Weekly Economic and Financial Commentary - WE 13 September 2019


Saturday, September 14, 2019 / 10:00AM / By ARM Research 


Global Economy

The ECB Governing Council voted to cut deposit rate by 10 bps to -0.5% from -0.4%, while the marginal lending rate was left unchanged at 0%. This decision is in a bid to stimulate economic growth, amid on going downturn in the eurozone economy.  Additionally, the ECB announced it will resume the Asset Purchase Programme (Euro 20 billion/month) in November,  nine months after ending the previous  Euro 30 billion programme. Over in the US, CPI printed at 0.1% MoM in August which is in line with analysts' expectations but lower than July's 0.3%. This was largely driven by a 1.9% decline in energy prices  (vs 1.3% increase in July.) while core inflation was unchanged at 0.3%. Meanwhile,  there was some positives on the trade front after President Trump delayed planned tariff increases by two weeks and later confirmed that he will consider an interim deal with China who, on their part, added pork and soybeans to a tariff exception list.


Domestic Economy 

The Federal Executive Council approved an increase in Value Added Tax (VAT) rate from 5% to 7.2% which is expected to kick off in 2020. According to estimates from the Medium Term Expenditure Framework (2020-22), while the  increase in VAT is expected to favour the federal government, the state government appears to be the biggest beneficiary. For context, a total of N1.9 trillion (2019E: N1.53 trillion) VAT revenue is expected to be shared. With FG share of 15% and remaining 85% shared by states and local government. Elsewhere, data released by the NBS revealed a 71% decline in Nigeria's trade surplus (N588.9 billion) over Q2 19, owing to faster growth in imports (+65.2% YoY to N4.0 trillion) - largely non-oil imports. Meanwhile, growth in exports faltered over the quarter, expanding by only 2.1% YoY to N4.6 trillion reflecting a 10% decline in Non oil exports.



The Nigerian bourse closed the week positive as the NSE ASI appreciated by 2.23% WoW to close at 27,779 index points, with market capitalization gaining N316.2 billion. The bullish sentiments were spurred by gains in most sectors - Banking (+4.73%), Brewers (+0.56%), Telecom (+3.11%), Personal Care (+0.93%), Food (+1.01%), Oil & Gas (+20.78%) and Real Estate (+1.46%). A further glance at the sectoral performance showed gains were driven by interest across stocks such as (FBNH: +24.14%, GUARANTY: +5.35%, ZENITH: +5.83%, ETI: +11.89%, DANGFLOUR: +5.00%, DANGSUGA: 9.71%, AIRTELAF: +8.19%, AIICO: +9.68%, and SEPLAT: 15.67%).


Fixed Income

CBN continued its liquidity sterilization this week, selling N528 billion worth of OMO bills, with stop rates unchanged: 91day - 11.59%; 182day - 11.79% and 365day - 13.5%. Meanwhile, at the NTB auction, the FGN rolled over N158.65 billion that mature this week (subscription; 2.1x), while average stop rate closed 20bps higher at 12.06% compared to the last auction. In the secondary market, average fixed income yields rose 7bps to end the week at 13.85% owing to selloffs in both short and long segments. NTB yields rose 8bps to 13.39%, driven by increases in both of short-tenor (+5 bps) and mid-tenor (+27 bps) bills. Over in the bonds segment, average yields increased 7bps WoW to 14.31%, driven by selloffs in the Jan-2022 (+44 bps)  and Mar-2025 (+49 bps)  bonds.   


Take-Away For The Week

Q2 Foreign Trade Data

This week, we feature the trend in Nigeria's trade balance over the last 2 years, which showed Q2 19 trade surplus touched the lowest since Q2 17.



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