Weekly Economic and Financial Commentary – WE 21st Sept, 2018

Saturday, September 22, 2018   07:45AM / ARM Research 

Global Economy

In the light of recent trade spat between China and US, US trade deficit narrowed 17% QoQ to $101.5 billion on the back of faster growth in exports. We link this to the accelerated pace of exports to places like China before retaliatory trade tariff. Elsewhere, inflation in Canada eased to 2.8% in August from 3.0% in the previous month, but still floating way ahead of Bank of Canada’s target of 2%. In other region, the Bank of Japan left its key interest rate unchanged at -0.1% and maintained its optimistic view on the economy despite escalating global trade tensions. Trade figures from Japan showed its trade with other countries stood at a deficit of 444.6 billion Yen (+92% MoM) for the second consecutive month on the back of faster growth in imports of crude oil and natural gas. 

Domestic Economy

Total debt of states government continued to spiral in H1 18 with latest report by the National Bureau of Statistics (NBS) showing total states debt expanded 13.6% YTD to N4.8 trillion. The increase reflected a jump in both domestic (+15.9% YTD to N3.0 trillion) and external (+7.8% YTD to $4.2 billion) debt stock. Analyzing the debt stock, we observed Lagos State alone accounted for 36% of the overall increase in debt stock. In terms of composition of total debt stock, Lagos remain the largest debt holder (28%) with about N960 billion debt. Lagos, Akwa-Ibom, Cross River, Delta and Rivers account for almost 40% of total debt stock. 

Equities

The Nigerian equity market reversed the loss recorded in the previous week with NSE ASI expanding slightly by 0.66% WoW to close at 32,540 pts. The positive performance largely

reflected gains in ACCESS (+4.5%), FBNH (+5.5%), UBA (+8.1%), ZENITHBANK (+3.7%), WAPCO (+13.5%), DANGSUGAR (+5.8%), NESTLE (+2.2%) and SEPLAT (+2.5%). An overview of the sectorial performance showed that Banking (+2.4%), Food (+2.4%), Oil & Gas (+2.6%), Brewers (+0.03%) and Real Estate (+0.37%) sectors closed in the positive territory while Cement (-1.8%), Insurance (-2.3%) and Personal Care (-0.3%) closed in the red. 

Fixed Income

Yields in the fixed income market dipped 48bps WoW to 14.37%, driven by strong buy pressure following pent up market liquidity (Week’s average: ~ N400 billion) emanating from Paris club refund of N14.9 billion and OMO maturity (N219 billion). The CBN sold N338 billion worth of OMO bills to mop up excess monies in the system – with the 364 Day paper closing at 13.5%. However, the 1-year T-bills paper closed at 13.48%, due to market reaction to lower stop rates at this week’s NTB auction. Overall, average T-bills and Bond

yields dipped 68bps and 28bps to 13.69% and 15.05% respectively. 

Monetary Policy

Ahead of the MPC meeting next week, we look at the voting decision of each MPC members in the last two MPC meetings. At the last meeting, 7 members voted to keep the MPR unchanged while 3 members voted for a hike compared to only one member at its May meeting. The major concerns highlighted by the members are; elevated liquidity profile over the rest of the year and concern over lingering capital outflows.

Table 1: Decision of MPC members in the last two MPC meetings

Source: CBN, ARM Research

Research 234 (1) 2701653  research@armsecurities.com.ng

Footnotes                                                                                      

1.                    Weekly Economic and Financial Commentary – WE 07th Sept, 2018 

2.                   Weekly Economic and Financial Commentary – WE 31st August, 2018

3.                   Weekly Economic and Financial Commentary – WE 24th August, 2018

4.                   Weekly Economic and Financial Commentary – WE 17th August, 2018

5.                   Weekly Economic and Financial Commentary – WE 10th August, 2018

6.                   Weekly Economic and Financial Commentary – WE 03rd August, 2018

7.                   Weekly Economic and Financial Commentary – WE 13th July 2018

8.                  Weekly Economic and Financial Commentary – WE 14th June 2018

9.                   Weekly Economic and Financial Commentary – WE 20th July, 2018 

Join Ayo Teriba at the Economic Associates (EA) review of Nigeria’s Economic Outlook on Thursday, 27 September 2018 holding at the Lagos Continental Hotel, Kofo Abayomi Street, Victoria Island, Lagos from 9.00am. Conference Registration can be found here https://www.proshareng.com/news/41634 

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