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Nigeria: Economic Dashboard @ 190620
Source: Cordros Weekly Economic and Market Report - June 19, 2020
to the US Commerce Department, sales at US retailers roared back in May as the
economy started to reopen and claw its way out of what's likely to have been
the shortest and deepest recession in American history. Retail sales jumped a
record 17.7% m/m, to USD485 billion in receipts, the biggest gain in data going
back to 1992, following unprecedented declines in the prior two months. The
rebound in sales largely reflects the loosening of restrictions on business
activity after two months of stay-at-home orders to combat the coronavirus
pandemic. Along with pent-up consumer demand, federal tax payments to families
and more generous unemployment benefits also helped stoke higher sales. It will likely take some time for
activity to return to the previous trend once stimulus support fades going into
H2. Lockdowns may be reintroduced as Covid-19 cases rise, which could weigh on
consumer confidence in H2. Consequently, elevated savings rates could cap any
vigorous rebound as the year progresses.
The Bank of England (BoE) voted unanimously to maintain the key bank rate at a record low of 0.1%, in line with market forecasts. Policymakers also voted by a majority of 8-1 to expand its bond-buying programme by an additional GBP100 billion, to take the total stock of asset purchases to GBP745 billion. The central bank, however, surprised investors by saying it'll slow its purchases because stress in financial markets has eased while reserving the option to accelerate them up again if needed. While the economy is likely to show some green shoots over coming weeks as a broader proportion of the economy reopens, it's unlikely that activity will return to pre-virus levels for at least a couple of years. We certainly wouldn't rule out the introduction of negative rates further down the line, particularly if the economic recovery does prove to be more turbulent.
equities were broadly positive as the US Federal Reserve readied its corporate
bond-buying programme, boosting risk appetite that was otherwise receding over
fears of a second wave of coronavirus. Consequently, US (DJIA: +1.9%; S&P:
+2.4%), European (STOXX Europe: +3.2%; FTSE 100: +2.7%), and Asian (Nikkei 225:
+0.8%; SSE: +1.6%) stocks all looked set to end the week in the green. Emerging
markets (MSCI EM: +0.8%) stocks rebounded, also on the news from the US Fed,
led by China (+1.6%). In contrast, frontier markets (MSCI FM: -0.1%) equities,
led by Argentina (-12.5%), slid as economic data underscored the damage wrought
by the novel coronavirus pandemic.
headline inflation maintained its upward trend, as it expanded by 6bps in May
2020 to 12.40% y/y (April: 12.34% y/y). Relative to Cordros' estimate (12.34%
y/y), the outturn is 6bps higher with the most significant variance stemming
from the food basket. The weakening of the naira filtered through to both the
core and food baskets. However, we believe that the impact of the supply chain
disruptions, occasioned by the COVID-19 outbreak, further pressured Nigeria's
consumer prices in the period, especially the food basket. Month-on-month food
inflation (1.42%) is now at the highest level seen since August 2018 (1.42%).
From a month ago, the headline inflation increased by 15bps to 1.17%, steepest
pace of price growth since July 2017. For
June, the troika impact of (1) planting and lean seasons in the North and South
respectively, (2) continued naira downslide, and (3) rising COVID-19 cases
should continue to pressure headline CPI. Thus, we now expect m/m headline CPI
of 1.22%, implying year-over-year inflation of 12.54% (+16bps).
Elsewhere, the Ministry of Power confirmed this week that the electricity tariff increment would be implemented in July 2020. We recall that in the "MYTO Minor Review Order" published in December 2019, the NERC had announced plans to raise electricity prices by 35% on average starting from April 1, 2020. However, the impact of the COVID-19 outbreak on consumer wallets forced the FGN to delay the implementation by three months. Our analysis revealed that a hike in July would significantly impact the Housing, Water, Energy, Gas & Other Fuels (HWEGF) and Energy baskets, which both constitute c.17.0% of Headline inflation. We highlight that the 2016 hike in electricity price resulted in month-on-month expansions of both HWEGF (+607 bps) and Energy (+697 bps) inflation. In that scenario, we expect headline inflation to average 13.38% y/y over 2020 and end the year at 15.33% y/y.
Weak sentiments continued to dominate the domestic equities market, as the All-Share Index plummeted by 1.4% to 24,826.75 points - the second weekly decline in three weeks, as investors dumped DANGCEM (-6.5%), MTNN (-1.6%) and NB (-9.5%) stocks. Consequently, the YTD and MTD losses increased to -1.7% and -7.5%, respectively. Analysing by sectors, significant losses recorded in the Oil & Gas (-4.9%), Insurance (-3.1%) and Banking (-3.1%) sector weighed on the market performance, as all three indices declined. The Industrial Goods (+2.2%) and Consumer Goods (+1.8%) indices were the sole gainers.
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.
line with our expectation, the overnight (OVN) rate expanded by 684bps, w/w, to
16.7%. Outflows from CRR (NGN216.00 billion), Sukuk bond (NGN162.58 billion)
and FGN bond (NGN100.00 billion), OMO auction (NGN80.00 billion) and FX auction
debits outweighed inflows from OMO maturities (NGN337.94 billion) and retail FX
refunds (NGN337.94 billion).
Next week, we expect the OVN to remain elevated in the absence of significant inflows to boost system liquidity.
in the Treasury bills secondary market was bullish, as average yield in the
space contracted by 47bps to 4.9%. Across the segments, yields contracted at
the (1) OMO market by 13bps to 4.9% following improved trading volumes and (2)
at the NTB market by 122bps to 2.2%, as market participants covered lost bids
at the NTB PMA. At the PMA, demand continued to outweigh supply, as there was
an oversubscription of 6.1x on NGN14.61 billion worth of bills on offer. The
auction closed with the CBN rolling over NGN2.00 billion of the 91-day, NGN2.00
billion of the 182-day and NGN10.61 billion of the 364-day - at respective stop
rates of 1.80% (previously 2.00%), 2.04% (previously 2.20%), and 3.75%
(previously 4.02%). At the OMO auction, the CBN fully allotted NGN80.00 billion
worth of bills - NGN20.00 billion of the 82-day, NGN20.00 billion of the
159-day and NGN60.00 billion of the 341-day - at respective stop rates of
4.95%, 7.79%, and 8.99%.
We expect demand for Treasury bills to be subdued, owing to the tight system liquidity expected next week.
in the FGN bond secondary market was bullish, as investors covered lost bids at
the PMA. Consequently, the average yield across instruments contracted by 72bps
to close at 9.4%. At the auction, instruments worth NGN150.00 billion were
offered to investors through re-openings - 12.75% APR 2023 (Bid-to-offer: 3.4x;
Stop rate: 8.00%), 12.50% MAR 2035 (Bid-to-offer: 2.5x; Stop rate: 11.0%), and
12.98% MAR 2050 (Bid-to-offer: 4.7x; Stop rate: 12.2%). Despite subscriptions
across instruments settling at NGN545.16 billion, the DMO eventually allotted
instruments worth NGN100.0 billion, resulting in a bid-cover ratio of 5.5x.
We expect demand to be influenced by the tight liquidity next week. Nonetheless, we expect yields to pare, as investors' demand should remain focused on this side of the market, given the relatively attractive yields compared to the treasury bills space.
the third successive week, the CBN recorded another reserve drawdown as FX
outflows outpaced inflows. The foreign reserves dipped by USD119.25 million w/w
to USD36.33 billion. Nonetheless, the naira depreciated against the US dollar
by 0.19% WTD to NGN387.75/USD at the I&E window and by 1.1% to
NGN455.00/USD in the parallel market. In the forwards market, the naira gained
ground against the US dollar in the 3-month (+0.03% to NGN391.20/USD) and
6-month (+0.05% to NGN396.70/USD) contracts. Meanwhile, the naira depreciated
against the US dollars in the 1-month (-0.01% to NGN387.41/USD), and 1-year
(0.59% to NGN416.53/USD) contracts.
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 BDC segment of the market will place an additional layer of pressure on the reserves as the CBN funds the backlog of unmet FX demand.
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