Weekly Economic and Financial Commentary - Week Ended Oct 04, 2019


Saturday, October 05, 2019 / 10:14AM / By ARM Research 


Global Economy

According to ISM, U.S manufacturing sector slipped further into contraction in September, with PMI at 47.8 index points (August: 49.1), its lowest level in a decade and well below analysts' expectations of 50.1index points. Clearly, this  marks the second consecutive month of contraction within the sector. Also, US's trade deficit for August increased by 1.6% MoM to $54.9 billion, driven by faster rise in imports (+0.5%) relative to exports (+0.2%). However, its trade deficit with China reduced this month by 2.3% MoM. Meanwhile, PMI data released for China showed an improvement in manufacturing activity as it hit its highest level since February 2018 (51.4 vs 50.4 in August). Elsewhere, Markit's services' PMI contracted in the UK's services sector to 49.5 index ppts vs (August: 50.6 index ppts), as BREXIT uncertainty intensifies.  


Domestic Economy 

Nigeria's 2020 proposed budget was reviewed upwards by N727 billion to N10.729 trillion (previously: N10.002 trillion), hinged on the expectation of higher crude oil prices and a boost in revenue from Nigerian Customs Service (NCS). Specifically, the Crude oil benchmark for 2020 budget is now $57 (prior: $55), and the budget would be presented by president Buhari next Tuesday. Elsewhere, the CBN delivered another letter to Deposit Money banks (DMBs), increasing the minimum loan to deposit ratio (LDR) from 60% to 65%, with a deadline of December 31st, 2019. Accordingly, failure to meet this requirement shall result in a levy of additional Cash Reserve Requirement equal to 50% of the lending shortfall implied by the target LDR. Specifically, 12 banks were debited this week to the tune of N499.1 billion, as the penalty of not meeting the prior LDR requirement.



The blood shed in the equities market continued this week, with the banking sector taking a major hit (-3.29% WoW). Asides the general negative sentiment towards the Nigerian bourse, recently released directive for DMBs to increase minimum LDR to 65% further amplified the selloffs. Consequently, the NSE ASI shed 248bps to 26,987.45 points while market cap lost N334.7 billion. All sectors on the bourse anchored the decline save for Cement and Insurance which gained +0.29% and 2.80% respectively. A further glance at the stock performances revealed sell offs in GUARANTY (-3.99%), ZENITH (-2.70%), NB (-4.10%), NESTLE (-6.65%), SEPLAT (-0.29%) and MTN (-4.41%), muting gains in DANGCEM (+0.21%), WAPCO (+1.56%) and CONTINSU (20.11%).


Fixed Income

Rates movement in the secondary market over the week was quite bullish with average fixed income yields losing 3bps WoW to close at 13.74%. At the short end of the curve, NTB yields dropped 4bps as investors took positions given the high level of subscription and unmet demand witnessed at both OMO and NTB auctions earlier in the week. At the auctions this week, average stop rate for NTB s dropped by 9bps to 11.96% with subscription level reaching 2.5x. Similarly, after keeping its 1yr OMO stop rate almost unchanged all through September, the CBN cut the rate by 8bps to 13.4% at its first auction this month with subscription level reaching 2.3x. Analysing the trend in yields movement, mid-tenor and long-tenor bills experienced increased demand that brought their respective yields lower by 15bps and 17bps WoW. Elsewhere, at the long end of the yield curve, bond yields fell slightly by 2bps to 14.24%. We saw more demand for Jan-2026 and Mar-2027 with  yields dropping by 19bps and 16bps respectively. 


Take-Away For The Week

Trend in Commercial Bank Loans, LDR and Liquidity Ratio

This week, we feature recent trend in commercial banks loans across sectors, loan to deposit (LDR) trend and liquidity ratio. Going by the data, total deposit money banks loan to deposit ratio improved to 61.1% in August from 57.6% in June 2019. Also, a bulk of the loans were channeled to the manufacturing sector.


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 Nigeria: Economic Dashboard @ 041019 

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