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Weekly Economic and Financial Commentary - Week Ended Dec 13, 2019

Nigeria Economy	2342 VIEWS
Nigeria Economy
2342 VIEWS

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Saturday, December 14, 2019 / 02:00PM / By ARM Research /Header Image Credit: ARM

Global Economy

Global markets closed the week with cheery news after it was announced that US and China have agreed to an initial trade deal. This deal would see the US cancel the fresh tariffs ($160 million worth of goods) which were scheduled to go into effect on Sunday. As part of the deal, the US will also cut existing tariffs by 50% while China will increase its annual purchases of American agricultural products to about $40billion in 2020. Meanwhile, at its last meeting of the year, the US Feds voted to keep rates unchanged - in line with consensus expectation. The committee also indicated that there is less probability for a rate increase in 2020. Elsewhere, the US inflation for November (2.1%) printed above the Fed's 2% target for the first time since April. This also printed a tad higher than analysts' expectations of 2.0%. The higher inflation was driven by a 2.0% increase in food prices, which offset the slight decline in energy prices (-0.6%).

Finally, PM Boris Johnson and his Conservative party won a commanding majority in yesterday's election. Given their stated desire to get Brexit done, it increases the likelihood of the UK leav-ing the bloc by the Jan 31 deadline.

Domestic Economy

Recent data released by the NBS showed that Nigeria's trade surplus widened significantly by 117% YoY to N1.38 trillion in Q3 2019, due to growth in export (+9% YoY to N5.3 trillion) and a moderation in imports (-8% YoY to N3.9 trillion). Precisely, while crude oil exports declined by 10% YoY largely on the back of lower crude oil prices, the sharp expansion in non-crude oil export by 118% YoY anchored the increase in total exports. A deeper probe into the numbers revealed buoyant increase in manufactured goods exports (+14x YoY) fuelled the expansion. No-tably, re-exports of high value cable sheaths of iron, submersible drilling platform, Vessels and other floating structures to other African countries, spurred the increase in manufacturing sector. On the other hand, the deceleration in imports stemmed from Mineral fuel (-50% YoY), crude and machinery & transport equipment (-5% YoY).

Equities

The Nigeria's bourse closed the week negative, shedding 119bps to close at 26,536.21 pts with market capitalization losing N154.1 billion. This week's decline was spurred by Telecom (-1.54%), Banking (-1.23%), Cement (-1.80%), Food (-1.27%) and Personal care (-2.61%) sectors. Sell offs were seen in MTNN (-2.29%), GUARANTY (-2.34%), STANBIC (1.90%), UBA (-1.49%), FBNH (-2.26%), DANGCEM (-1.89%), CCNN (-2.08%), UNILEVER (-2.38%) and NESTLE (-3.70%) WoW, muting gains in NB (+2.93%) and GUINNESS (+1.72%) amongst others.

Fixed Income

The bulls resurfaced in the NTB market, with average yield declining 101bps to close the week at 6.28% amid pent up system liquidity. The lower yields stemmed from increased demand across tenors, with the short-tenor bills declining the most by 140bps WoW. At the bonds market, average yields fell by 77bps WoW to 10.72%. The biggest declines were seen at the short termed in-struments: Feb-2020 (-175bps), Jul-2021 (-135bps) and Jan-2022 (-88bps). Overall, average fixed income yields fell 89bps WoW to 8.50%.

At the NTB auction, subscription came in very strongâ€” 6.5x the N45 billion offered. Irrespective, the FG simply rolled-over the N45 billion that was maturing. Average PMA rates suffered yet another steep decline by 135bps to 6.02% with the 1-year stop rate printing 149bps lower to 6.88%.

Take-Away For The Week

Nigeria's Trade Balance (N'billion)

This week, we feature the trend in Nigeria's trade balance over the past three years. A quick look at the chart below revealed over Q3 19, Nigeria recorded its highest trade surplus since Q3 2018 owing to an increase in total value of exports and a slight moderation in imports in Q3 2019.

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

Nigeria: Economic Dashboard @ 131219

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