Weekly Economic and Financial Commentary – WE 05 July, 2019

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Saturday, July 06, 2019  / 08:30AM / By ARM Research 

 

Global Economy

Unemployment data for the US was released today which showed that 224,000 jobs were created in the month of June, compared to the downwardly revised 72,000 jobs in May and beating consensus expectation of 160,000. The better than expected data reduces concerns regarding state of the US economy and plays down dovish expectations for the Feds meeting next week. However increased job participation rate led to increased labour force by 335,000 which pushed the unemployment rate higher to 3.7% from 3.6% in the previous month. Meanwhile, at the OPEC and non-OPEC Ministerial Meeting which held at the start of the week, a decision was reached to extend the oil cut agreement by another 9 months till March 2020. The latest of the oil cuts was the joint agreement to reduce global oil supply further by 1.2million bpd (start date: January 2019). The extended cuts mirrored the cartel’s concerns regarding slowing economic growth and wavering oil demand stemming from the Sino US trade rifts.

 

Domestic Economy 

In a bid to boost credit to the real sector, the Central Bank of Nigeria released a circular earlier this week mandating banks to maintain a minimum loan to deposit ratio (LDR) of 60% by September 30, 2019, subject to quarterly review. The CBN gave preference to SMEs, Retail, Mortgage and Consumer Lending, which will be assigned 150% weighting in computing the LDR’s for respective banks. Overall, we believe the new policy, if adhered to, is positive for economic growth. Elsewhere, capital inflows for the first quarter of 2019 increased to $8.49 billion - 2.6x higher than the prior quarter. Pointedly, the increase largely stemmed from growth in Foreign portfolio investment (+$5.4 billion QoQ) which makes up 84% of total capital importation while flows to Foreign Direct Investments and Other investments only grew by $70 million and $345 million dollars, respectively.

 

Equities

The Nigerian Bourse closed the week negative with the NSE ASI shedding 2.32% WoW to close at 29,270.95 points and market capitalization dropping by N303.75 billion. The bearish sentiment was spurred by losses across all sectors; Construction (-5.06%), Banking (-4.82%), Brewers (-3.84%), Cement (-3.32%), Personal care (-2.77%), Food (-2.15%), Oil & Gas (-1.64%), Real Estate (-0.28%) and Insurance (-0.05%). Dissecting the sector performance reveals selloff across various stocks such as GUARANTY: -11.85%, ZENITH: -2.27%, NB: -4.13%, INTBREW: -6.83%, DANGCEM: -3.80%, UNILEVER: -3.03%, NESTLE: -3.24%, PRESCO: -10.00% and MTN: -0.04%.

 

Fixed Income

This week, average fixed income yields dipped 15bps WoW to 12.97% following depression at both ends of the curve. At the short end, over the course of the two OMO auctions this week, the CBN sold N664.1bn at lower stop rates (1yr OMO bill: -23bps to 12.25%). This alongside buy pressure at the short end in the aftermath of NTB primary market auction this week drove average NTB yield down 26bps to 12.01% -- led by the 91day tenor which fell 108bps. Similarly, average bonds yields closed the week at 13.93%, 4bps lower than the close of last week, with the JUL 21 (-68bps WoW) being the biggest driver.  

 

Take-Away For The Week

Nigeria’s Capital Importation Trend 

This week, we feature trend in Nigeria’s capital importation ($’billion) as well as Foreign Portfolio Investment (FPI) components ($’billion) over the past  one year.   



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

 


Nigeria: Economic Dashboard @ 050719  



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