Weekly Economic and Financial Commentary - Week Ended Jan 31, 2020


Saturday, February 01, 2020 / 04:30PM / By ARM Research /Header Image Credit


Global Economy

The US Fed left interest rates unchanged at their first meeting of 2020 marking the second consecutive meeting the Fed has left rates steady after three consecutive cuts in the second half of last year. The com-mittee's current stance reflects the support for sustained economic growth, strong labour conditions and inflation's return to the Fed's 2% target. Meanwhile, the interest on excess reserves (IOER) was increased by 5bps to 1.6% in a bid to move the interest rate away from the bottom of the range, where it currently is, and closer to the midpoint of the range. The Feds also stated its concerns on the rapid spread of the Coronavirus and its potential threat to global economic growth. US Q4 GDP rose 2.1% YoY, in line with expectations. This brings the US economic growth over FY 19 to 2.3% over FY 19 (FY18: 2.9%) - marking the slowest growth in 3years. In the UK, the BOE left the policy rate unchanged at 0.75%, contrary to some analysts' expectation of a rate cut to stimulate growth. The BOE also forecasts a 50bps slow-down in the UK's growth in 2020 to 0.8% from a projected 1.3% in 2019. Similar to the US Fed, the BOE stated the monetary policy will be set to ensure inflation returns to the 2% target. Meanwhile, after 3.5years of negotiations, the UK will finally leave the EU tonight at 11pm GMT. However, negotiations are planned between now and December 31st, 2020 as both parties look to outline their future relation-ship and arrange trade deals.


Domestic Economy 

This week, data released from the National Bureau of Statistics (NBS) revealed Nigeria's debt rose by N513.3 billion in Q3 2019 to N26.2 trillion relative to the prior quarter. The increase in total debt stock stemmed largely from domestic debt (constitutes ~68% of total debt) which grew by N564.9 billion QoQ to N17.34 trillion while external debt fell by N51 billion to N8.27 trillion. Meanwhile, in servicing domes-tic and external debt, FG spent a cumulative of N607 billion in servicing domestic debt in Q3 2019 (+220% QoQ, -4% YoY), while a cumulative of $473.4 million was spent in Q3 2019 ( +88% QoQ, -44% YoY) in servicing external debt.



For the first time this year, the equity market closed the week on a negative note with the NSE ASI declining by 2.65% to 28,843.53 index points. Loses were observed in the Banking (-6.13%), Cement (-0.90%), Telecom (-2.96%), Personal Care (-13.72%), Food (-0.50%), Oil & Gas (-2.58), and Real Estate (-0.14%) sectors. On the other hand, gains were seen across only the Brewers (4.89%), Construction (2.64%) and Insurance (0.54%) sectors. Major drivers for the week decline were stocks such as; FBNH (-10.27% WoW), STANBIC (-10% WoW), BUACEMENT (-2.12% WoW) and MTNN (-4.32% WoW).


Fixed Income

The average stop rate surprisingly rose at this week's NTB auction by 83bps to 4.83%, marking the first-time rates have risen in 11 auctions. N229.63 billion was offered at this auction with subscription at 1.15x, a decline from the 1.85x at the previous auction and the lowest since the OMO market restriction was enforced on October. But true to form, the FG only sold what was offered and rolled over the bills due to mature. There was also an OMO auction this week, and despite N495 billion worth of bills maturing, the CBN only offered N200bn and sold N210.29 billion. Subscription was at 2.39x, stronger than the 1.96x at the last auction, while the 1yr stop rate declined slightly by 2bps to 13.09%. In the secondary market, average fixed income yields were only 2bps lower at 6.68% following contrasting movements at the oppo-site ends of the curve. Bond yields declined 25bps to 9.62% on the back of a fall in yields across the board: Jan-2022 (-131bps), Jan-2026 (-64bps) and Apr-2049 (-25bps). NTB yields, meanwhile, finished the week 20bps higher at 3.73% reflecting increases across all tenors. It is worth stating that, following the CBN's decision to increase the CRR by 500 bps last week, we saw significant spike in the overnight market rates by 1067bps WoW to 14.67%.


Take-Away For The Week

The 10 states that added and reduced the most domestic debt between Q2 and Q3 (N'billion) 

Total net domestic debt added by the 36 states between Q2 and Q3 2019 was N76.17 billion. Ogun, with N45.82 billion, added the most to its debt stock pile between the two quarters while Lagos reduced its stock pile by N37.38 billion. 

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


Nigeria: Economic Dashboard @ 310120 


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