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Nigeria: Economic Dashboard @ 050620
Source: Cordros Weekly Economic and Market Report - June 05, 2020
the gradual ease of lockdown instituted across China, manufacturing activities
rebounded in May, after contracting in the prior month. Specifically,
manufacturing PMI rose to the expansionary territory of 50.7 index points in
May, from 49.4 points in April. This is not surprising as we had expected the
gradual re-opening of the Chinese economy would keep manufacturing activities
afloat in May, even as the external sector remains broadly weak due to
pressured demand. Despite
the positive outturn, we do not believe the Chinese economy is completely out
of the woods. The combination of still benign spending patterns, amid job
losses, together with the deteriorating external sector will continue to
pressure activities over the next few months. Thus, we foresee further economic
Elsewhere, manufacturing activities in the US for May sustained the contractionary trend from the prior month, as PMI slumped to 43.1 index points, although up from the 41.5 points recorded in April. The disruption of the supply value chain, occasioned by the COVID-19 induced lockdown across the states weighed significantly on export orders. Meanwhile, the postponement of new orders, or in extreme cases, cancellation of orders, led to the retrenchment of workforces in the review period. For the next few months, we see headroom for further moderation in manufacturing activities, due to the unrelenting spread of the coronavirus and the recent social unrest, which continues to exacerbate the situation.
remained positive in the global space as investors' optimism for a speedy
economic recovery from the pandemic continues to support appetite for risky
assets. Specifically, stocks in the US (DJIA: +6.2%; S&P: +4.5%) sustained
the performance from the prior week after recording another large weekly gain,
as investors focused on states reopening and looked past dismal economic data.
Asides for the hope of a speedy economic recovery, investors in the European
(STOXX: +6.9%; FTSE 100: +6.6%) markets were pleased as signs of a pickup in
China's services sector activity offset concerns about the Sino-U.S. trade
tensions. Also, the equities markets in Asia (SSE: +2.8%; Nikkei 225: +4.5%)
were up as PMI data released by China's National Bureau of Statistics indicated
the economy moved back into the expansionary zone in May. Finally, gains in
South Korea (+7.5%) and China (+2.8%) supported the Emerging market index (MSCI
EM: +6.3%), while the Frontier market (MSCI FM: +1.7%) was buoyed by the
Vietnamese (+2.5%) and Moroccan (+2.8%) indices.
importation in Nigeria still lacks skid resistance, following another 31.2% y/y
decline to USD5.85 billion over Q1-20. Given the outbreak of COVID-19 pandemic,
which disrupted global economic activities from institutions of lockdowns,
together with its passthrough impact on domestic economic indices, we were
unsurprised that the decline inflows was broad-based, save for other investment
(+15.2% y/y). Notably, FPI and FDI, both of which constitute 77.3% of total
flows, moderated by 39.4% y/y and 13.4% y/y, respectively. On the former, flows
to equities dipped by 2.5% y/y, mirroring the marked risk asset sell-offs in
the same period (ASI: -20.8%). Meanwhile, the segregation of the OMO bills
market by the CBN, which engineered deceleration in rates, comes to mind as the
driver of the reduced flows to the money market (-41.6% y/y).
For the next few quarters, the trajectory of pull and push factors are central in framing our outlook for flows. On the pull side, emerging markets have experienced record portfolio outflows in recent times, larger than during any recent crisis, including the global financial crisis. The blend of the global COVID-19 shock and a significant drop in oil prices led to record-breaking outflows, especially in March (c. USD82.00 billion). For us, the recovery in flows will most likely follow the full resumption of economic activities towards the tail end of the year, which Nigeria should benefit from. On the domestic front, while we expect macroeconomic milieu to deteriorate further, the stronger harmony between the fiscal and monetary authorities should pave the way for a gradual pickup by Q4-20. Hence, we expect capital inflows to ride the wave of stronger economic prospects by Q4-20.
sentiments took precedence in the domestic markets despite the further easing
of the lockdown in the country, amid persistent increases in daily coronavirus
cases. Consequently, profit-taking was witnessed on BUACEMENT (-4.8%), NB
(-3.0%), and some banking stocks. Precisely, the All-Share Index declined by
1.0% w/w, to settle at 25,016.30 points. Thus, the MTD return settled at -1.0%,
as the YTD loss increased to -6.8%. Analysing by sectors, the general
performance was broadly negative, as losses in the Banking (-3.7%), Oil and Gas
(-0.7%) and Consumer Goods (-0.4%) sectors outweighed the positive performances
in the Insurance (+2.4%) and Industrial Goods (+1.6%) sectors.
In our opinion, risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions. Thus, we continue to advise investors to trade cautiously and seek trading opportunities in only fundamentally justified stocks.
overnight (OVN) rate expanded by 13.70 ppts, w/w, to 16.7%. The OVN contracted
consecutively throughout the week, as system liquidity remained elevated.
System liquidity was further buoyed by inflows from OMO maturities (NGN149.68
billion), however, outflows for CRR debits (NGN459.72 billion) and the CBN's
weekly OMO auction (NGN70.00 billion) caused the rate to increase to its
current level. At the OMO auction, the CBN fully allotted NGN70.00 billion
worth of bills â€“ NGN20.00 billion of the 82-day, NGN20.00 billion of the
173-day and NGN30.00 billion of the 341-day â€“ at respective stop rates of
4.95%, 7.79%, and 8.99%.
In the coming week, we expect a tightened system liquidity and an expansion in the OVN due to the absence of significant inflows to the system.
in the Treasury bills secondary market was quiet through the week, as investors
remained wary of the rates in both segments of the market. Nonetheless, bullish
sentiments prevailed due to the healthy system liquidity, as the average yield
across all instruments contracted by 30bps to 4.5%. Average yield at the OMO
segment (-97bps to 5.1%) contracted due to liquidity conditions, while sell-off
of short and mid tenured instruments caused average yield in the NTB segment to
expand by 121bps to 3.3%.
We expect reduced demand for T-bills as system liquidity squeezes. At the NTB segment, we expect muted trading activity in the secondary market as participants seek better rates at next week's PMA.
in the Treasury bonds secondary market was mixed, albeit with bullish bias, as
the average yield contracted by 9bps to 10.0%. Trading was static due to muted
activity in the market, as market participants shifted attention to FGN's Sukuk
bond issuance. Across the benchmark curve, yield contracted at the short
(-15bps) and long (-3bps) ends as investors demanded JAN-2026 (-55bps) and MAR-2050
(-10bps) bonds, respectively, while they expanded at the mid (+1bp) segment due
to sell-offs of the MAR-2027 (+1bp) and FEB-2028 (+1bp) bonds.
In the coming week, we expect the tight system liquidity to negatively influence the demand for instruments in the Treasury bond secondary market. Nonetheless, we expect yields to pare, as investors' demand should remain focused on this side of the market, given the level of yields in the Treasury bills market.
week, the CBN stepped up its currency market intervention as it recorded its
first reserve depletion in four weeks. Notably, the country's external balance
dipped by USD17.09 million WTD to USD36.58 billion. Nonetheless, the Naira
depreciated against the USD by 0.04% w/w to NGN386.50/USD at the I&E window
but closed largely flat at NGN450.00/USD in the parallel market. In the
Forwards market, the naira depreciated against the USD across all contracts.
Specifically, the 1-month (-0.2% to NGN389.06/USD), 3-month (-0.8% to NGN394.84/USD),
6-month (-1.5% to NGN403.18/USD), and 1-year (-2.5% to NGN426.56/USD),
contracts all lost some ground against the US dollar.
For us, the widening current account (CA) position suggests that odds are stacked against the Naira. Beyond that, as the economy gradually reopens, the resumption of FX sales to the BDCs segment of the market will place an additional layer of pressure on the reserve as the CBN funds the backlog of unmet FX demand.
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