Weekly Economic and Financial Commentary – WE 02 August 2019


Saturday, August 03, 2019  / 10:00AM / By ARM Research 


Global Economy

The Federal Open Market Committee voted to cut the Fed fund rate by 25bps to 2.0-2.25%, in line with analysts’ expectation. It also voted to end unwinding of the balance sheet two months earlier than planned (previously September). The cut was framed as a midcycle adjustment to shield the US economy from impact of global economy slowdown amidst heightening trade protectionism. Although the Fed hinted at been open to further monetary easing if deemed necessary, Jerome Powell was keen to stress that this was not the beginning of a long series of rate cuts. Still with the US, President Trump, in a surprise move, announced a 10% tariff on an additional $300bn worth of Chinese imports -- taking effect on September 1. Furthermore, Trump added that this rate could be raised to 25% if trade talks continue to falter – increasing uncertainty around increase in global economic growth.


Domestic Economy 

According to CBN’s PMI reading for the month of July, Nigeria’s economic activities continue to show signs of growth. Specifically,  PMI ticked higher by 1pts to 58.7 index points, relative to the prior month. This is on the back of an expansion in manufacturing and non-manufacturing PMI. For context, manufacturing PMI printed at 57.6 index points (June: 57.4 index points) hinged on growth in new orders and raw materials inventory, while non-manufacturing PMI rose slightly to 58.7 index ppts (prior month: 58.6 index ppts) following slight expansion in new orders and inventory level during the month. Relatedly, business expectation survey conducted by the CBN revealed that respondent were quite confident on Nigeria’s economic outlook, as overall confidence index for the month of August printed at 64.1 index point (relative to July: 63.2 index point), with the greatest optimism observed in the services sector.



The Nigerian bourse continued its bearish run, with the NSE ASI shedding 1.03% WoW to close at 27,630.46 pts while market capitalization lost N141.3 billion during the week. A delve into the sectoral performance revealed that the Brewery sector spearheaded the lackluster performance, shedding 13.42% WoW, while Oil & Gas (-2.47%), Banking (-1.08%) and Food (1.81%) sectors towed same path. A further probe into the sector revealed selloff across major stocks including NB: -16.67%, INTBREW: -4.00%, ACCESS: -5.34%, GUARANTY: 1.58%, DANGSUGA: -5.66%, ETERNA: -19.40% and CONOIL: -8.15%.


Fixed Income

At this week’s NTB auction, N223 billion (same as offer amount) was sold, despite a 1.7x oversubscription. This was 2x the amount of bills sold at the last auction, however average stop rate was 3 bps lower at 10.51% than the last auction. In the secondary market, average yields dipped 16bps to 12.28% with the shorter end of the curve driving decline. For context, average NTB yields closed the week 33bps lower to 11.13%, following interests in the 91-day (-57 bps) and 364-day (-41 bps) bills. Contrarily, average yield at the longer end of the curve inched up slightly (+1bp) to close the week at 13.43%, largely due to a 92bps rise in the yield of the March-2024 to 13.61%. 


Take-Away For The Week

NSE ASI YTD performance and PE comparable

This week, we feature trend in Nigeria’s equity market performance over 2019. While the market appears to be on a bearish run (-12.09% YTD), we see upside opportunity for investors as Nigeria's equity market is very cheap (7.1x) relative to most Emerging market peers. This chart below provides better clarity. 

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


Nigeria: Economic Dashboard @ 020819 

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