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Weekly Economic and Financial Commentary – WE 24th May, 2019

Nigeria Economy	4190 VIEWS
Nigeria Economy
4190 VIEWS

Saturday, May 25, 2019 / 07:10AM / By ARM Research

Global Economy

Earlier today, UK’s prime minister Theresa May announced her decision to resign from office on June 7th after several failed attempts to reach a Brexit deal since her resumption of office in 2016. This poses a new challenge, as it increases the uncertainty regarding Britain’s exit from EU. Following the announcement, while trading in GBP/USD was volatile (touching a fourmonth low of 1.2605), market closed positive with the FTSE 100 closing higher by 0.6%. That said, deadline for Brexit is set for October 31st. Meanwhile, data released by the National Statistics in UK showed there was an uptick in April inflation by 2bps to 2.1% YoY, buoyed by a rise in energy prices. The higher energy prices reflects the response from energy providers to a 10% increase in the country’s energy price cap, which took effect in April 1st.

Domestic Economy

NBS released Nigeria’s Q1 GDP data which revealed an expansion in the economy by 2.01% YoY in Q1 2019, as a result of improved activities in the non-oil sector (+2.5% YoY), outweighing continued contraction in the oil sector (-2.4% YoY). The Agric sector (+3.2%) and services (+3.1% YoY) which accounts for a large part of the non-oil sector led the momentum. Elsewhere, the MPC held its third meeting of the year this week where most members voted to leave all policy parameters unchanged (9 out of 11). The committee noted the uptick in inflation over the month of April and therefore sought to taper inflationary pressures. At the same time, the committee cited that despite the growth in Q1 2019, actual output continued to remain below the economy’s long run potential.

Equities

The Nigerian Bourse closed positive for the second consecutive week with the NSE ASI appreciating 6.96% WoW to close at 30,881.29 points and market capitalization gaining N885 billion. The bullish sentiment was spurred by the two largest stocks in the Exchange – MTNN (+28.56% WoW) and DANGCEM (+13.64% WoW). Conversely, a close evaluation of the market performance showed negative performance across all sector(s), excluding cement sector which gained 13.12% WoW. Dissecting the sector performance reveals selloff across various stocks such as FLOURMILLS: -12.10%, UACN: -11.64%, ACCESSBANK: -10.08%, NB: -7.20%, UBA: -4.17%, UNILEVER: -3.13%, ZENITH: -3.06% and NESTLE: -2.10%.

Fixed Income

After going two weeks without an OMO sale, the CBN sold N360 billion worth of OMO bills this week. However, OMO rates continued their downward trend this week with the one-year rate falling for the 5th straight auction to 12.5% (vs 12.82% last auction). Consequently, average NTB yields closed the week flattish at 12.18%. At the bond leg, FG sold N111 billion worth of FGN bonds at a lower stop rate at this week’s bond auction (-34bps MoM to 14.28%). Given the lower allotment relative to subscription levels (N373 billion), investors resulted to filling their coffers at the secondary market with yields dipping 9bps WoW to 13.94%. Overall, following depression at both ends of the curve, average fixed income yields plunged 4bps WoW to 13.06%.

Take-Away For The Week

GDP trend

This week, we feature the performance of the economy over the last two years, revealing trend oil, non– oil and Real GDP.

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