeted disbursement of  N3.5tn. The Expenditure framework further shows that in January an estimated monthly shortfall of N62.4bn was recorded, while in February, March, and April, there were shortfalls of N62.7bn, N21.47bn, and N85.9bn respectively.
  • According to figures contained in the 'Sectoral distribution of Value Added Tax' report released on Tuesday Nigeria generated a N1tn in the first half of the year, consisting of N512.25bn in the second quarter and N495.39bn generated in the first quarter representing a 3.20 % increase Q-o-Q and 56.56 % increase Y-o-Y. A further breakdown of the NBS data reveals that out of the total VAT generated, Non-Import VAT constitutes N395.12bn while the Nigerian Customs Service Import VAT accounts for N117.13bn
  • Minister of Aviation, Hadi Sirika, noted at a stakeholders' webinar on Tuesday, that operations in Nigeria's major airports are currently sub-optimal. The event which centered around the Nigerian Airport Concession Strategy saw the Minister adduce reasons for why the airports had to be put up for concession. The FG had earlier in the year disclosed plans to concession the Lagos, Abuja, Port-Harcourt, and Kano airports for a minimum of 20 years due to the urgent need for infrastructure investments and modernization. All the airports require investments in runway maintenance, navigation aids as well as terminal facilities to bring them to the level of international hubs.
  • Speaking at the presentation of a regional action plan to implement its rice policy, in Abuja on Tuesday, the ECOWAS Commissioner of Agriculture, Environment and Water Resources, Mr. Sekou Sangare stated that the demand for rice surpasses supply in most West African countries, forcing the countries to import to make up for the deficit. This development, it added, was depleting the foreign reserves of the 15 nations that make up the ECOWAS regional bloc, stating that the sub-region remained at 60 % self-sufficiency in rice production.
  • The World Bank FY21 audited financial statements released on Monday show that Nigeria ranks fifth on the list of 10 countries with the highest IDA debt risk exposure. The document stated that as of June 30, 2021, Nigeria had a $11.7bn IDA debt stock, while India which topped the list had a $22bn IDA debt stock, followed by Bangladesh with $18.1bn IDA debt stock, Pakistan with $16.4bn IDA debt stock, and Vietnam with $14.1bn IDA debt stock. 


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Global Economy

  • According to July CPI data released on Wednesday showed that the general price level rose by 5.4% in July from a year earlier, the same as June's figure but falling short of analysts' estimates. CPI which was expected to moderate to 5.3% steadied Y-o-Y, but increased 0.5% on a month-over-month basis, matching a consensus forecast from economists surveyed by Dow Jones. Core inflation, which excludes energy and food and which represents a more reliable measure of long-term inflation, rose by 4.3% over the last year and 0.3% compared to last month.
  • According to a majority of economists polled by Reuters, The Federal Reserve will announce a plan to taper its asset purchases in September. Following the release of a strong US jobs report last week, which showed a sharp drop in the unemployment rate to 5.4% in July, a flurry of Fed officials has suggested that the US central bank might start reducing its $120 bn monthly purchases of Treasuries and mortgage-backed securities (MBS) soon.  One-third of the respondents in the poll said the central bank's policy-setting Federal Open Market Committee (FOMC) will wait until November or December.
  • The US Senate gave an overwhelming 69 to 30, bipartisan approval on Tuesday to a $1 trillion infrastructure bill to rebuild the nation's deteriorating roads and bridges and fund new climate resilience and broadband initiatives, delivering a key component of President Biden's agenda. The historic investment in infrastructure would be the largest infusion of federal investment into infrastructure projects in more than a decade, touching nearly every facet of the American economy.


 

Summary and Outlook

 

The IDA an arm of the World bank announced in the course of the week that Nigeria ranked fifth on the list of ten most indebted nations, and although the DMO has come out to clarify that the loans in question are long term loans and attracted very low interest rates, the disclosure still raises an important question namely: if the $11.7bn IDA loans mounted as a result of the need for larger government spending in the wake of the pandemic, why would over 90% of the Nigerian populace still remain unvaccinated? This is while the FG disclosed recently that it has spent close to half a trillion Naira in curtailing the effects of the pandemic. The economic outlook is currently positive, as analysts expect that the economy should exit its fragile growth with between 2.5% and 3.5% growth in Q2, largely on the back of a low base effect. However, there are concerns about the slow rate of vaccination and the possibility of large-scale contagion.


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Commodities Market

Weekly Review and Outlook

Energy

Domestic

  • The Nigerian National Petroleum Corporation (NNPC) on Sunday announced a trading surplus of N43.57bn in April 2021, representing a 23.64 per cent increase over the N35.24bn surplus it recorded in the preceding month of March 2021. The report attributed the rise in trading surplus to the activities OML 119 and OMLs 60, 61, 62, 63 as well as increase in gas sales within the period.
  • The NNPC on Monday announced the promotion, redeployment, and disengagement of some staff. The Corporation said the restructuring was in preparation for the new status of the corporation as a limited liability company under the Petroleum Industry Bill.
  • The Department of Petroleum Resources on Monday announced that the Federal Government is set to increase Nigeria's oil reserves from 36.91 billion barrels to 50 billion barrels in the short to medium term and to increase its proven gas reserves from 206.53 trillion cubic feet to 250 trillion cubic feet.
  • Nigerian Airline operators on Tuesday lamented the hike in aviation fuel price as taking a toll on their operations. The industry players have attributed the increase to difficulty of logistics due to poor transport infrastructures.
  • The DPR on Tuesday said investors have proposed to spend over $500m in building gas pipelines and other facilities in Nigeria following the implementation of the Nigerian Gas Transportation Network Code which was launched last year.
  • Shell Petroleum Company on Wednesday agreed to pay the monetary compensation of N45.9 billion to the people of Ogoni in Rivers State for the losses suffered as a result of oil spills, a judgement that had lingered for 10 years.
  • OPEC's report released on Thursday shows Nigeria crude oil production increased based on Secondary source by +45% M-o-M from 1,392 bpd in June to 1,437 bpd in July 2021. Based on direct source, crude oil increased by +10% M-o-M from 1,313 bpd in June to 1,323 bpd in July 2021. Nigeria's rig count decrease from 6 in Q1 2021 to 5 in Q2 2021. However, the count increase by from 5 in June to 7 in July 2021.


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Foreign

  • Oil prices fell by nearly 2%, on Monday, on the back of a rising U.S. dollar and concerns that new pandemic curbs in Asia, especially China, may dampen the prospect of global recovery in fuel demand.
  • On Sunday, Saudi Arabian state oil producer, Saudi Aramco reported a near four-fold increase in Q2 2021 net profit, beating expectations and boosted by higher oil prices and a recovery in oil demand. Its net profit grew to $25.46 billion for the quarter against $23.2 billion predicted by analysts. The Company also expressed its plant to have 550,000 barrels per day (bpd) more in oil production capacity by 2025 when the expansion projects on two major oilfields are complete. The Company Executive, on Monday, stated that it is scouting for potential deals to offer to investors and unlock its capital.
  • July fuel demand in India rebounded to its highest since April as New Delhi cleared restrictions and lockdowns, netting a 3% month-on-month increase to a total of 16.83 million tons.
  • U.S. investment bank Goldman Sachs lowered its oil demand forecast for China for the next two months, citing rising concerns over the impact of the next wave of COVID-19 infections.
  • Officers at some refineries in Asian have stated that Asian refiners demanded lower than usual volumes of crude oil from Saudi Arabia in September as authorities in China and the rest of Asia have re-imposed restrictions to fight the Delta variant surge.
  • OPEC on Thursday maintain its prediction of a strong recovery in world oil demand in 2021 and further growth in 2022, despite concerns about the spread of the Delta coronavirus variant that has weighed on prices. However, the Commission raised its forecast for non-OPEC members.
  • Oil prices fell on Friday for a second day after the International Energy Agency warned that demand growth for crude and its products had slowed sharply as surging COVID-19 cases worldwide forced governments to revive movement restrictions.
  • Brent had a weekly growth of 0.04% (see Table 1).


Metals

Gold appreciated by 1.05% while Silver dipped by -1.94% W-o-W (see Table 1).



Agriculture

  • Cocoa prices grew by 5.33% this week.
  • Corn prices inched up by 3.09% W-o-W while Sugar appreciated by 6.49% (see Table 1).

 

Table 1Weekly Change in Commodity Prices

Commodity

13-Aug-21

06-Aug-21

31-Dec-20

Weekly Chg

YTD Chg

Brent

70.75

70.72

51.8

0.04%

36.58%

Gold

1780.2

1761.7

1898.67

1.05%

-6.24%

Silver

23.795

24.265

26.4011

-1.94%

-9.87%

Cocoa

2610

2478

2597

5.33%

0.50%

Corn

574.75

557.5

484

3.09%

18.75%

Sugar

19.86

18.65

15.28

6.49%

29.97%

Source: CNBC, Proshare Research

*Data for 13th August 2021 is as of 5:40pm (Nigerian Time)

 

Outlook

  • In the coming week, oil prices are expected to hold steady as concerns about the spread of the Delta coronavirus variant is set to weigh on prices.
  • Gold prices are expected to be mixed in the coming week, as Federal Reserve's taper talk ebbs.
  • Cocoa prices to be bullish next week as demand picks up in Europe.
  • Sugar prices are expected to be rise next week as temperature plunges in Brazil reducing cane output.
  • Corn prices are expected to be bullish next week amid severe drought in the United States.


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Fixed Income and Money Market 

Currency Market

The Naira was bearish at the end of the week, at the BDC market, and marginally at the NAFEX window, majorly attributed to the scarcity of FX.


At the I & E FX window, the domestic currency appreciated by -0.17% on a week-on-week (W-o-W) basis to close at N410.80/US$ at the close of trading on Friday.

 

Against the US dollar at the BDC it closed at US$/N513 depreciating by +0.98%, against the British pound it also appreciated by -0.71% to close at £/N700, and against the Euro by -0.33% to close at €/N600.

 

The Naira closed the week at $/N410.80 at the I&E FX window, at the NAFEX (spot market) it closed at $/N411.13.

 

Average Benchmark Yields

06-Aug-2021

13-Aug-2021

% Change

I & E FX Window

411.50

410.80

-0.17%

NAFEX ($/N)

411.10

411.13

+0.01%

BDC ($/N)

508

513

+0.98%

Source: FMDQ, AbokiFX, Proshare Research

 

Money Market

Interbank rates were elevated this week, as liquidity levels remained depressed causing rates to move in double digits.

 

At the close of the session on Friday, funding rates dipped significantly. Open Buyback (OBB) closed at 16.75% while Overnight (O/N) rates closed at 17.25% indicating a W-o-W rise of -16.25% for OBB and -15.85% for O/N rates.

 

Money Market Rate

 

06-Aug-2021

13-Aug-2021

% Change

OBB (%)

20.00

16.75

-16.25%

O/N (%)

20.50

17.25

-15.85%

Source: FMDQ, Proshare Research


Funding rates are expected to trade in double digits trend in the coming week in the absence of any maturity.

 

 

Treasury Bills Market

The bills market continued its bullish trend across the board this week, as we saw some buying on all tenors this week.

 

At the close of the market this week, average benchmark yields for T-bills fell by -17.05% to 4.67%, OMO bills declined up by -1.62% W-o-W to close at 7.65%, CBN's Special Bill fell significantly by –31.14% to close at 5.66%.

 

Average Benchmark Yields

06-Aug-2021

13-Aug-2021

% Change

T. Bills (%)

5.63

4.67

-17.05%

OMO Bills (%)

7.78

7.65

-1.62%

SPEB

8.22

5.66

-31.14%

Source: FMDQ, Proshare Research

 

We expect activity next week to be dictated by the market liquidity situation. 

 

The CBN sold N156.31 billion worth of notes against N51.48 billion offered at its NTB auction this week. The 91-day, 182-day & 364-day notes were allotted at 2.50%, 3.50%, and 7.35% respectively. Compared to the previous auction, rates on the 91-day & 182-day were unchanged while the 364-day paper fell by 85bps.



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FGN Bond Market

The bulls continued their dominance in the FGN bond market this week as positive sentiment was seen across the board.

 

The overall average benchmark yields closed at 8.57% for the week which fell W-o-W by -5.40%.


Average Benchmark Yields

06-Aug-2021

13-Aug-2021

% Change

Short Tenor (%)

6.31

5.60

-11.20%

Mid Tenor (%)

10.34

10.12

-2.14%

Long Tenor (%)

12.55

12.37

-1.47%

Source: FMDQ, Proshare Research 

 

FGN Eurobond Market

Performance in the Eurobond market was mixed this week, with most of the buying concentrated at the short end of the curve. Average benchmark yields rose W-o-W by +1.14% to 5.88% on Friday. 



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Nigerian Capital Market

  • The Nigerian bourse closed the week on a positive note with some cherry picking and bargain hunting in stocks like AIRTELAFRI. The NGXASI closed the week with a growth of +1.83%. The Nigerian Stock Exchange gained N370.75bn, year-to-date return moderated to -1.86%, while the market capitalisation settled at N20.59 trillion.
  • The volume and value of stocks traded on the exchange this week dipped by -66.88% and -40.98% respectively.
  • Sectoral performance across sectors tracked was mixed this week as the NGX Banking was the highest gainer for the week with +0.49% while NGX Oil & Gas and NGX Consumer Goods closed positive with +0.43 and +0.30% while NGX Insurance and NGX-IND declined by -2.37% and -1.37% respectively.
  • Market breadth for the week closed flat with 29 gainers led by HONYFLOUR and NNFM as against 29 losers led by JULI and REGALINS


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Chart 1: Movement of NSEASI Index Points 06 Aug. 2021 - 13 Aug. 2021

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Source: NSE, Proshare Research

 

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NASD OTC  

The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week with a negative movement in Market capitalization and NSI. The NSI and Market capitalization closed the week at 745.36 points and N647.85with a decline of -0.99% and -0.99% respectively.

 

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Dangote and Toni Index   

Dangote Index closed the week negative with 127.36 basis points from 130.66 basis points recorded the previous week, representing a decline of -2.53%.


NASCON  closed flat W-o-W. DANGCEM and DANGSUGAR recorded a decline of -2.62% and -1.13% respectively.

 

 

 

Table 2: Dangote Index W-o-W Change

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Furthermore, the Toni Index closed positive with 97.82 basis points from 96.52 basis points recorded the previous week, a W-o-W growth of +1.35%.


AFRIPRUD , UBA and UBCAP and closed the week negative with +0.83%, +1.33%, and +3.88% respectively while TRANSCORP and TRANSCOHOT closed flat W-o-W.


Table 3: Toni Index W-o-W Change


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Outlook

 

In the coming week, we expect the market to remain relatively bullish, although with some slight profit taking and bargain hunting as the half year earnings season fades off. However, other macroeconomic developments are likely to impact investors' decisions.

 

In addition, we expect investors to monitor the movement of yields in the fixed income market.



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Latest Reports This Past Week

1.      N472.07bn Generated as Company Income Tax in Q2 2021, Increases by 17.42% YoY - NBS

2.     N512.25bn Generated as VAT in Q2 2021, Increases by 3.20% QoQ - NBS

3.     Total Value of Capital Imported into Nigeria in Q2 2021 Declined by 54% QoQ - NBS

4.     Average Fare Paid for Bus Journey Increased by 2.80% MoM in June 2021 - NBS

5.     Average Price of 1kg of Tomato Increased by 13.92% YoY in June 2021 - NBS

6.     Average Fare Paid for Bus Journey Increased by 2.80% MoM in June 2021 - NBS

7.     Average Price of 1kg of Tomato Increased by 13.92% YoY in June 2021 - NBS

8.     Headline Inflation Increases by 17.75% YoY in June 2021, 0.18% Lower Than May 2021 Rate - NBS



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