October 11, 2019 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @ 111019
Source: Cordros Weekly Economic and Market Report - October 11, 2019
After two successive months of decline, Germany's industrial production unexpectedly expanded by 0.3% m/m in August, defying the consensus forecast of a 0.1% decline, and providing a glimpse of hope amidst possible fears of a recession. Manufacturing output rose by 0.7% y/y, relative to the 0.6% decline recorded in July, while construction output shrank 1.5%y/y, industrial production fell by 4.0% and unchanged from July. The jury is still out on whether we can really talk about a trend reversal. As long as world trade stagnates, we still see further weakness, which will probably push the government to put in place more stimulus measures in early next year.
In the U.S, inflation was unchanged at 1.7% y/y in September; slightly below the market consensus of 1.8% y/y. The inflation reading was the lowest since January, as upticks in Food prices (+1.8%), Gasoline Transportation services (+0.8%) and Rent (+5.5%) were offset by tapered Energy (-4.8%) and (-8.2%) costs. Looking ahead, with inflation still trailing below the 2.0% Fed target, for the 5th consecutive month in 2019, and downside risks to global economic growth still prevalent, the case for a further rate cut in the fourth quarter has strengthened.
The global equities markets witnessed mixed performances as fears around persisting trade tensions weighed down the market at the start of the week. There was, however, some respite towards the end of the week as US and China trade talks resumed, although this was not enough to swing markets into the positive territory across regions. In the US, markets (DJIA: -0.3%, S&P: -0.5%) were on track to end the week lower, with top of the week losses outweighing mid-week gains. However, positive sentiments from the resumptions in talks fueled Asian markets (CSI 300: +2.5%; Nikkei: +1.8%). Elsewhere, European (FTSE: +0.7%, Euro Stoxx: +1.6%) indices were higher, w/w at the time of writing, as a surprise breakthrough in Brexit negotiations with Ireland opened the door for a smoother exit for the United Kingdom from the EU. Following mixed performances recorded across Emerging Markets, the MSCI EM index closed flat, while sentiments turned positive in Frontier Markets (MSCI FM: +0.3%), following significant gains in Kuwait (+1.5%) and Romania (+1.0%).
After due consultation with all relevant stakeholders, the 2020 budget was prepared and presented to the National Assembly this week - the earliest in 10 years. Perusing the breakdown, the proposed expenditure was set at NGN10.33 trillion, while the expected revenue was pegged at NGN8.16 trillion. On the revenue, oil earnings were forecast at NGN2.60 trillion, with the crude oil price benchmark set at USD57.00 per barrel while production was estimated at 2.18 mb/d. The risk of lower crude oil prices in 2020 is high given the possibility of weaker crude oil demand driven by weaker global growth. Similarly, given Nigeria's recent pronouncement to comply with OPEC's production cut, which caps crude production at 1.77mb/d, domestic production is expected to be lower in 2020. We forecast domestic crude production (including condensates) of 1.97mb/d. This, on the benchmark oil price of USD57.00 per barrel, implies oil revenue 10.6% lower than the budgeted level at NGN2.36 trillion.
Also, the proposed non-oil revenue of NGN1.81 trillion - 22.2% of the total revenue - may be achievable, given that average performance over the last 10 years sits comfortably at 78.4%. However, Other revenue (45.4% of the total revenue) has been estimated at NGN3.7 trillion - a record high. We believe income from this segment will grossly underperform. Specifically, we are pessimistic about the proposed revenue of NGN0.85 trillion from the Independent Revenue (IGR from government agencies), given the poor efficiency level in government parastatals. We expect the government to utilize the usual trend of tripartite financing (domestic, foreign, and CBN ways & means) in meeting its deficit of NGN2.18 trillion.
The Nigeria equities market extended its decline, amidst continued risk-off sentiments and the absence of positive market catalysts. Thus, after 5-consecutive trading losses this week, the benchmark index dipped by 1.68% w/w to 26,533.78 points, with the YTD loss increasing to -15.58%. Analysing by sectors, losses were evident across the board, with the exception of the Banking (+0.14bps) index, as the Consumer Goods (-3.96%), Oil and Gas (-3.17%), Industrial Goods (-1.76%) and Insurance (-1.60bps) indices all declined.
In our view, the trend witnessed through 2019 so far is likely to persist through Q4-19, although we expect pockets of gains over the last few weeks of the year as fund and portfolio managers realign portfolios prior to the start of 2020. Consequently, we advise investors to tread the cautious trading path over the short term.
The overnight (OVN) rate undulated during the week, before settling higher by 9.00 ppts at 12.4%. This was out of line with our expectations, which were formulated on the premise that significant inflows into the system of NGN443.54 billion on the 10th of October would keep the rate moderated. On the first trading day, the rate settled 1.36 ppts higher at 3.8% as system liquidity thinned out after banks funded for the weekly FX auction. However, by the second trading day, the rate moderated by 1.00ppts, before then increasing on the following trading day by 0.28ppts to 5.1%. Similarly, on the penultimate trading of the week, the rate increased by 0.43ppts to 5.5%, as investors took positions in the OMO auction.
We expect the rate to remain moderate during the week given a combination of the long position of the market, and OMO maturities worth NGN570.01 billion expected to hit the system on the 17th of October.
Activities in the Treasury bills market were bullish as the average yield declined by 64bps to settle at 12.6%. Also, as OMO maturities (NGN347.19 billion) were expected to filter into the system on the 10th, the CBN held an OMO auction on the same day, for instruments worth NGN318.91 billion - 182DTM (NGN18.91 billion) and 364DTM (NGN300.00 billion) - at respective stop rates of 11.79% (previously 11.59% auction) and 13.39% (previously 13.40%). Worthy of note is the significant level of bids on the long tenor instrument - Amount offered: NGN50.00 billion, Total subscription: NGN1.00 trillion, Total sales: NGN300.00 billion.
Given the disparity between the bid-to-offer at the auction during the week, market players were issued instruments on a pro-rata basis. Consequently, we expect players to enter the secondary market to take positions, which should result in market yields paring during the week.
Similarly, activities in the Treasury bonds secondary market were seemingly bullish as the average yields pared by 8bps to settle at 14.1%. Conversely, there were yield increases across the market, save for on five instruments. The 16.00% JUN-2019 (-196 bps) and 7.00% OCT-2019 (-77 bps) instruments recorded the largest declines in yields, while the 12.50% JAN-2026 bond recorded the largest decline (+24bps).
Over the coming week, market players are expected to maintain a preference for shorter tenor instruments. However, we maintain our view that investors will begin to take positions in the market as yields in the TBs market continue to soften.
Despite the decline in the rate of naira sell-offs by offshore investors, Nigeria's FX reserves sustained its decline, as the level pared by USD37.42 million WTD to USD41.39 billion (9 Oct 2019) - the lowest level since the 9th Feb 2018. The CBN resumed 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. Consequently, the naira appreciated by 0.02% w/w to NGN362.13/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 declined by 129.4% WTD to USD928.71 million, with trades executed within the NGN310.00-363.00/USD band. In the Forwards market, the naira strengthened across all contracts - 1-month (+0.2% to NGN365.54/USD), 3-month (+0.3% to NGN372.42/USD), 6- month (+0.4% to 383.07/USD), 1-year (+0.7% to NGN408.77/USD).
Despite the continuous depletion of reserves, our estimates suggest no devaluation of the naira in 2019, as we believe the CBN has more than enough ammunition to sustain its naira defense. Hence, we expect the naira to remain resilient in the short to medium-term.
Sunday, October 13, 2019
The Nigeria Medical Association (NMA) Scientific Conference will hold on this day with the theme: Care of the unknown Patient: Policy Overview and Review at Pealwort Hotel, Alausa, Lagos
Monday, October 14, 2019
The National Bureau of Statistics will on this day release the AUTOMOTIVE GAS OIL (DIESEL) PRICE WATCH September 2019 CPI and Inflation Report September 2019 Liquefied Petroleum Gas (Cooking Gas) Price Watch September 2019 NATIONAL HOUSEHOLD KEROSENE PRICE WATCH September 2019 and PREMIUM MOTOR SPIRIT (PETROL) PRICE WATCH September 2019, while AIICO Insurance Plc will on the same day hold its Extra- Ordinary Meeting at Orchids Hotel, Lekki, Lagos State.
Dangote Flour Mills Plc will on this day hold its Court Order Meeting at MUSON Centre, Onikan Lagos.
Tuesday, October 15, 2019
The 2019 PEARL Awards General Meeting will hold on this day at the Awards Secretariat, Agidingbi-Ikeja, while the Nigerian-American Chamber of Commerce will on the same day hold the 21st Africando 2019 Maimi Florida - a 3 day U.S.-Africa Trade and Investment Conference & Trade Show with the theme "Using Strategic Advantages to Expand Market Share at DoubleTree by Hilton Hotel Miami Airport Convention Center 711 NW 72nd Avenue, Miami, USA.
The 4th Annual Nigeria Mining Week will commence on this day in Abuja, Federal Capital Territory, while the West Africa Digital Construction Event holds on the same day at the Renaissance Ikeja Hotel, Lagos.
Wednesday, October 16, 2019
The National Bureau of Statistics will on this day release the Selected Food prices September 2019, while Unity Bank Plc will on the same day hold its Annual General Meeting at Shehu Musa Yara Adua Centre, No. 1, Memorial Drive Central Business District, Wuse, Abuja.
The 3rd International Tunnelling and Underground Space Conference & Exhibition will hold on this day with the theme: Developing Resilient Cities of the Future through the Integration of Tunneling & Underground Space use at Yaradua Conference and Exhibition Center, Abuja, while the Traders, Investors & Analysts (TIA) Meet-Up Annual Conference will hold on the same day with the theme "Financial Inclusion: Increasing Market Depth & Breadth" at the Nigeria Stock Exchange (NSE), Custom Street Marina, Lagos.
Thursday, October 17, 2019
The National Bureau of Statistics will on this day release the States Nominal Gross Domestic Product ( 2nd phase 2018) and Transport Fare Watch (September 2019), while the Learn Africa Plc will on the same day hold its Annual General Meeting at 52, Oba Akran Avenue, Ikeja, Lagos.
The 2019 Energy Resources Risk & Governance Summit will hold on this day at the Four Points by Sheraton, Lagos, while Itex Integrated Services will on the same day hold the Agent Banking Innovation Summit with the theme "Innovating Solutions for Agent Banking".
The 19th Edition of the NECCI Public Relations Roundtable will hold on this day with the theme "AWAKENING THE BLUE GIANT: Catalyzing the Growth of Nigeria's Maritime Economy through Public Relations" at Four Points by Sheraton, Victoria Island.
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