Weekly Economic and Financial Commentary – WE 26th Oct, 2018

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Sunday, October 28, 2018   03.54PM  / By ARM Research


Global Economy

Preliminary estimate of the U.S Q3 18 GDP printed at 3.5% (Q3 17: 2.8%), higher than the Bloomberg estimate of 3.0% - albeit lower than the 4.2% growth rate reported in Q2 18.

Consumer spending – which is the largest component of GDP – grew 4% YoY to reach the highest level last seen in Q4 14, offsetting the 7.9% decline in business spending. 

Elsewhere, the central bank of Canada raised its benchmark interest rate this week by 25bps to 1.75%, in a move aimed at slowing the rate of growth in inflation to its long-term target of 2% from September 2018 level of 2.2%. 

 

Domestic Economy

The Federal Executive Council (FEC) on Wednesday approved the 2019-2021 Medium-Term Expenditure Framework and Fiscal Strategy Paper which outlined FG’s fiscal strategies and macroeconomic projections for 2019-20121 as well as framework for the annual budget over the same period. Importantly, the FG expects GDP growth and inflation of 3.0% and 9.98% in 2019 respectively compared to ERGP expectation of 4.5% and 13.39% respectively.

 

The council also approved the government’s proposed N8.73 trillion expenditure for 2019 which is N400 billion lower than 2018 budget. The budget was premised on assumptions of $60/bbl oil price, exchange rate of N305/$ and crude oil production of 2.3 mbpd.

  

Equities

The Nigeria equity market closed positive for the second consecutive week with the NSE ASI increasing by 0.20% WoW. Most of the gains was seen in the last trading day as the market gained 1.1% on Friday alone. Pertinently, the bullish performance reflected gains in DANGCEM (+0.48%), SEPLAT (+4.86%), TOTAL (+8.2%), STANBIC (+2.2%) and ZENITHBANK (+4.8%). DIAMOND (+20%), FIDELITY (+10.58%) and ROYALEX (+10.0%) were the highest gainers of the week.

 

On a sectoral basis, the Banking (+1.07%), Construction (+5.63%), Insurance (+1.34%), Oil & Gas (+3.19%), Real Estate (+0.37%) and Construction (+0.02%) sectors closed positive while the Brewers (-1.17%), Personal Care (-3.23%) and Food (-0.04%) sectors closed negative.

 

Fixed Income

Average yields in the fixed income market rose to a four-week high of 14.67% (+13bps WoW) on the back of elevation at both ends of the curve. For context, in a bid to mop up

N284.1 billion worth of OMO bills maturity which hit the system on Thursday, CBN initiated an OMO sale same day, which saw 1-year OMO bill close +50bps higher to 14.5%.

 

This stoke upward pressure in the secondary market, with NTB yields expanding +18bps WoW to 14.26%, as investors reprised in tandem with higher OMO rates. Furthermore,

following higher stop rates at this week’s Bond auction, secondary market bond yields edged up 7bps WoW to 15.07%.

  

Economic  & Financial Commentary 

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The budget office published the Medium-Term Expenditure Framework for 2019 to

2021 which revealed a lower expenditure plan for 2019, bucking the trend in prior years

where proposed budget is higher year over year.

 

  1. Precisely, the government plans a total expenditure of N8.7 trillion, representing a 4.6% decline from N9.12 trillion for 2018. According to provided breakdown, the decline stemmed from capital expenditure which is planned at N2.5 trillion, N331 billion lower than N2.9 trillion for 2018. On the flip side, total recurrent expenditure (debt and non-debt) for 2019 is planned at N6.2 trillion, N636 billion higher than 2018 budget.
  2. In our view, the weaker capital expenditure plan reflects weak FG receipts which is insufficient to fully meet recurrent expenditure – takes priority over CAPEX - resulting in higher borrowings for recurrent with little room for capex spend. For context, FG’s total receipts in 2017 totaled N2.6 trillion while actual recurrent expenditure amounted to N4.6 trillion.
  3. Consequently, the deficit between revenue and recurrent had to be borrowed leaving less room for capital expenditure. In fact, actual CAPEX amounted to N1.4 trillion, lower than N2.24 trillion budgeted. 

 

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

  

Footnotes                                                                                      

1.       Weekly Economic and Financial Commentary – WE 05th Oct, 2018

2.      Weekly Economic and Financial Commentary – WE 21st Sept, 2018

3.      Weekly Economic and Financial Commentary – WE 07th Sept, 2018 

4.      Weekly Economic and Financial Commentary – WE 31st August, 2018

5.      Weekly Economic and Financial Commentary – WE 24th August, 2018

6.      Weekly Economic and Financial Commentary – WE 17th August, 2018

7.      Weekly Economic and Financial Commentary – WE 10th August, 2018

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

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

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

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

 

 

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