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

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Saturday, July 21, 2018      01.09PM   / ARM Research

Summary

Global

U.S. retail sales grew by 0.5% MoM in June, rising for the fifth consecutive month (vs. 1.3% MoM in May). The growth in retail sales was boosted by higher motor vehicle sales dur-ing the period. Also, the reported number solidifies the view of improved consumer spending and guides towards robust economic growth over Q2 2018. Over in Asia, China reported an economic growth of 6.7% YoY for Q2 18, slightly lower than the prior quarter of 6.8%. Elsewhere, U.K inflation figures for the month of June came in below expectations, print-ing at 2.4% YoY and unchanged from prior month. Further in the region, retail sales dropped 0.5% over the month of June while core retail sales (which excludes auto motor fuel sales) dropped 0.6% MoM.

 

Domestic Economy

According to media sources, the CBN commenced auction of the Chinese Yuan, recording its first sale today. This is coming following the agreement signed with China on a naira-yuan currency swap worth $2.4 billion earlier in May. The facility which is valid for three years is aimed at facilitating trade and direct investment between China and Nigeria as well as minimizing exchange risk in both countries. While the result of the auction has not been communicated, we reiterate that the size of the deal – valid for three years – relative to Ni-geria imports from China of $6.1 billion in FY 17 (FY 16: $6.9 billion) is a drop in the ocean and thus, do not see any significant relief on dollar demand for China imports.

 

Equities

The Nigerian equity market traded bearish this week, posting losses for 4 out of the 5 trading days. The market ended the week 2.11% lower WoW, making it the third consecutive week of decline. The decline was largely due to negative performances in First Bank (-12.98%), Guaranty Bank (-4.88%), Zenith Bank (-4.17%), Lafarge (-13.33%), Nestle (-6.35%), PZ (-11.58%) and Okomu Oil (-9.78%). Dissecting the performance on a sectorial basis, all sectors closed in the red save the Cement sector with Construction (-6.19%), Banking (- 4.73%) and Food (-4.44%) sectors leading the decliners.

 

Fixed Income

Yields in the Nigerian fixed income market dipped 17bps WoW to 13.05% following buy sentiment at the short end of the curve. To buttress, despite OMO sales of N496.25 billion, massive market liquidity stemming from several coupon payments on FGN bonds in the week, and absence of OMO sales for most part of the week spurred buying sentiment at the short end of the curve. Consequently, treasury bill yields plunged 38bps WoW to 12.21%. At the long end of the curve, the release of the Q3 bond calendar (N270 billion), which points to higher FG borrowings, stocked sell pressures at the bond market and pushed average bond yields slightly higher by 5bps WoW 13.9%.

 

 

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The Week In Review

Global 

U.S. retail sales grew by 0.5% MoM in June, rising for the fifth consecutive month (vs. 1.3% MoM in May). The growth in retail sales was boosted by higher motor vehicle sales during the period. Also, the reported number solidifies the view of improved consumer spending and guides towards robust economic growth over Q2 2018. Over in Asia, China reported an eco-nomic growth of 6.7% YoY for Q2 18, slightly lower than the prior quarter of 6.8%.

 

Elsewhere, U.K inflation figures for the month of June came in below expecta-tions, printing at 2.4% YoY and unchanged from prior month. Further in the region, retail sales dropped 0.5% over the month of June while core retail sales (which excludes auto motor fuel sales) dropped 0.6% MoM.

 

Domestic

According to media sources, the CBN commenced auction of the Chinese Yuan, recording its first sale today. This is coming following the agreement signed with China on a naira-yuan currency swap worth $2.4 billion earlier in May. The facility which is valid for three years is aimed at facilitating trade and direct investment between China and Nigeria as well as minimizing exchange risk in both countries.

 

While the result of the auction has not been communicated, we reiterate that the size of the deal – valid for three years – relative to Nigeria imports from China of $6.1 billion in FY 17 (FY 16: $6.9 billion) is a drop in the ocean and thus, do not see any significant relief on dollar demand for China imports.

 

Equities

The Nigerian equity market traded bearish this week, posting losses for 4 out of the 5 trading days. The market ended the week 2.11% lower WoW, making it the third con-secutive week of decline. The decline was largely due to negative performances in First Bank (-12.98%), Guaranty Bank (-4.88%), Zenith Bank (-4.17%), Lafarge (-13.33%), Nestle (-6.35%), PZ (-11.58%) and Okomu Oil (-9.78%).

 

Dissecting the performance on a sectorial basis, all sectors closed in the red save the Cement sector with Construction (-6.19%), Banking (-4.73%) and Food (-4.44%) sec-tors leading the decliners.

 

Fixed Income

Yields in the Nigerian fixed income market dipped 17bps WoW to 13.05% following buy sentiment at the short end of the curve. To buttress, despite OMO sales of N496.25, mas-sive market liquidity stemming from several coupon payments on FGN bonds in the week as well as absence of OMO sales for most part of the week spurred buying sentiments at the short end of the curve.

 

Consequently, treasury bill yields plunged 38bps WoW to 12.21%. At the long end of the curve, the release of the Q3 bond calendar (N270 billion), which points to higher FG borrowings, stocked sell pressures at the bond market and pushed average bond yields slightly higher by 5bps WoW 13.9%.

 

 

Chart Of The Week

Proshare Nigeria Pvt. Ltd.

 

·         The Debt management office (DMO) released its Q3 2018 bond calendar which showed a marked shift from the previous quarter.

·         The total planned issuance of N270 billion in Q3 2018 which is split between the 5-year (N75 billion), 7-year (N75 billion) and 10-year (N120 billion) is 23% higher than planned issuance in Q2 2018 and a long stretch from FG’s N135 billion net repayment over the same period.

·         For us, this reflects FG’s drive to kick start implementa-tion of the 2018 fiscal outlay following its late passage in June 2018.

 

 

Proshare Nigeria Pvt. Ltd.

 

 

Footnotes

·         Weekly Economic and Financial Commentary – WE 13th July 2018

·         Weekly Economic and Financial Commentary – WE 14th June 2018

 


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