Weekly Economic and Financial Commentary – WE 03rd August, 2018

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Saturday, August 04, 2018      08:56AM / By ARM Research

 

Summary 

Global Economy

In the United Kingdom, the Bank of England (BoE) raised its benchmark rate by +25bps to 0.75% with the committee unanimously voting for a hike. For context, despite the weather-induced frail economic growth in Q1 18, the committee slowly continued its rate normalization as stronger labour market and sturdy wage growth continued to put upward pressure on consumer prices. The committee guided to two rate hikes in 2019 & 2020 respectively with the downside risk being failure of U.K to secure Brexit deal at the target date of March 2019. In the United States, the labour market posted another impressive number in July as 157,000 new jobs were added in the period. Meanwhile, unemployment rate fell to nearly two decades low of 3.9% (June: 4.0%). 

Domestic Economy

Latest PMI reading by the Central Bank of Nigeria (CBN) showed that economic impetus in Nigeria increased pace in the month of July with both the manufacturing (56.8 points) and non-manufacturing (57.7 points) PMI recording an expansion. However, the Manufacturing PMI grew at a slower rate of 56.8 index points compared to an expansion of 57.0 in June. Of all 14 subsectors, all reported growth save the Plastics & Rubber products subsector. On the other hand, Non-Manufacturing PMI printed at 57.7 points higher than an expansion of 57.5 points in June. 

Equities

The Nigerian equity market closed on a bearish note this week with the index shedding 0.37% WoW to close the week at 36,499.67pts. The negative performance was driven by sell pressures in Dangote Sugar (-3.03%), Dangote Cement (-2.14%), Nigerian Breweries (-0.96%) and Access Bank (-0.50%) which masked gains in Seplat (+13.6%), Guaranty Bank (+1.14%) and Zenith bank (+0.63%). Parsing through the reading on a sectorial basis, the sectors closed mixed with the Banking, Food, Oil & Gas and Real Estate closing in the green while Brewers, Personal Care, Cement, and Insurance sectors closed in the red. Additionally,  Notore Chemical Industries (Notore) undertook a listing by introduction of its entire  ordinary shares – 1.61 billion at a per share price of N62.50. 

Fixed Income

Yields in the fixed income market dipped 11bps WoW to 13.07%. This was largely driven by bullish trend at both ends of the curve. Specifically, following pent up liquidity in the system prior to the OMO auction on Thursday—when CBN mopped up N393 billion—yields fell 35bps to 12.83% on Wednesday but crept back up to end today’s close at 13.07%. Consequently, average yields dipped 18bps and 4bps to 12.31% and 12.84% at the short and long end respectively. 

 

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The Week In Review 

Global

In the United Kingdom, the Bank of England (BoE) raised its benchmark rate by +25bps to 0.75% with the committee unanimously voting for a hike. For context, despite the weather-induced frail economic growth in Q1 18, the committee slowly continued its rate normalization as stronger labour market and sturdy wage growth continued to put upward pressure on consumer prices. 

The committee guided to two rate hikes in 2019 & 2020 respectively with the downside risk being failure of U.K to secure Brexit deal at the target date of March 2019. In the U.S, the labour market posted another impressive number in July as 157,000 new jobs were added in the period. Meanwhile, unemployment rate fell to nearly two-decades low of 3.9% (June: 4.0%).
 

Domestic

Latest PMI reading by the Central Bank of Nigeria (CBN) showed that economic impetus in Nigeria increased pace in the month of July with both the manufacturing (56.8 points) and non-manufacturing (57.7 points) PMI recording an expansion. However, the Manufacturing PMI grew at a slower rate of 56.8 index points compared to an expansion of 57.0 in June. 

Of all 14 subsectors, all reported growth save the Plastics & Rubber products subsector. On the other hand, Non-Manufacturing PMI printed at 57.7 points higher than an expansion of 57.5 points in June.
 

Nigeria Equities

The Nigerian equity market closed on a bearish note this week with the index shedding 0.37% WoW to close the week at 36,499.67pts. The negative performance was driven by sell pressures in Dangote Sugar (-3.03%), Dangote Cement (-2.14%), Nigerian Breweries (-0.96%) and Access Bank (-0.50%) which masked gains in Seplat (+13.6%), Guaranty Bank (+1.14%) and Zenith bank (+0.63%). 

Parsing through the reading on a sectorial basis, the sectors closed mixed with the Banking, Food, Oil & Gas and Real Estate closing in the green while Brewers, Cement, Personal Care, Cement, and Insurance sectors closed in the red.
 

Nigeria Fixed Income

Yields in the fixed income market dipped 11bps WoW to 13.07%. This was largely driven by bullish trend at both ends of the curve. Specifically, following pent up liquidity in the system prior to the OMO auction on Thursday—when CBN mopped up N393 billion—yields fell 35bps to 12.83% on Wednesday but crept back up to end today’s close at 13.07%. 

Consequently, average yields dipped 18bps and 4bps to 12.31% and 12.84% at the short and long end respectively.

  
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Footnotes

1.          Weekly Economic and Financial Commentary – WE 13th July 2018

2.         Weekly Economic and Financial Commentary – WE 14th June 2018

3.         Weekly Economic and Financial Commentary – WE 20th July, 2018

 

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